Renewable energy developers are cautiously optimistic about the announcements made by the South African government that Bid Window 5 (BW 5) of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is going ahead, but the documents specifying requirements are still not available, says energy, mining, public and private consultancy Economic Development Solutions (EDS) MD Janine Espin.
The Department of Mineral Resources and Energy last week said it would hold a virtual bidders conference in April to share the relevant information and qualifying criteria with those interested in participating in BW 5.
The announcements and alignment of renewable energy project regulations with the procurement regulations of the Department of Trade, Industry and Competition and broad-based black economic empowerment rules are positive and indicate that there is greater alignment among departments and more clarity on rules, she points out.
However, a stable, transparent, and consistent policy is fundamental to attracting investment in renewable energy projects and developing the industry. This is especially important given the destruction of built-up renewable energy industrial capacity during the two-year hiatus on renewable energy procurement, which has made it more difficult for local and international bidders to achieve the required local content, preferential procurement and local participation, and cooled investment sentiment, she adds.
Companies that are interested in participating in the REIPPPP are using the Risk Mitigation Independent Power Producers Procurement Programme (RMIPPPP) regulations as guidelines until the bidding documents for the REIPPPP are released, Espin states.
The RMIPPPP regulations change the emphasis on various compliance aspects for the better, with supplier development becoming a part of broader enterprise development requirements.
There is also a greater focus on skills development and skills transfer, as well as a reduction in the community equity ownership requirement, which had proved problematic. However, the community socioeconomic development requirements have been retained.
“These changes are positive and we are moving in the right direction by ensuring that the renewable energy sector is not isolated, but aligned with existing and well-understood localisation and empowerment requirements, which indicates that national departments are cooperating and aligning policy,” says Espin.
Localisation and local development are requirements for projects in most developing countries and are known factors in companies’ investment decisions. It is important for South Africa, and all developing economies, to develop internal skills and suppliers.
Additionally, EDS’s interactions with local and international renewable project developers show that the developers are willing to fulfil local development and socioeconomic development requirements and meet regulatory requirements.
“Referring to our experience of the RMIPPPP, we found that bidders are trying their utmost to meet compliance requirements, even changing technology types and components to try to meet local content requirements.
“We have also seen a greater understanding of renewable energy projects and more companies are actively participating in providing equity. They are not silent partners and actively participate in project structures. We view these developments as positive.”
However, there are still large areas that can be improved upon, including that local content requirements have not taken stock of the lack of local capacity after the closure of component manufacturing companies as a result of the lengthy hiatus on procurement as well as the closures which are a result of the impact of the Covid-19 pandemic, she highlights.
Further, the RMIPPPP did not allow for existing projects with surplus capacity to bid to provide power, despite most renewable energy projects having excess capacity outside of their existing 20-year power purchase agreements (PPAs), and these projects already have infrastructure in place to dispatch electricity.
“This is a gap, as existing projects may be able to dispatch excess power at a new tariff level negotiated outside their PPAs, and may be able to more readily expand their footprint to produce and dispatch more power more quickly than new projects without needing to be connected anew to the grid.
“We are on the right track, but we need to manage expectations. For example, it is not possible for a local community startup to become a lead engineering, procurement and construction contractor on a large project without first growing and developing its capacity and experience.
“This is similar for community participation in skilled roles, as a welder must be suitably qualified to enable the projects to retain manufacturers’ warranties and meet quality parameters,” says Espin.
Meanwhile, renewable energy projects, especially in remote areas, are providing direct benefits to host communities, and developers should conduct assessments to understand local communities’ needs and, thereby, effectively implement socioeconomic and community development programmes in these local communities.
Developers should also collaborate with other stakeholders and developers to ensure the projects are sustainable and meet regulatory requirements.
Further, these community development projects are implemented without any financial input from government and positively impact on communities that need socioeconomic development.
“There is a willingness to invest and government is making the right announcements, but people are still cautious. However, the midnight announcement of Bid Window 5 more than a week ago without any bidding documents means that bidders that are relying on RMIPPPP requirements do not know whether these are right or wrong for the REIPPPP from a compliance perspective.”
“Bidders can wait for the request for proposal (RFP) documents to be issued to be clear on the compliance, but, if they want to start planning and have a head start with the compliance requirements, then they are referring to the RMIPPPP as a guideline until the RFP is issued.”
South Africa needs a stable electricity supply to support its existing economy, and more and potentially cheaper power can open opportunities for job creation and growth. To support economic recovery, growth, and job creation, South Africa needs to seize every opportunity available. Project developers are trying to achieve compliance and departments must become more concise and decisive in implementing regulations, concludes Espin.