The South African government concluded its second round of bidding to develop renewable energy projects the first week of March. While final results have yet to be disclosed, Standard Bank Group (SBK), the largest lender on the African continent, agreed to provide financing for 31 renewable energy projects worth as much as 19 billion South African rand (SAR) (~$2.5 billion). This adds to the SAR8.2 billion ($1.08 billion) it agreed to finance in a first round of bidding, which took place last November, according to a Bloomberg News report.
A total of 79 bids were received in the second round of renewable energy project bidding. The Dept. of Energy expects to finish evaluating them on May 11. Standard Bank South Africa agreed to provide senior debt underwriting wind and solar photovoltaic (PV) projects with a total generating capacity of 1,454 MW, SBK’s head of power finance Alastair Campbell told Bloomberg News. The second round was more competitive than the first, squeezing everyone’s margins, which bodes well for electricity consumers in South Africa, he added.
“The second bidding window has resulted in a lot of bidders being aggressive in the pricing of their bids. We expect to see those bidders that secure preferred bidder status, coming in materially below the tariff caps that were set,” Campbell was quoted as saying in BusinessDay South Africa.
South Africa’s Drive for Independent Renewable Power Drive
The South African government’s Independent Power Producers (IPP) Procurement Program is the centerpiece of its drive to stimulate renewable energy and environmentally sustainable economic development and jobs growth in South Africa as per its national Integrated Resource Plan, which was enacted by the South African Parliament this past summer.
The 20-year Integrated Resource Plan calls for 42% (~17,800 MW) of South Africa’s electricity supply to come from renewable sources by 2030 and be developed in a way that contributes constructively towards socio-economic and environmentally sustainable growth. In submitting proposals during a planned five rounds of IPP project bidding, developers are “required to bid on tariff and identified socio-economic development objectives” of the South African Dept. of Energy.
The SA Dept. of Energy received more than 270 renewable energy project development bids in the IPP program’s first round, under which the government expects the first 3,725 MW of renewable energy capacity to be built by 2016. Between $10 billion-$12 billion is expected to be invested in the first round projects.
Contracts for an initial 28 renewable energy projects with a capacity of 1,416 MW were awarded in the first round of IPP bidding, the results of which were announced at the UN International Panel on Climate Change (IPCC) conference in Durban last December. Accepted were bids to develop onshore wind (1,850 MW), solar photovoltaic (PV) (1,450 MW), concentrating solar power (CSP) (200 MW), biomass (12.5 MW), biogas (12.5 MW), landfill gas (25 MW), small hydro (75 MW) and other small projects of less than 5 MW (100 MW), according to a report from Creamer Media’s Engineering News. The projects are required to close financing by June.
Job Creation and Diversifying South Africa’s Energy Sector
Looking to liberalize and diversify its power industry, state-owned utility Eskom, which supplies some 95% of the nation’s electricity, has been limited to participating in the IPP program as a buyer and to making grid interconnections. Preferred bidders selected by the SA Dept. of Energy in November need to conclude a power purchase agreement with Eskom, as well as a grid interconnection agreement with them or a municipality, as well as sign an implementation agreement with the department.
South African electricity prices have trebled in the last four years as Eskom, which generates more than 90% of its electricity from thermal coal plants, has raised prices and has been forced to shut down and ration electricity supply persistently in recent years.
The South African government is looking to the IRP and IPP program to address another chronic domestic issue besides the high and rising cost of fossil fuel energy: job creation. The SA government increased the percentage of local content required to develop renewable energy projects following the second round of IPP program bidding.
The amount of local content “was a major factor in the evaluation of the [second round] bids,” SBK’s head of power and infrastructure advisory Ntlai Mosiah, told BusinessDay. “The challenge that most of our developers have is that when they become operational … they are creating social upliftment and jobs in the area,” he said.
Spain’s Abengoa won contracts to develop two CSP projects in South Africa’s Northern Cape province. Abengoa will employ solar tower technology at the 50-MW Khi Solar One plant and solar parabolic trough technology at the 100 MW KaXu Solar plant. Abengoa projects that some 1,400 construction jobs and around 70 permanent, full-time, local jobs will be created as a result.