The government-run programme for the procurement of power from independent producers needs an overhaul, including expansion to also focus on attracting private investment in grid infrastructure, a new report says.
Also, industry leaders believe the high costs developers have to incur even before they can submit bids and the many rules they need to comply with have created an uneven playing field for those who want to participate in public procurement processes compared with private embedded generation projects.
Without reform, the independent power producer (IPP) programme runs the risk of becoming obsolete, according to the report by Economist Impact, the research arm of the Economist Group, on the policy shifts that are needed to enable SA’s energy transition.
Urgent changes
The report calls for urgent changes to the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which was designed to attract private sector investment in and expertise to grid-connected renewables.
It suggests that the programme’s upfront administrative requirements and bid costs, which drive up the expenses for participating companies, are particularly prohibitive for small and medium enterprises.
In addition, the report says, revising the programme to focus on transmission instead of generation could add greater value to the grid.
Rethabile Melamu, CEO of the SA Photovoltaic Industry Association (Sapvia), said she agrees that the REIPPPP model could be replicated to launch a programme that would facilitate much-needed private investment in the transmission grid. But, she said, despite its shortcomings, the renewable energy procurement programme still plays an important role in supporting the development of a private generation sector in SA.
“The REIPPPP programme is not perfect, but we do think it has been largely successful. Globally it is one of the key examples of public procurement of renewable energy. I don’t see this as an either/or conversation. The IPP office can proceed with the procurement of generation projects while developing a similar procurement model for grid infrastructure,” Melamu said.
One of the biggest shortcomings has been the lack of co-ordination between Eskom’s grid access unit and the IPP office, she said.
A further problem, Melamu said, is that the IPP office is not adequately capacitated. “Serious capacity is needed — there are not enough hands in that organisation for the role it plays in the economy.”
In bid window 6 the department of mineral resources & energy, under whose authority the IPP office falls, issued a call for proposals for 5,200MW of renewable energy generation capacity but ended up procuring only 860MW of solar power capacity and no wind power.
“This happened because there was not enough co-ordination between the IPP office and Eskom in the planning phase. Had the IPP office known there would be no capacity for new projects in the Western Cape and Northern Cape, developers would not have invested millions of rand in the development and submission of their bids,” Melamu said.
To resolve this issue Sapvia and the SA Wind Energy Association (Sawea) have called on Eskom to finalise grid allocation rules that will provide clarity to the market and ensure further delays in allocating grid capacity to renewable energy projects are reduced.
New generation
A recent grid connection capacity assessment by Eskom showed that up to 2024 there was capacity to connect about 32,000MW of new generation to the grid, but only about 5,000MW in those provinces that have so far been viewed as having the best wind and solar resources. The assessment indicated there was no available grid access in the Northern Cape.
Melamu said Sapvia expects interim grid connection rules to be tabled later this year while Eskom works on a longer-term intervention. “We expect to have a session with Eskom in the next month or two on how it plans to implement grid allocation rules in the short term.”
Niveshen Govender, CEO of Sawea, agreed with Melamy, saying the REIPPPP has been instrumental in attracting private investment to the renewable energy sector and stimulating the growth of the wind energy market in SA.
“Through multiple bidding rounds, it has facilitated the development of 3,400MW of wind energy capacity, encouraging competition among developers, resulting in cost reductions and improved efficiency in wind energy projects,” he said.
The public procurement programme has also had positive economic effects by creating job opportunities, promoting local content and skills development, and communities hosting wind farms have benefited from socioeconomic development initiatives funded by project developers.
“While there may be room for improvement, if the programme were to fall away or shift its focus primarily to transmission instead of generation, it could undermine investor confidence, reduce competitiveness, limit market growth, and diminish the economic benefits associated with wind energy projects,” Govender said.
However, among the shortcomings in how the REIPPPP is being run are the lack of consultation with the industry and the inconsistency in procurement rounds, he said.
“Procurement rounds are often released without the input from industry on what aspects can be improved on [in the] process or bid requirements from the previous round. Requirements stipulated in the REIPPPP may often not be realistic or achievable, which therefore causes delays in projects reaching financial close as can be seen with the delays experienced by several preferred bidders involved in bid window 5 not reaching financial close as of May 2023,” he said.
Experts interviewed for the Economist Impact report said that the government is slow to understand shifts in energy economics, making REIPPPP processes an inefficient way to expand generation capacity.
‘Accelerated process’
The report quotes Crispian Olver, executive director of the presidential climate commission, as saying: “There’s a huge, accelerated process going on, led by the private sector, of investing in renewable and battery technologies, which is now far outstripping what was being procured through the REIPPPP.”
Speaking to Business Day, Olver said despite the problems with the REIPPPP and the long delays in bid windows 4 and 5, the programme has played in instrumental role in ensuring a steady stream of renewable energy projects in SA.
But, he said, there are issues with the REIPPPP which, for example, has strict community development and empowerment criteria whereas embedded generation does not — which creates an uneven playing field for new projects.
“We will need to close that gap by implementing some minimum requirement around social development for embedded generation projects,” he said
“Over the long term SA is headed towards a competitive, open, day-ahead energy market in which large-scale centrally procured projects such as those developed under the REIPPPP will no longer be needed. But before that can happen Eskom would first have to set up a stand-alone transmission company, and the transmission grid needs to be strengthened, modernised and expanded.
“This will take several years. In the meantime, the REIPPPP still has an important role to play in procuring new generation capacity to fill the huge gap in energy supply that SA currently faces,” said Olver.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.