“After delays of approximately three months, the Minister of Energy, Dipuo Peters, announced financial closure for the renewable energy projects of the first bid window.  These round one projects have been selected as preferred bidders of the Renewable Energy Independent Power Producer Programme (REIPPP).  Developers are hastening to finalise documents in order to sign final contracts and implementation agreements with the Department of Energy (DoE), and Eskom, on 5 and 6 November 2012.

The delay in the process has put tremendous strain on project developers in terms of extended costs that were initially not planned for, and increased the risk of losing contractors.

Smaller developers experienced difficulty in maintaining liquidity, and a handful of the 28 preferred bidders may not reach financial close and start construction, due to these delays.  Government is not planning for projects that may not take place (within the set timeframe), due to investors or project developers not being able to perform and plans to sign all 28 contracts.  The uncertainty of the delays has created a negative impact on localisation because equipment manufacturers are more reluctant to commit to any kind of local production.  International investor confidence in South Africa is also negatively affected by these recent activities and procedural delays.

In hindsight, to realistically reach financial close six months after the announcement has proven to be a very optimistic timeline.  Government, and the whole REIPPP, has underestimated the amount of work needed in order to ready these projects for financial closure.  However, if the first bid window projects can be developed successfully, it will contribute 1,416MW to the country’s total installed capacity and be a massive step towards establishing the renewable energy market in South Africa.”

Comment provided by: Joanita Roos, Energy & Power Systems Research Analyst at Frost & Sullivan