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Procurement delays

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Procurement delays

Photo of Terence Creamer

13th May 2022

By: Terence Creamer
Creamer Media Editor

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News that the 25 solar photovoltaic (PV) and wind projects selected late last year as preferred bids would not achieve financial close by the end of April as advertised came as no surprise.

There had been murmurings about difficulties in the run-up to the deadline and a precedent for a delay had already been set by the far more controversial Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), financial close for which having been shifted four times.

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When, in March last year, Mineral Resources and Energy Minister Gwede Mantashe first unveiled the identities of the RMIPPPP preferred bidders, the deadline for financial close was confirmed as the end of July. It was subsequently moved to the end of September (ostensibly to accommodate three additional bids added to the original eight), then to the end of January, then the end of April and now to the end of May.

Those delays have been largely attributed to the legal and environmental challenges faced by the three Karpowership projects, with a fresh legal obstacle now having emerged in the form of a challenge to the regulator’s granting of licences. In addition, Eskom is wary of entering into long-term agreements, given uncertainty about the gas-pricing formula.

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The hybrid renewables/storage projects have also faced serious issues, however. These relate to difficulties in meeting local- content commitments, particularly for solar panels and frames, as well as to changes to the cost and supply of other goods and services in light of supply-chain disruptions and inflation.

The 25 renewables projects selected as part of Bid Window Five (BW5) of the Renewable Energy Independent Power Producer Procurement Programme have faced similar market disruptions. And given that many of the projects were priced relatively aggressively, the room for manoeuvre is extremely limited. The solar PV projects have a weighted average price of 42.9c/kWh, while the wind projects came in at a weighted average price of 49.5c/kWh.

Close observers immediately questioned the feasibility of these prices, given the strong likelihood, even back in November, of renewables component and services inflation; a trend that intensified after Russia’s February invasion of Ukraine and China’s recent Covid lockdowns.

Some also questioned whether bidders had been upfront about their ability to meet the local-content thresholds, given the obvious lack of domestic capacity following what had been a seven-year halt to renewables procurement in South Africa. There was even a suspicion that some bidders might have approached BW5 with a view to seeking exemptions once the allocation had been secured.

Then, there was the fact that Eskom had limited capacity to process the budget quotes for grid connections, given that there had been very few in the period after the utility (admittedly under different management) blocked the signing, from 2014 to 2018, of any new contracts with private generators.

The question now is whether these issues can be resolved by the new dates of the end of July for the first 14 BW5 projects and the end of September for the remaining 11.

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