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Wrong instrument

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Wrong instrument

4th September 2020

By: Terence Creamer
Creamer Media Editor

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The Department of Mineral Resources and Energy (DMRE) has finally initiated the process to procure 2 000 MW of electricity capacity aimed at closing the immediate supply gap identified in the Integrated Resource Plan of 2019 (IRP 2019), published in October last year.

The bid documentation is being made available online to those prospective bidders that complete an electronic registration form and pay a nonrefundable fee of R25 000 for each prospective project.

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A bid submission deadline of November 24 has been set and the DMRE expects to announced preferred bidders on December 15, while financial close for the selected projects is anticipated by April 30, 2021.

Projects selected under the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) are then expected to be operational by no later than the end of June 2022.

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In other words, the capacity arising will do little or nothing to lower the immediate risk of load-shedding, which Eskom CEO Andre de Ruyter has indicated will persist for at least another year while the utility seeks to claw back years of poor maintenance. It is even possible that the projects will begin producing as that risk is hopefully abating.

For this reason, it is fairly safe to say that RMIPPPP is the wrong instrument at the wrong time. Had it been launched in the weeks following the publication of the IRP 2019, the RMIPPPP could have made a real difference, but it is now little more than an expensive, and potentially distracting, exercise.

True, there is great relief in the market that the DMRE has, at last, reinitiated a procurement process. This is indeed significant, given that no new capacity has been procured from independent power producers (IPPs) since 2014, despite an obvious supply shortfall that has led to a rise in load-shedding.

When it became clear that the emergency window had been missed, and particularly after the National Energy Regulator of South Africa indicated that it was going to take months to provide its concurrence to the RMIPPPP Ministerial determination, the DMRE would have been well advised to pivot to other instruments.

For one, it could have directed the IPP Office to rather finalise the bid documentation required for restarting consistent yearly procurement processes for the technologies outlined in the IRP 2019. Consistent procurement would not only lower the medium- term load-shedding risk, but would create the platform for some serious industrialisation and economic transformation.

For another, it could have moved far more decisively to unlock far quicker and cheaper solutions by liberalising the self-generation environment and doing so not only for those mining companies that have the ear of the department, but for all businesses, as well as municipalities and households.

Be that as it may, it is now vital that the IPP Office extracts solutions from the RMIPPPP that do not overly burden the consumer and to do so through a clean and transparent process that lays the basis for corruption-free and consistent IPP procurement in future.

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