The level of interest being shown in South Africa’s highly disrupted renewables roll-out is more than a little noteworthy.
Over 800 delegates logged into a virtual bidders conference last week, held to outline the rules governing South Africa’s much- anticipated fifth bid window of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPPP). Besides attracting over 580 South African participants, the conference was also attended by delegates from Egypt, India, Germany, France, Italy, Korea, Japan, China, Singapore, Russia, Ireland and Norway.
The fact that so many domestic and international independent power producers (IPPs) remain interested in the REIPPPP is remarkable for a few reasons.
Firstly, it indicates that the credibility of the programme remains largely intact, notwithstanding the recent ugly history of uncertainty, created by government and Eskom’s failure to implement the programme.
Why this is the case is not entirely clear. It may well be down to the professional way in which the REIPPPP was managed between 2011 and 2015, when South Africa procured a total of 6 422 MW from 112 IPPs and attracted investments of nearly R210-billion. The subsequent period of disruption has been extremely damaging, especially to the industrial capacity that began emerging around the REIPPPP, with wind tower, solar panel and inverter manufacturing capacity decimated over the period.
Nevertheless, it appears IPPs are willing to give the IPP Office the benefit of the doubt. This is why the concerns being raised around the credibility of the Risk Mitigation Independent Power Producer Procurement Programme are so concerning, as the IPP Office has hitherto not carried the stench of corruption that has afflicted just about every other public entity.
The second reason that the interest is remarkable is that South Africa is far from being the only game in town, with countries around the world ramping up their renewables investments, partly to meet climate commitments, partly to stimulate their Covid-afflicted economies and largely because renewables are now the cheapest sources of new electricity in most jurisdictions. This strong demand, which is going to become even stronger as the decade unfolds, is leading to supply-chain issues, most notably in the supply of components of photovoltaic (PV) panels, which could well translate into higher prices in the near term.
Finally, it is remarkable because the REIPPPP framework seems to have become more challenging to navigate. True, the fifth bid window has been aligned with government’s typical 90/10 price versus broad-based black economic empowerment evaluation standard. However, to reach that point, bidders need to jump through some quite challenging hoops or face immediate disqualification.
The most challenging of these seem to be the local content rules, more specifically the use of the Department of Trade, Industry and Competition’s designations for inputs such as steel, PV panels, frames and inverters.
There is undoubtedly a real opportunity to build a large industrial base around South Africa’s wind and solar roll-out. Moving too big too soon could have damaging consequences. Not moving at all would be equally problematic, however.