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South Africa launches long-awaited renewable procurement programme

1 Aug 2011

South Africa has launched its much-anticipated renewable energy procurement plan, setting in motion the country’s plan to derive 42 per cent of new generation from renewable energy sources.

The 20-year plan has sparked strong investor interest but how to go about meeting this fierce target is the subject of much debate.

On 31 July, South Africa’s Department of Energy (DOE) formally launched an invitation for proposals that flesh out earlier policy announcements such as 2009’s renewable energy feed-in tariff (REFIT) programme.

The energy regulator, NERSA, earlier this year announced the 20-year scheme – known as IRP 2010 – but investor concerns were soon raised when it said it was to reduce its REFIT tariffs by about 40 per cent.

Following then, according to Scott Brodsky, partner at global law firm Dewey & LeBoeuf, the DOE has said that procurement would involve price competition, indicating the end of plans for a REFIT programme.

With this compounding investor uncertainty, many market commentors are now hopeful of some answers.

Dewey & LeBoeuf today gave their guidance on the main elements of the procurement plan:

• It appears that, as expected, the Request for Qualification (RFQ) and Request for Proposals (RFP) will be issued simultaneously under a so-called ‘two envelope structure’. This will likely involve DOE considering the qualifications submitted by bidders first, and only opening the proposals of those that pass the minimum qualification requirements.

• The technologies included in the procurement process are onshore wind, solar thermal, solar photovoltaic, biomass, biogas, landfill gas and small hydro.

• The initial procurement is expected to be for up to 3,825MW of renewable capacity, for projects that are able to achieve commercial operations by 2016.

• The deadline for proposals has not been announced but the initial bid period is expected to be up to three months, with further bidding windows thereafter.

• Bids will be required to be accompanied by a Bid Guarantee in the form of a bank guarantee in an amount equal to ZAR100,000 ($15,000) per MW of the proposed installed capacity of the relevant facility.

• Bids will be required to remain open and capable of acceptance for 300 days from submission; this will cause issues for bidders, given possible exchange rate movements over such a period and the difficulty of obtaining EPC price bids that are valid for such an extended period.

• The DOE announcement states that successful bidders will enter into an Implementation Agreement with the DOE. The announcement is silent on the identity of the counterparty to the power purchase agreement (PPA), but the initial PPA buyer is expected to be Eskom Holdings (Eskom). It is expected that National Treasury will provide support for Eskom’s obligations; no details have been confirmed but this may not be as strong as a full guarantee.

• It is expected that the bidding rules, when published in the RFP, will involve a two-stage process. The first stage is anticipated to include a number of ‘gatekeepers’, including minimum requirements for localisation and job creation. Other such gatekeepers may include minimum Black Economic Empowerment (BEE) qualifications and requirements relating to the status of a project’s environmental approvals and financing arrangements. Only those projects that pass the minimum criteria will enter the second stage of the process, when price is expected to be a factor. Although the weighting to be given to price compared to other criteria has not yet been confirmed, the original tariffs published by NERSA in 2009 are expected to be a ceiling price for bids.

• The RFP will be available for download from midday on 3 August. In order to download the RFP, prospective bidders will be required to register at www.ipp-renewables.co.za and to pay a non-refundable fee of ZAR15,000 ($2,250).

• The RFP is expected to include the draft PPA and other key documents. It is not yet known whether the PPA and other documents will be issued on a take-it-or-leave-it basis or whether bidders will be able to provide comments and/or mark-ups.

• A mandatory briefing session for bidders will be held on 14 September.

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