Coal Baseload Independent Power Producer Programme – factors contributing to success

The essential requirements of the Coal Baseload Independent Power Producer Procurement Programme (CBIPPPP) were set out in the Department of Energy’s (DoE) Request for Registration (RFR) of 26 June 2014. The RFR also gives a flavour of the key factors the DoE will consider in the evaluation of bid responses submitted, some of which are tariff, water resource certainty and location.

Tariff

Bidders will be required to submit a tariff for the energy generated by the project. The RFR gives no indication of whether there will be a cap on tariffs (in the Renewable Energy Independent Power Producer Procurement Programme, technology-specific caps were imposed). With indications that the cost of generating electricity from the Medupi power station could be as high as 97c/kWh, it will be interesting to see what cap the DoE proposes, if it chooses to propose a cap. Developers may benchmark 97c/kWh as the high water mark for their projects.

Water

Generating energy using coal-fired technology is a water intensive process (except for underground coal gasification technology, which generates its own water during the production of syngas). The DoE is acutely aware that South Africa is a water scarce country, and that the impact of the CBIPPPP on the country’s water resources must be carefully managed. Bidders will be required to provide details of their contractual arrangements with water suppliers, and will be responsible for ensuring that their projects have sufficient water for the duration of the term of the power purchase agreement.

Location

The location of a project will be a key determinant in its success. Location will affect water availability, feedstock availability and access to the grid. Projects located near the Waterberg Area and Lephalale are likely to find securing water resources and access to the grid more difficult, due to the existing pressures placed on these resources by the Kusile and Medupi power stations. Eskom’s plans in relation to connection of its own facilities and upgrading or expanding the grid will also have to be taken into account when deciding on an appropriate location.