After the success of the Renewable Energy Independent Power Producer Procurement Programme (REIPPP Programme) run by the Department of Energy of South Africa (DoE), the release by the DoE of the requests for proposals for gas, coal and hydro under the government’s baseload procurement programme is hotly anticipated. We highlight below some of the differences that we expect to see in the Coal Independent Power Producer Procurement Programme (CIPPP Programme) versus the REIPPP Programme.
Single buyer versus multiple buyers
Under the REIPPP Programme there is a single buyer namely Eskom and the projects are geographically restricted in that they must be built, operated and maintained within South Africa. However, under the Request for Registrations (RFR) issued for the CIPPP Programme, the DoE has indicated that it is willing to consider bids where:
- Eskom is the sole purchaser of the capacity generated by a project (single buyer project);
- Eskom is not the sole purchaser of the capacity generated by the project (multiple buyer project); and
- The project is located outside of South Africa (cross border project).
Feedstock supply agreements
Under the REIPPP Programme there is obviously no requirement for feedstock supply agreements. Under the CIPPP Programme the need for feedstock supply agreements will be a key aspect of a project’s viability. Although it is clear that the supply agreement will be a requirement under the CIPPP Request for Proposal (RFP), what is not clear is whether the RFP will stipulate specific requirements that must be contained in such feedstock supply agreements.
Tariff
Under the CIPPP Programme, bidders will be required to submit a tariff for the energy generated by the project. The RFR gives no indication as to whether there will be a cap on tariffs as this was seen in the REIPPP Programme where technology-specific caps were initially imposed prior to the cap being removed in relation to wind and solar technology in the fourth round of the REIPPP Programme.
Economic Development Obligations
Under the REIPPP Programme bidders are currently required to comply with 7 economic development obligation elements. The RFR for the CIPPP lists 11 economic development obligations that may form part of the qualification and evaluation criteria.
Location: water supply and grid capacity
While location of a project under the REIPPP Programme was flexible and driven predominantly by availability of environmental resources, the location of a project under the CIPPP Programme 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 connecting its own facilities and upgrading or expanding the grid will also have to be taken into account when deciding on an appropriate location.
Conclusion
Although we envisage that there will be numerous differences between the CIPPP and REIPPP Programmes, the DoE, sponsors and lenders will without doubt draw from their experiences to date under the first programme to have been run in South Africa. We envisage as much success in the baseload programmes as has been experienced under the renewable energy programme.