Tuesday, July 16, 2013

The vision of the DoE was to make adequate and affordable energy available to developing communities by supplementing the current supply of fossil fuel based energy with alternative energy produced at a reasonable cost, thus satisfying the basic needs of the developing sector and at the same time promoting the effective utilisation of South Africa’s vast alternative energy resources. This vision was formalised in the Integrated Resource Plan (IRP) which was initiated by the DoE in 2010, and finally gazetted by the Minister of Energy on 6 May 2011.
In terms of the IRP the Government undertook to increase South Africa’s total installed electricity capacity by 170% to 454TW by 2030, 3725 MegaWatts (MW) of which would come from renewable energy technologies. The IRP set out how the 3725 MW of new generation capacity would be apportioned between each renewable energy technology, and that the new generation capacity should be achieved using, and should be executed in accordance with, the specified apportioned capacities and technologies as listed in the IRP. The process for procuring the new generation capacity as specified in the IRP is known as the Renewable Energy Independent Power Producer Procurement Programme (IPP Programme).
On 3 August 2011 the DoE released the Request for Proposals (RFP) for the IPP Programme which was designed to procure the necessary 3725 MW. The allocation to the various renewable energy technologies was as follows (i) 1 850 MW for onshore wind generated power; (ii) 200 MW for concentrated solar thermal generated power; (iii) 1 450 MW for solar photovoltaic generated power; (iv) 12.5 MW for both biomass and biogas generated power; (v) 25 MW for landfill gas generated power; (vi) 75 MW for small hydroelectric generated power; and (vii) 100 MW for an unspecified number of small-scale IPP projects of less than 5 MW.
Thus far there have been two rounds of responses to the RFP. In November 2011 the DoE received 53 bids and selected 28 preferred bidders, which were announced in December 2011. In March 2012 the DoE received 79 bids and selected 19 preferred bidders, which were announced in May 2012. A third round of submissions was envisaged for early this year, however due to revisions of the RFP, the third bid submission date has been extended to 19 August 2013. It is anticipated that the third round will be the final round of bidding, however the RFP does provide for up to five rounds to allocate all outstanding new generation capacity.
In October 2012 the Energy Minister announced that a further 3200 MW would be allocated to the IPP Programme, with most of the new allocation being assigned to offshore wind and solar power generation (being 1470 MW and 1075 MW respectively). However the Energy Minister has stated that the new allocation will only be assigned once the allocation of the initial 3725 MW has been finalised.
New renewable energy hotspot – Saudi Arabia
The Kingdom of Saudi Arabia (“Saudi Arabia”) has recently announced an ambitious renewable energy program aimed at procuring up to 54,000 MW of renewable energy capacity (more than the current entire installed electricity capacity of South Africa) over the next 20 years.
Less than a year ago, Saudi Arabia had no published target for renewable energy. According to British Petroleum, less than 1% of Saudi energy came from renewable sources in 2011. A widely circulated Citigroup report in September 2012 concluded that Saudi Arabia could cease to be an oil exporter by 2030. This is important when considering that over 80% of Saudi Arabia’s government spending is dependent on oil, a shift in Saudi energy policy was inevitable.

Of particular interest are the similarities being drawn between the renewable energy program currently being undertaken in South Africa and the proposed structure being proposed under the Saudi procurement. Certain similarities include:
Local content requirements;

A twenty (20) year power purchase agreement that is fixed and not subject to negotiation;

Bid bonds required from bidders linked to the amount of MWs per project;

Minimum nameplate capacity of five (5) MWs per project; and

Government guarantee in respect of the buyer’s payment obligations under the power purchase agreement.

Bowman Gilfillan’s recent experience
In addition to advising on both of the largest solar photovoltaic projects to have reached financial close under round one of the IPP Procurement Programme, Bowman Gilfillan advised lenders on the African Wind Deal of the Year (awarded by Euromoney and Project Finance Magazine) and successfully took over 12 projects to financial close under round one of the IPP Procurement Programme. Bowman Gilfillan renewable energy experience covers the full breadth of technologies with current mandates including concentrated solar thermal, photovoltaic and onshore wind power.
Bowman Gilfillan is currently also advising on a number of renewable energy projects in Sub-Saharan Africa, including Nigeria, Zambia, Lesotho, Kenya and Uganda.