RECAI: Country focus

South Africa

  • Share


REIPPP does it again. After a series of delays, November finally saw South Africa’s Department of Energy award preferred bidder status to 17 projects under Round 3 of its Renewable Energy Independent Power Procurement Programme (REIPPP). The auction saw high levels of competition — generating the lowest bid prices to date — and received significant interest from international developers, who made over 75% of the bids for wind and solar according to BNEF.

Worth the wait. The Round 3 delays — mainly to allow lenders to reach financial close on Round 2 projects before processing new applications — clearly did not dampen enthusiasm. The South African market’s growing maturity and the success of the first two REIPPP rounds resulted in significant over-subscription; for the 1.5GW on offer, the Government received 93 bids totaling over 6GW of capacity.

Mixing it up. The successful projects, totaling 1,456MW, comprised seven wind projects (787MW); six solar PV projects (450MW); two solar thermal (200MW); and for the first time, one landfill gas and one biomass project (18MW and 16.5MW respectively). The successful projects will enter into PPAs with state-owned utility Eskom and receive guaranteed payments for 20 years.

More please. The large number of competitive bids has prompted the Government to consider awarding additional capacity, although no further details have yet been announced. Meanwhile, the disclosure of successful projects for awarded capacity was quickly followed by a raft of announcements by the associated developers, highlighting the significant level of participation by foreign companies.

Bidding low. Round 3 was certainly competitive. The average price for solar bids was ZAR993/MWh (US$97), while wind projects averaged just ZAR736/MWh (US$72). These prices represent a 46% and 27% fall on Round 2 solar and wind prices respectively, and are significantly lower than many other markets. BNEF estimates the global average levelized cost of electricity at US$128/MWh and US$83/MWh for solar and wind respectively. While the robust evaluation process should ensure these projects remain bankable, very low bidding prices — as seen in Brazil — can cause concern over how deliverable projects are further down the line.

The first but not the last. The connection of Scatec Solar’s 75MW solar PV plant in September may help allay these fears. Three months ahead of schedule, it became the first renewable energy project awarded under the REIPPP to become operational.

Finance flowing. Funding appetite for these projects also seems to have remained high. Barclays Africa Group Limited, for example, is to fund almost a third of the US$3.3b of projects awarded under Round 3, while Rand Merchant Bank has signed up to underwrite senior and mezzanine finance for 17 bids participating in the latest auction. In October, the Development Bank of South Africa said it would offer as much as ZAR4b (US$401m) in additional funding for the REIPPP.

Also in this article:

  • In the open
  • International success
  • Center stage
  • A fighting chance
  • Broader benefits
  • More to do
  • On fire

Read full article (pdf, 1.9MB)

Local office contacts:

   Norman Ndaba

   Brunhile Barnard