Two so-called draft “S34 determinations” by the National Energy Regulator of South Africa (Nersa) are the first step in the process of procurement of new electricity generation capacity in South Africa totalling some 13,813 MW from independent power producers (IPPs).
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South Africa’s national energy regulator on Friday published two draft determinations by Minerals and Energy Minister Gwede Mantashe in terms of Section 34 (1) of the Electricity Regulation Act.

The first draft S34 determination relates to the procurement of 2,000 MW of new generation capacity between 2019 and 2022, and the second draft S34 determination to the procurement of a further 11,813 MW between 2022 and 2027. 

These draft S34 determinations begin the procurement process after the gazetting of the South African national integrated resource plan for electricity, IRP 2019 on 18 November 2019. The determinations were submitted to Nersa by the minister on 21 February 2020 for “concurrence” by the energy regulator and published on Friday 20 March 2020.

A high court judgment in April 2017 ruled that in terms of the Electricity Regulation Act and the Promotion of Administrative Justice Act (PAJA), Nersa is required to concur with the draft determinations following a public consultation process before they become final and are gazetted. 

The public consultation process began after Nersa published two consultation papers on 18 March 2020. These call for public comment and input on the two draft S34 determinations issued by Minister Mantashe, by 14 April 2020 and 7 May 2020 respectively.

​Despite the current electricity supply emergency, which has resulted in up to Stage 6 (6,000 MW) load shedding in South Africa, Nersa has indicated that now, more than a month since receiving the draft S34 determinations, it will require a further three months to concur with the first S34 determination, and six months for the second.

Nersa does not seem to have got the message from Minister Mantashe when he said recently:

“Officials in the department are used to working according to rules, where it takes three months to do this, or six months to do that. The situation we are in requires a change of approach. That’s why we are engaging with Nersa and everybody to say: Guys, let’s accelerate processes, because if we don’t, we are going to be plunged into darkness.”

The Department of Minerals and Energy and Nersa are coming under increasing pressure and criticism for the snail’s pace of their bureaucratic processes and decisions. The energy regulator refutes this criticism and says that “Nersa is cognisant of the urgency of the request [for concurrence] as evidenced by the proposed fast-tracked concurrence process in the consultation papers”.

The draft S34 determinations indicate that electricity produced from the new generation capacity will be procured from IPPs “through one or more tendering procedures which are fair, transparent, competitive and cost-effective”.

The electricity procured from IPPs by the department in terms of the draft S34 determinations may only be sold to Eskom as the designated buyer of the electricity, in accordance with power purchase agreements (PPAs) concluded in the course of the procurement programmes.

Recent statements by the ministers of public enterprises and minerals and energy have indicated that Eskom should not be excluded from building, owning and operating new renewable energy generation capacity. However, the draft Section 34 determinations indicate that all new generation capacity up to 2027 – wind, solar, energy storage, gas and coal-fired – will come from IPPs. None of the new generation capacity will come from Eskom itself. 

This is a big shift from the current Eskom monopoly, towards a more diversified electricity supply industry. It also represents a significant diversification away from South Africa’s over-dependence on coal as primary energy for power generation, which stands at about 80% of the total electricity generated in South Africa. 

Chris Yelland is MD of EE Business Intelligence.

Energy regulator Nersa took a crucial step toward allowing the government to procure emergency power and to allow the building of more privately owned power plants.

The regulator issued public consultation papers after the energy minister allowed the procurement of 2GW of emergency capacity as soon as possible and the construction of 6.GW of capacity from longer-term renewable power plants. The longer-term plan is in line with a government energy framework that includes additional generation capacity in the form of non-renewable power. South Africa is in urgent need of more electricity to end recurrent outages.

As soon as the process is finished by the regulator, procurement of new capacity can begin, department of mineral resources & energy deputy director-general Jacob Mbele said on 3 March.

South Africa received hundreds of responses to a call for 3,000 megawatts of emergency power that it estimates could be brought online within two years.
The Department of Mineral Resources and Energy put out a request for information in December to gather solutions for power generation in the midst of outages that are slowing economic growth.

There were 481 responses to the RFI that included options for gas, liquid fuels, coal, renewables, storage and nuclear, Mineral Resources and Energy Minister Gwede Mantashe told lawmakers Wednesday.

A preliminary analysis found that “some proposals can bring power to the grid in less than 24 months,” Mantashe said. The original request asked for short-term power-supply options of as much as 3,000 megawatts within a year.

Analysis by the department “also suggests that longer-term contracting is required to ensure prices do not negatively affect the current tariffs.”

The National Energy Regulator of South Africa also received 132 applications for a total capacity of 59 megawatts of generation for own use, according to Mantashe.

The licensing requirements for this category have been removed in an effort to reduce South Africa’s power supply deficit.
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Consulting Engineers South Africa (CESA) president Sugen Pillay urged government on Wednesday to urgently restart its “successful” renewable-energy procurement programme to help address the country’s prevailing electricity crisis.

Briefing the media in Johannesburg, Pillay said CESA was particularly keen for the fifth bid window of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to be initiated, as the REIPPPP was a stand-out example of a public procurement scheme that had worked.

“In addition to its value as a short-term intervention towards addressing our electricity crisis, it will also inject, albeit small, much-needed project opportunities for consulting engineers and contractors,” he added.

The Integrated Resource Plan 2019 (IRP 2019), which was published in October, calls for 1 600 MW of wind and 1 000 MW of solar photovoltaic (PV) capacity to be added in most years between 2020 and 2030, translating to the addition of more than 17 000 MW of new wind and 8 200 MW of new solar PV (excluding embedded generation) capacity in ten years.

For procurement to be initiated, however, Mineral Resources and Energy Minister Gwede Mantashe needs to publish Ministerial determinations in line with Section 34 of the Electricity Regulation Act and to do so with the concurrence of the National Energy Regulator of South Africa.

To date, Mantashe has not published the document, with the Department of Mineral Resources and Energy (DMRE) instead focusing on a Risk Mitigation Power Procurement Programme, the implementation of which will be guided by responses to a request for information (RFI) on short-term supply and demand options.

The DMRE had given itself a month from the January 31 RFI closing date to evaluate the responses and develop a procurement programme or programmes.

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The acting head of the Independent Power Producer Office (IPPO), Advocate Sandra Coetzee, has indicated that there should be “no surprises” in the bid documentation that will be released once procurement activities resume again, following a hiatus of nearly five years.

Coetzee, who stepped into the role in late July following the departure of Karen Breytenbach, tells Engineering News Online it is premature to offer detailed insight into the changes being considered. She confirms, however, that these adjustments will be guided by the principles of greater inclusivity and transformation, as well as affordability.

“With regard to procurement design, the team has done a considerable amount of work that is putting us in a good position for procurement as soon as determinations are in place after promulgation of the IRP.  We are actively engaging with our colleagues at the Department of Mineral Resources and Energy (DMRE) in this process."

The IPPO also intends having an “extensive” series of stakeholder engagements ahead of the release of the documentation to ensure the bankability of programmes and that they remain attractive to potential independent power producer (IPP) investors. These engagements will be initiated once the Integrated Resource Plan (IRP) is published.

“The roll-out of the programme will continue to build on the strong foundations of the past nine years,” Coetzee insists, describing those foundations as being a predictable regulatory framework, as well as proving investors with the certainty of lawful and compliant procurement.

Through the IPPO’s flagship Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) 6 323 MW of mostly solar and wind capacity has been procured since 2011 across 92 separate projects, spurring about R200-billion in investment.

Coetzee’s immediate priority is to ensure that the IPPO is ready to implement any procurement programmes that will arise once the IRP is promulgated and the Ministerial determinations are published. With the energy sector being in crisis, the role of a capable and ready IPPO is important to attract urgently needed investment in generation capacity in South Africa.

Coetzee has deep knowledge and rich experience in infrastructure development in South Africa and across the continent. She also has senior management experience in government and the public sector having previously worked at the Department of Public Enterprises and South African Airways.

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Energy Minister Jeff Radebe says government has no intention of renegotiating the power purchase agreements (PPAs) for renewable-energy projects procured in 2011 and 2012, but has left the door open for a “refinancing” of the projects in the interest of lowering the cost of the plants to the consumer.

The prospect of renegotiating the contracts had been raised by Public Enterprises Minister Pravin Gordhan during a recent Parliamentary Portfolio Committee meeting in Cape Town.

Gordhan was quoted as saying that a renegotiation of the PPAs associated with the first two bid windows of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) would “alleviate pressure on Eskom and the electricity tariff”.

However, Radebe said that, while the tariffs bid during the first rounds were indeed high; there had been a steady decline in subsequent auctions. In addition, the PPA contracts had been signed after a "very fair, very competitive and very transparent" process.
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​Government would be open, though, to approaches from the IPPs themselves should they have refinancing proposals that could result in a lowering of the costs. "We will cross that bridge when we get to it," the Minister said.

One proposal is to allow for a possible ten-year PPA term extension, which would create additional value for the IPPs that could be paid for by lowering the current tariff.

Briefing the media in Pretoria on Sunday amid attacks on the IPP programme, which has been singled out by some stakeholders as posing a major financial risk to Eskom, Radebe mounted a robust defence of the REIPPPP. He noted that the programme had not only attracted R209-billion in investment over the past eight years, but had also been lauded internationally.

"While I acknowledge the programme is not perfect and can be improved in specific areas, why do we not embrace a programme that has done so much for the country and has received international acknowledgement?"

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Solar energy equipment supplier juwi Renewable Energies has concluded three engineering, procurement and construction (EPC) and operation and maintenance (O&M) contracts, with a combined value of R3-billion, with African Infrastructure Investment Managers (AIIM), which will deliver 250 MW of additional solar photovoltaic (PV) electricity to South Africa’s power grid over the coming few years.

The agreements follow in the wake of Energy Minister Jeff Radebe’s announcement in April of the signing of power purchase agreements with the 27 independent power producer projects contracted under Round 4 of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). The R56-billion worth of projects will add 2 300 MW of renewable energy capacity to the national grid over the next five years.

Juwi has been contracted to build the 86 MW Waterloo Solar Park, situated near Vryburg, in the North West; the 78 MW Bokamoso Solar Park, situated near Leeudoringstad, in the North West; and the 86 MW Droogfontein 2 Solar Park, situated near Kimberley, in the Northern Cape.

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According to Dominic Wills, CEO of SOLA Future Energy, small power developers that invested in securing contracts in the government's renewable energy procurement programme are in the dark about when their agreements will be finalised.

He says several local companies have been forced to retrench staff because of the financial impact of the delay in concluding the contracts for “small projects”.

The department launched the Small Projects IPP Procurement Programme (SPP) in 2014, favouring locally owned companies with a sharp focus on BBBEE and local procurement. “Although the projects were awarded in 2015 following a competitive process, what followed was a series of missed deadlines,” he explains.

'Stagnant projects and no answers'

The programme, aimed at emerging small power developers on projects with less than 5MW of capacity, was intended to give manufacturers and engineering procurement and construction companies (EPC) who do not yet have international certification, the opportunity to supply equipment and services for the projects.

“To date, they’ve been left with stagnant projects and no answers,” Wills explains.

He says this situation demonstrates the importance of government oversight and follow-through to prevent projects from falling by the wayside.

“Many small-scale developers are trying to build a successful track record that will allow them to secure contracts,” says Wills. “These projects would have enabled them to do so. One cannot build in this industry without a track record.”

Wills says the recent successful conclusion of 27 power purchase agreements has shown what can be achieved when government and private companies engage. Energy minister Jeff Radebe recently announced that companies will have a fresh opportunity to supply the national grid with electricity when the next bid window of the Renewable Energy Independent Power Producer Procurement Programme opens in November.

“Similar engagement is needed to conclude the Small Projects IPP,” Wills concludes.

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The new bid documentation being prepared by the Department of Energy (DoE) for future independent power producer (IPP) procurement rounds will have to strike a delicate balance between sustaining investor interest and responding to society’s demand for increased socioeconomic benefits.

In fact, Allen & Overy partner Jason van der Poel, who advised government when South Africa initiated its IPP bidding programmes in 2011 and who currently advises developers and lenders, believes the DoE should take care not to “entirely reinvent the wheel” when introducing the new co-benefit clauses.

The first test of whether such a balance has indeed been struck is likely to arise during the fifth bid window of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) due in November.

Energy Minister Jeff Radebe has already announced that around 1 800 MW of renewables capacity will be procured during the auction, which is expected to supplant the so-called ‘Expedited Bid Window’, initiated in 2015, but never finalised.

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South Africa’s five largest renewable energy projects, measured in terms of investment, are all multi-billion rand wind farms that contribute a collective 645.71 megawatt (MW) to the grid. 
Together, SA's renewable energy projects contribute 3,773 MW, compared to the 43,485MW currently delivered by fossil fuels. This is according to information released by the the Independent Power Producer Procurement Programme to Parliament in March.

The existing investment in South Africa's sustainable energy projects totals R142 billion, almost five times what SA paid for the 2010 FIFA World Cup.

And government this week signed contracts worth an additional R56bn, expected to add 2,300 MW of electricity to the national grid over the next five years, with 27 independent renewable energy power producers.

The average time for construction to completion of renewable energy projects is 1.9 years. 

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