Independent power producer (IPP) bidders basics

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Illustration: Different types of renewable energy.Image via Wikipedia
Potential independent power producer (IPP) bidders for South Africa’s first 3 725 MW of renewable energy capacity are poring over the request for qualification and proposals documentation, which was released at 18:00 on August 3, 2011.
The Department of Energy (DoE) confirms that it has allocated capacity across various renewables technologies, with 1 850 MW set aside for onshore wind, 200 MW for concentrated solar thermal, a further 1 450 MW for solar photovoltaic solutions, 12.5 MW for both biomass and biogas, 25 MW for landfill gas capacity, 75 MW for small hydro, and a further 100 MW for small-scale IPP projects of less than 5 MW.
Some developers have immediately indicated that the enlargement of the procurement capacity beyond the 1 025 MW set out for the first procurement round in the Integrated Resource Plan (IRP) 2010-2030 is a welcome development.
However, questions were also asked both about the credibility of the IRP as a guideline for new generation capacity, as well as whether the 3 725 MW framework is indeed of a sufficient scale to encourage investment by green-energy original equipment manufacturers (OEM).
Nevertheless, potential participants are grateful that the process, which was initially expected to start in April, is finally under way, albeit that their favoured procurement model is not being deployed.
The renewables industry has indicated that they would have preferred it if the request for proposals (RFP) had been premised on predetermined renewable-energy feed-in tariffs (Refit). But government has abandoned the Refit in favour of a selection process that would involve both price and nonprice elements, having raised concerns about its legal compatibility with government procurement rules, as well as the fact that such schemes had in other countries led to prices that could now not be sustained.
JUNE 2014 TARGETED
The RFP shows that projects will only be considered if the can feasibly enter commercial operation by June 2014. However, concentrated solar thermal projects will qualify if they are able to show that commercial operations can be achieved by June 2015.
Besides meeting these timelines, projects would also need to pass land-security, environmental, grid-connectivity, primary-energy availability, technical-feasibility, generation-forecasting, legal, black economic-empowerment, economic-development, as well as regulatory thresholds.
For instance, wind developers would need to provide 12 months of wind data from the proposed site, as well as an independently verified generation forecast, and show that the proposed contractors have participated in at least two previous projects. The projects would also only qualify if they were larger than 1 MW and smaller than 140 MW in size and include turbines that are IEC 64-100-certified.
Similar criteria have been set for the solar projects but greater emphasis is given to water use and availability. Fuel supply agreements, meanwhile, are central to the biomass and biogas projects, while possible developers of landfill gas sites would also need to be in possession of a public-private partnership agreement with the relevant municipality that was in accordance with Section 120 of the Municipal Finance Management Act. The small hydro bids would, meanwhile, require an independent review of the hydrology information, as well as at least 10 years of flow data.
The documentation also indicated that four criteria would be used to make a financial evaluation of the project including price, financial standing, robustness and delivery of the funding proposal, and robustness of the financial models.
Bidders would be required to provide their proposed prices per MWh for the energy output to be generated, through the applicable technology, along with full or partial inflation indexation. The price indication would be for the first 20 years of operation, or for the duration of the power purchase agreement (PPA).
The IPPs will be authorised to enter into a PPA with Eskom, as the buyer, once the DoE has selected them.
ECONOMIC DEVELOPMENT THRUST
But besides the pricing, financial, legal and technical criteria, the IPPs would also need to show how their projects could stimulate job creation, local content and local manufacturing, rural development and community involvement, education and development of skills, enterprise development, socioeconomic development and participation by historically disadvantaged citizens.
Overall, the economic development aspects will comprise 30 points in the eventual evaluation process, with job creation and localisation carrying the biggest weighting of 25% each.
Government is particularly keen on the localisation aspects as the New Growth Path and the Industrial Policy Action Plan have placed green industries at the centre of South Africa’s plans to grow employment and to stimulate manufacturing investments and activities.
DoE deputy director-general Ompi Aphane tells Engineering News Online that the upscaled procurement programme has been pursued to make the programme more attractive to those OEMs considering localisation options.
The DoE indicated that all bids should be accompanied by a “bid guarantee” equal to R100 000 for every megawatt of installed capacity proposed. Further, prior to accessing the RFP, prospective bidders would be required to make a nonrefundable payment of R15 000 and to complete a registration form, which was available for download at www.ipp-renewables.co.za.
A mandatory bidders briefing session has been scheduled for September 14, at 10:00.

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