Eskom is designated buyer of initial renewable power, DoE confirms

Government has confirmed that the systems operations and planning division within State-owned electricity utility Eskom will be the designated buyer of power arising from the “first phase” of renewable energy projects that will be selected in the coming months through a competitive bidding process – a process that could begin in November, with initial transactions being finalised during the first half of 2011.
However, Department of Energy (DoE) acting deputy director-general Ompi Aphanestresses that the procurement process itself will be overseen by the DoE and the National Treasury, rather than Eskom, with support from a multidisciplinary transaction adviser, which will be selected in the coming weeks.
National Treasury corporate law director Lena Mangondo adds that the process will be cognisant of the fact that developers are uncomfortable with the dominant power generator and grid operator being privy to certain commercially sensitive information and that systems will be put in place to avoid conflicts of interest.
Aphane also stresses that Eskom’s role as buyer is perceived by government as an interim arrangement, designed to facilitate progress on much-needed power development. The buying function would eventually be transferred to an independent system and market operator, separated from Eskom.
It has also been confirmed that power purchase agreements (PPAs) will be “backstopped” by the National Treasury, probably through the issuance of ‘letters of support’ rather than government guarantees, and that the allocation of risk within the PPAs has been canvassed with funders and developers. A standardised version should, therefore, be issued soon.
The immediate focus, therefore, is on the solicitation of nonbinding requests for information (RFI) from potential developers of renewable energy, cogeneration and small-scale electricity projects.
The information garnered will guide the compilation of a comprehensive request for proposals (RFP), which could be issued within the next month or so. However, Aphane indicates that it is possible that a request for qualification, or RFQ, might be issued ahead of the eventual RFP.
The bidding process could also be enlarged beyond the 1 025-MW allocation for renewable-energy feed-in tariff (Refit) projects outlined in the first integrated resource plan, or IRP 1, covering the period 2010 to 2013.
However, given that this Refit allocation is aligned to the second multiyear price determination (MYDP2), it is possible that transactions will be concluded in phases, with initial focus given to those projects catered for under MYPD2 and IRP1. In other words, some 400 MW of wind, 325 MW of solar and a further 300 MW arising from other technology sources by 2013.
But the National Energy Regulator of South Africa’s Thembani Bukula tells Engineering News that the regulator could start work in early 2011 to begin to align the tariff path with the second integrated resource plan, or IRP2010, which is meant to be promulgated by November.
In fact, he says that the “MYPD3” could be finalised within a year of the promulgation of the IRP2010, and could offer “firm” tariffs for three to five years beyond 2013, and a less firm indication of the expected path beyond that period.
Through the RFI process, government is seeking to test the state of readiness of those renewable energy projects seeking to apply for Refit.
The following technologies have been approved under Refit phases one and two: biogas involving 1 MW, or more; biomass solid of 1 MW, or more; concentrated solar power (CSP) trough, with and without storage, in a similar size range; CSP tower with storage of six hours a day; large-scale, grid-connected photovoltaic systems of 1 MW, or more; small hydropower; landfill gas; and on-shore wind.
Also being sought, is information on small power projects, defined as “projects smaller than 5 MW but bigger than 1 MW”, and cogeneration opportunities.
The RFI documentation includes a response form, which should be returned to the DoE by October 7.
The RFI issued to developers is designed primarily to assess market interest and government says that a decision on the detail and timing of any RFP would depend on the information provided. The DoE indicates that any decision on when and how it will proceed with a RFP should not be expected prior to mid-October, 2010.
“In short, we hope that the RFI will provide us with enough information to assess the progress developers have made since the announcement of the Refit programme, as well as the readiness of the market to enter into intensive procurement and fast-track negotiation processes,” Aphane concludes.