By Jason van der Poel, Partner, Mzukisi Kota, Partner, Hielien Venter, Partner, Aviva Hoekstra, Associate & Emma Bleeker, Trainee Attorney from Webber Wentzel.
On 25 July 2022, President Cyril Ramaphosa announced the Government’s intention to implement various “bold, courageous and decisive action[s] to close the electricity gap” in South Africa and bring an end to loadshedding. In the next three articles we will unpack the legal and practical considerations of five key interventions as proposed by the Government.
- THE PROCUREMENT OF NEW GENERATION CAPACITY
President Ramaphosa announced that Eskom is taking active steps to add new generation capacity to the grid on an urgent basis. The following noteworthy steps are proposed in order to procure new generation capacity:
- Surplus capacity bought from generators with excess power:
As an immediate measure, Eskom will buy surplus capacity from existing independent power producers (IPPs), mines and other private entities which generate excess power. This will be beneficial for entities that have built projects with excess capacity which can be sold to Eskom.
If Eskom purchases this electricity while the current legislative regime is in place, a determination in terms of section 34 of the Electricity Regulation Act, 4 of 2006 (ERA) will need to be issued. In terms of section 34 of the ERA, the Minister will identify the procurer and whether or not a procurement process should be followed for that purchase. It remains to be seen how the surplus capacity will be procured and whether or not a procurement process will be required, or whether the section 34 determination will deviate from such a requirement. It is also unclear how the tariff will be determined for the purchase of surplus capacity, especially if no procurement process is followed.
- Acceleration of IPP procurement programmes:
Photo by paul via pexels: https://www.pexels.com/photo/industry-technology-station-tower-8246810/
2,600 MW of capacity has been procured through Bid Window 5 of the Renewable Energy IPP Procurement Programme (REIPPPP), which should add capacity to the grid from early 2024. Efforts are being made to ensure that all Bid Window 5 projects commence construction as scheduled. These efforts include taking a pragmatic approach to local content requirements (which have been a major difficulty for the Bid Window 5 projects due to a lack of the requisite manufacturing capacity in the local market) and prioritising the need to build new capacity as quickly as possible. Clarity is required on what this “pragmatic approach” would entail. Any change to the Bid Window 5 local content requirements may be subject to legal challenge by unsuccessful bidders on the basis that it results in the procurement process being unfair because it benefits the preferred bidders to the detriment of both unsuccessful bidders or entities that failed to submit a bid as a result of the specified onerous local content requirements. A mitigating factor may be that the relaxation of these requirements would open the door for any such bidders to participate in a less stringent Bid Window 6.
2,000 MW of capacity has been procured through the Risk Mitigation IPPP Procurement Programme (RMIPPPP). The majority of RMIPPPP projects are struggling to reach financial close, with only three of the 18 selected projects having reached financial close to date. Financial close for RMIPPPP has also been repeatedly postponed from the original date of 31 July 2021. It is noted that no Government efforts were specifically mentioned to ensure that RMIPPPP capacity is realised, and it is unclear whether or not the Government has any plans to prioritise addressing the challenges facing the RMIPPPP projects.
President Ramaphosa has announced that the generation capacity to be procured through REIPPPP Bid Window 6 will be doubled from 2,600 MW to 5,200 MW. This significant increase in the Bid Window 6 generation capacity raises some practical issues:
- The bid submission date for Bid Window 6 is currently 11 August 2022, which is just under three weeks away from the time of writing. It is not clear whether bidders can expect an extension of the bid submission date, although an extension may not be necessary as previous rounds have been oversubscribed in terms of the MWs bid.
- As matters stand, only bidders registered under Bid Window 6 would be entitled to bid projects into Bid Window 6. New bidders would therefore be excluded from participating in Bid Window 6 at this stage because they are not registered bidders. It is not clear at this stage whether the DMRE will re-open registration under Bid Window 6.
- The Eskom network in the Northern Cape faces capacity constraints, with bidders across the various programmes competing for Budget Quotes on a first come, first served basis. It is unclear whether or not there are any plans or strategies in place to increase the capacity of the Eskom network, particularly in the Northern Cape.
- To continue reading, keep an eye out for Part 2 and 3.