PANEL DISCUSSION ON
RENEWABLE ENERGY
PROCUREMENT FOR
INDEPENDENT POWER
PRODUCERS BIDDING:
WINDOW 1
Johan van den Berg
Chair: Steering Committee
South African Renewable Energy
Council
7 June 2012
The South African Renewable Energy Council
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During 2011, the SA Government through Nedlac formed the vision of a Green Economy.
The renewable energy community participated. The Green Economy Accord, was signed in
November 2011 – see http://www.economic.gov.za/publications/new-growth-pathseries/123-accord-4-green-economy-accord.
On P 19 (SESSA, SAPVIA, SASTELA, SAWEA undertake to…..:“establish an organisation that
will facilitate the renewable energy sector working in partnership with other social
partners in the development of the sector.”
Press releases of progress http://www.engineeringnews.co.za/article/sa-renewableenergy-associations-to-launch-umbrella-body-2011-12-15; http://mg.co.za/article/201112-09-umbrella-body-becomes-sas-voice-on-renewable-energy;
Http://www.timeslive.co.za/local/2011/12/15/renewable-energy-sector-to-get-newumbrella-body;
http://www.esiafrica.com/Umbrella/body/SA/renewable/energy/associations
Honoured and thankful to be addressing the PCE.
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Introduction
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SAREC is very encouraged and heartened by the sustained Government initiative to
procure RE and build an industry.
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SAREC fully supports the drive towards localisation, local benefits, job creation and
community involvement.
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SAREC supports price efficiency and value for money.
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SAREC aims to help build a strong, vibrant and sustainable RE industry in SA for the long
term.
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Our comments today are guided by what is required for sustainability that renders long
term benefits to “South Africa Inc”.
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In summary
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The process has for the greater part been run professionally and transparently
South Africa seems set to have a RE industry soon – with better energy security, more jobs
and other socio-economic benefits.
Prices have dropped significantly between rounds 1 and 2.
We caution against a price “race to the bottom” with the accompanying adverse
consequences seen in other countries.
We welcome the local content levels achieved so far and urge that the rate at which it is
increased be managed very carefully.
We urge that medium term certainty on further procurement is critical to ensure long
term, sustainable localisation.
We think the rules of the bidding process are undemocratically secretive.
We point out that participating in the bidding is complex
and expensive and creates challenges for smaller and
emerging players.
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The procurement process – complexity and cost
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The system seems designed to avoid cavalier bids that cannot be built in the real world
and that delay everything: Bid bonds as high as ZAR 13 million, requirement for underwritten debt and equity, very stringent documentary requirements. Also preferred bidder
bonds as high as ZAR 26 million.
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This within the context of a bidding system is essential, however:
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Typical bid may be 3,000 – 5,000 pages x 7 hard copies
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Cost to prepare may be ZAR 2 – 4 million (mostly legal and consultancy)
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Time to prepare several months for a team of people
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Can cavalier bids not be avoided in a slightly simpler fashion?
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The procurement process – rules and process
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In terms of the bid rules, participants must pay ZAR 15,000 to receive a copy of the bid
documents. The reason is not clear to us.
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The rules of what is a public tender process are secret and no participant is allowed to
divulge the content of the bid documents.
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We do not think this is democratic or healthy.
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The reason may have been to prevent collusion.
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We think there may be better ways to achieve this and that secrecy in public tenders
should be avoided.
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We urge that aggregated data be published after each round.
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Procurement – visibility, stability, predictability (1)
• The IRP 2010 contains an energy blueprint until 2030 containing significant renewables
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Procurement – visibility, stability, predictability (2)
• The present procurement process includes all IRP allocations for RE until 2016.
• In some technologies, the 2016 “quota” may be filled as early as round 3 - closing in a few
months.
• There is then a 3 – 4 year period before 2017 – it is critical that procurement continues in
this time to keep momentum, grow the industry and especially to enable localisation.
• We urge that clarity is needed on this asap to create the confidence that will permit the
building and financing of local manufacturing plants and facilitate success for BBBEE
companies and community trusts being created now.
• RE projects are large infrastructure projects that have a multiplier effect
and can play a key role in the government’s new infrastructure driven
growth model.
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Putting SA on the RE map – creating an industry
• At present far less than 1% of our delivered electricity comes from grid connected wind or
solar power.
• Within 12 months more than 1,000 MW’s of RE of various technologies will be under
construction (including Solar Thermal, Solar PV and Wind power).
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• This will fundamentally change our energy sector – make it more modern and more
diversified.
• If we stay with the IRP 2010 and avoid cavalier bids, by 2015 we can be a significant player
in the global RE sector.
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SA’S POSSIBLE PLACE IN 2015 RE GLOBAL PECKING ORDER
Wind
SOLAR PV
Produced, installed & total
photovoltaic peak power
capacity (MWp) as of the end of
2010
Country or Region on grid Σ
Germany
China
Spain
Japan
Italy
United States
Czech Republic
India
France
Belgium
SOUTH AFRICA
South Korea
Australia
Canada
Greece
Switzerland
Netherlands
Austria
United Kingdom
Israel
Portugal
Slovenia
Luxembourg
Bulgaria
Denmark
Sweden
Mexico
Malaysia
Turkey
Finland
Norway
2015
17,320
10,000?
3,787
3,519
3,465
2,094
1,952.7
2,000?
1,025
787.40
1000?
649.60
483.10
231.00
198.50
69.60
62.50
48.99
26.40
21.63
15.03
8.90
5.70
5.70
4.03
3.60
1.30
1.06
0.50
0.20
0.13
2 011
China
United States
Germany
Spain
India
France
Italy
United Kingdom
Canada
Portugal
Denmark
Sweden
Japan
Netherlands
Australia
Ireland
Turkey
SOUTH AFRICA
Greece
Austria
Belgium
Romania
Mexico
New Zealand
Taiwan
Norway
Egypt
South Korea
Morocco
Chile
Finland
2015
62 733
46 919
29 060
21 674
16 084
6 800
6 747
6 540
5 265
4 083
3 871
2 970
2 501
2 328
2 176
2 031
2 032
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1 629
1 084
1 078
1 010
873
623
564
555
550
407
291
205
197
2,000?
“Cavalier” bids
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If “cavalier” bidders are successful in their bids but unable to build, the MW’s allocated to
them are delayed by at least 6 months.
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If they actually start building and then stop or go bankrupt, the MW’s may be delayed by
several years (before MW’s can be put back into the “bidding pot”).
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Various mechanisms in the bid rules are aimed at preventing this, most prominently a ZAR
200,000/MW “Preferred bidder bond” payable within 14 days.
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This could cost up to ZAR 26 million for large projects.
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We urge optimisation of collaboration between licensing Government Agencies to ensure
no bid bond is ever forfeited due to Government factors.
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We further urge that in cases where non-performance can be laid at the door of the
bidder, the bid bonds should be forfeited without exception - this will prevent cavalier
behaviour.
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Costs, value-for-money, long term sustainability
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The process is fiercely competitive
Technology
Round 1
PV R2.75 / kWh (≈0.275 EUR / kWh)
Wind R1.14 / kWh (≈0.275 EUR / kWh)
CSP R2.68/kWh (≈0.268 EUR / kWh)
Round 2
R1.65 / kWh (≈0.165 EUR / kWh)
R0.89 / kWh (≈0.275 EUR / kWh)
R2.51/kWh (≈0.251 EUR / kWh)
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This rapid drop looks like a “race to the bottom” - very early in the life of a new industry
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If there is no ability for projects to absorb set-backs and remain profitable, some will not
be built/completed and others will meet with bankruptcy in time.
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We urge that value-for-money should be approached broadly, with an insistence that
projects succeed to ensure energy security, the building of an industry, job creation,
community benefits and localisation.
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“Stop-start” should be avoided along with a race to the “bottom”.
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Debt and equity finance for the long term should be courted
throughout.
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VALUE FOR MONEY IN CONTEXT – EXTERNATILIES AT KUSILE
(University Pretoria)
Conclusion
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The RE industry is organised and wants to work with Government to build a strong,
sustainable local industry that contributes to Commitment 3 of the Green Economy Accord
- 50,000 RE jobs by 2020.
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Collectively, the socio-economic objectives must be met.
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We need to learn from Round 1 and 2 procurement and improve/optimise.
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Sustainability is the key word.
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The challenges that exist can be met through co-ordinated action.
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SAREC offers to host a workshop with all stakeholders to find the
best way forward.
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THANK YOU
Johan van den Berg
SAREC
johan@sawea.org.za
082 925 5680