South Africa has successfully tendered numerous renewable projects – setting an example for sub-Saharan African countries to follow for increased energy production and reduced tariffs
In contrast to South Africa, there are only a few successful tender programs in other countries. Many nations experience countless problems: low adherence to timelines, delays in approvals, licenses and land acquisitions, as well as limited co-operation from government departments, often hindering the participation of international developers in the tendering process.
South Africa’s competitive Renewable Energy Independent Power Producer Procurement (REIPPP) has witnessed significant investor interest over multiple auction rounds, helping South Africa procure more than 6GW of renewable energy, with an additional target to procure more than 20GW by 2030. The REIPPP framework offers a sponsor-friendly mechanism, resulting in a reduced tariff with every round, with an expectation of further reduced tariffs in REIPPP’s Round 5 due to significant international bidders' interest. REIPPP has also seen delays in the execution of the Power Purchase Agreement (PPA) for Round 4 and in the launch of Round 5 due to various issues. However, delays in Round 5 may help sponsors as these issues may have been resolved before the launch of the tender program.
Competitive tenders provide an effective mechanism for real price discovery and respond rapidly to ongoing market changes. Some of the key steps taken by South Africa for tender program success are:
• IPP Office: Responsible for three focus areas:
* Procurement vehicles for national renewable energy objectives
* Securing electricity capacity for non-renewable energy
* Advisory services for project development, implementation, and financing.
The department’s independent nature, identification and resolutions of key issues through co-ordination and approvals from various government departments before launching a tender program, is essential for a faster procurement cycle.
• Integrated Resource Plan: It is the defined plan to expand a country’s generation capacity, specifying time, technology and the owner of required generation capacity, translating into multiple auction rounds. It enables policy and target-setting to help establish a clear roadmap for renewable energy development, and generates bidder’s interest to submit optimal and competitive tariffs.
• Bid Structure: It is designed as a single-stage tender process, with a two-stage evaluation, including minimum qualifications and evaluation criteria, based on the tariff and economic development. The tender documents are accepted by lenders and sponsors after being revised at each REIPPP’s round. The standard RFP package results in faster implementation of a tender program.
• Commercial Lenders: The overall lending ecosystem has evolved with multiple rounds of REIPPP, primarily due to standardised and bankable documentation. Lending was initially driven by DFIs, with commercial banks in support roles. Currently, commercial banks are providing competitive terms and acting as the sole lead arranger for transactions.
REIPPP also encompasses instruments to promote socio-economic and local development, with minimum South African shareholding and minimum thresholds related to economic development criteria.
To increase private sector participation in sub-Saharan Africa’s renewable energy market, along with the above great lessons from South Africa for competitive tenders, other factors could be included:
• Coupling unmet demand with sustainability targets
• Growing public investment
• Maturity in renewable technologies.
