17 March 2021 Energy Alert

Energy boom on the cards for 2021 and beyond

On 15 October 2020, government released the reconstruction and recovery plan of the economy of the country following the adverse impact of COVID-19 to the country’s economy. One of government’s immediate challenges is to reduce and ultimately solve load shedding. Government identified the creation of jobs through aggressive infrastructure investment, and in order to achieve this objective, it has identified key interventions with one of them being the procurement of secure and reliable energy supply within two years.

Government’s plan to rapidly expand energy generation capacity was set out to include, inter alia, the following:

  • accelerating the implementation of the Integrated Resource Plan to provide substantial increase in the contribution of renewable energy sources, battery storage and gas technology;
  • by bringing about 11,813 MW of new generation capacity into the system by 2022. 6,800 MW of this energy will be generated from renewable sources;
  • in the immediate term, agreements will be finalised with Independent Power Producers to connect 2,000 MW of additional capacity from existing projects by June 2021;
  • the launch of the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), which will unlock a further 2,000 MW of emergency supply within twelve months; and
  • the launch and implementation of bid window 5 of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

As an update to the reconstruction and recovery plan, and announced as part of the 2021 National Budget on 24 February 2021, it was stated that three energy projects have been gazetted: the RMIPPPP, the Small Independent Power Producer Programme (Small IPP Programme) and the Embedded Generation Investment Programme. These projects are estimated to create 2569 MW of electricity generating capacity. It is anticipated that the total investments to be funded by private sector to these programmes amount to R52,4 billion.

In respect of the RMIPPPP, the IPP office accepted 28 bid submissions for evaluation on 22 December 2020. According to the IPP Office website, the announcement of preferred bidders is expected to be made by the Department of Mineral Resources and Energy on 31 March 2021. The programme is expected to be operational by the second half of 2022, at an estimated capital cost of R40 billion.

The Small IPP Programme involves the development, installation and operation of a total of 100 MW of generating capacity at an estimated cost of R2,7 billion. The Programme offers opportunities for small and medium sized enterprises and new developers in the renewable energy sector. The target capacity for these projects is to generate and provide between 1 MW and 5 MW of energy from solar photovoltaic (PV), wind and biomass power. The programme is expected to be operational towards the end of 2022.

The Embedded Generation Investment Programme involves the development, installation and operation of up to 469 MW of solar PV and wind generation projects. The Development Bank of Southern Africa (DBSA) and the Green Climate Fund will administer and manage this programme. According to the DBSA and Green Climate Fund, the programme will be implemented through two components. The first component will provide credit support to private sector solar and wind IPPs established as special purpose vehicles that are backed by non-sovereign offtakers. The second component will provide credit support to special purpose vehicles, which are established and owned by local community trusts (LCTs) and/or SMMEs to support such LCTs and SMMEs in obtaining and managing an equity ownership in local renewable energy projects. This programme has an estimated lifespan of 20 years.

The 2021 National Budget also announced that the IPP office will soon initiate bid window 5 of REIPPPP to secure 2,600 MW of wind and solar PV from renewable energy IPPs.

It should be further noted that on 11 February 2021, in the President’s State of the Nation speech, it was announced that Schedule 2 of the Electricity Regulation Act 4 of 2006 will be amended within three months in order to raise the threshold to obtain an exemption to hold a generation licence which is currently 1 MW.

This is certainly the impetus the private sector has been waiting for after years of a lull in the conclusion of utility scale new power generation projects. In order to reinstate some of the investor confidence that may have diluted in the periods of delay in the conclusion of the round 4 REIPPPP projects and the commencement of these next round of programmes, it will be critical for the momentum for development to be maintained in line with government’s expedited plan.

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