Meeting SummaryStakeholders in the renewable energy sector were invited to participate in a discussion on the first and second rounds of renewable energy procurement processes that took place in November 2011 (Window 1) and March 2012 (Window 2). The Committee had invited the Department of Energy, the South African Renewable Energy Council, the Sustainable Energy Society of South Africa, the Black Business Council, the Southern African Alternative Energy Association and the South African National Energy Development Institute to submit presentations.
The presentation by the Department of Energy covered the procurement process, the contractual arrangements between the Independent Power Producers, Eskom and Government and the composition of the bid evaluation teams. A total of 53 bids were received for Window 1. 28 preferred bidders were appointed in December 2011. 1415.52 megawatt would be generated and 13,908 construction jobs and 874 operations jobs would be created. A total of 79 bids were received for Window 2 and 19 preferred bidders were short-listed.
The submission from the Sustainable Energy Society of South Africa dealt mainly with the background to the establishment of the Society and was not discussed at length. The Society was a member of the South African Renewable Energy Council and fully endorsed the Council’s submission. The presentation commented on the complexity, cost and secret nature of the procurement process. An assessment of the visibility, stability and predictability of the procurement process was included. The focus of the submission was on the development of a sustainable renewable energy industry in
The Black Business Council made observations on four key aspects, i.e. the ability of the black business sector to participate in the renewable energy programme and the absence of a broad-based black economic empowerment local procurement policy; the financial aspects of the procurement process and the lack of access to capital by black economic empowerment developers; the limited number of permanent, high quality job opportunities that would be created; the limited local content and the lack of technical skills and knowledge of the renewable energy sector. The Council included recommendations and proposed solutions for the micro producer sector.
The submission from the Southern African Alternative Energy Association focused on Solar Photovoltaic energy. The presentation highlighted the dwindling global resources for non-renewable energy and the limitless potential of solar energy. The need for electricity, the challenges of generating electricity and the long-term cost of continuing to use old methods to generate electricity was illustrated. The financing of large and small scale power stations was explored and the potential for small, micro and medium enterprises and householders to generate electricity was emphasised. The presentation included a comparison of the speed to delivery of the tender process to the alternative processes of feed-in tariff and net metering. Finance options for net metering were included.
The submission from the South African National Energy Development Institute dealt with the impact of importing renewable energy technology and the opportunities for increasing local content. The presentation covered the reasoning for including local content requirements in procurement; the extent of local content in Window 1 (31%); the impact of job creation when 96% of jobs were in construction and of an unskilled, temporary nature and the percentage of the total megawatts produced by the different technologies. The wind and solar photovoltaic component value chains were illustrated to demonstrate the opportunity for local manufacture of the components. The Institute commented on the socio-economic development, skills development and skills transfer aspects and highlighted the potential for job creation in the short-, medium- and long-term. Observations on the Window 1 and Window 2 processes included the focus on price minimisation; the diversity of technologies; the lack of coordinated Government effort to promote manufacturing and the lack of a mechanism to coordinate socio-economic and enterprise development. Recommendations to address the shortcomings were included.
The major challenges identified by the delegates included the complex, costly and secretive bidding process; the involvement of foreign companies and the absence of BBEEE policies; the disappointing number of jobs that would be created, particularly skilled jobs and the limited local content requirement and absence of initiatives to promote local manufacturing. The Department of Energy was urged to consider the experience of other countries in developing renewable energy industries, to consider increasing the procurement allocation and to increase the funding made available for research and development programmes. Delegates wanted to know when the third round of bidding (Window 3) would commence.
Other questions and comments from delegates concerned opportunities for South Africa on the African continent; the cancellation of Implementation Agreements; the mechanisms for monitoring and evaluating local content requirements; how the local content aspect related to the Integrated Resource Plan; the need to implement the 2012 IRP as soon as possible; the utilisation of the accumulated funds from the renewable energy portion of the Eskom tariff; the absence of guidelines for socio-economic development programmes; the evaluation of socio-economic development projects put forward by bidders; Concentrated Solar Power projects; biomass energy projects and whether the same social development and job creation criteria were applicable to non-renewable resource energy producers.
The Chairperson welcomed delegates to the third public stakeholder’s meeting on renewable energy hosted by the Portfolio Committee on Energy. There was much to discuss in the energy sector and the Committee had decided to create a platform for robust debate by the diverse organisations in the public and private sectors and in civil society involved in the renewable energy industry.
The first stakeholder’s engagement was held in November 2011. The focus was on job opportunities in manufacturing in the renewable energy sector. A number of submissions were received but the outcome of the engagement was inconclusive. The second stakeholders’ meeting was held in
The first window for renewable energy procurement (Window 1) was in November 2011. The second window (Window 2) was in March 2012. The Committee had been briefed by the Department of Energy on the bidding process for Window 1 but wanted input from the participants in the bidding process, the business sector and civil society organisations involved in the renewable energy sector as well. The Committee was particularly concerned that 100% of the technology for Window 1 was imported.
Presentation by the Department of Energy (DOE)
Mr Thabang Audat, Chief Director: Electricity Supply, DOE presented an update on the Window 1 and Window 2 procurement programmes (see attached document).
The procurement documents for Window 1 were released on 3 August 2011. The documents provided for the procurement of 3725 megawatts (MW) in five different bidding rounds. A total of 53 bids were received under Window 1 and 28 preferred bidders were announced in December 2011. A total of 79 bids were received under Window 2. The bids received under window 1 substantially exceeded the cap of 1275 MW.
The procurement process followed was explained. The Request for Proposal (RFP) comprised the general requirements and rules (Part A), the qualification criteria (Part B) and the economic development criteria (Part C). Separate Power Purchase Agreements (PPA’s) were applicable to the seven different types of renewable energy technology. The Implementation Agreement was a legally binding contract between the DOE and the Independent Power Producer (IPP).
The contractual arrangements between the IPP, Eskom and government (i.e. the DOE and the National Treasury) were illustrated. The RFP’s received from IPP’s were subjected to a qualification process. Preferred bidders had to meet all six qualification criteria. If the bid was over-subscribed, the bidders were subjected to a comparative evaluation process. The comparative evaluation assessed the economic development criteria (30%) and the price criteria (70%). The bids received for Window 2 would be subjected to the additional comparative evaluation process, which had not been necessary for Window 1.
The sequence of events for bid Window 1 was summarised. The bid evaluation team included international reviewers, a legal evaluation team, a technical evaluation team and a financial evaluation team. The evaluation streams covered environmental, land and commercial legalities, economic development, financial and technical aspects. Bids were received from entities producing Solar Photovoltaic (PV), Concentrated Solar Power (CSP) and Onshore Wind energy. The total allocation to preferred bidders for Window 1 was 1415.52 MW. 13,908 construction jobs and 874 operations jobs would be created through Window 1. The relatively low number of jobs that would be created was disappointing.
The majority of bids received were of a good standard but contained many omissions and inconsistencies that had to be clarified. The key shortcomings identified during the financial evaluation process were listed. 33 bidders passed the financial evaluation. The majority of bidders submitted prices at or just below the applicable technology price cap. A comparison of the bidding prices for the various technologies for Window 1 and Window 2 was provided. The price differential was -25.1% for Solar PV, -11.3% for Onshore Wind and -6.5% for CSP.
The total financial investment for bid Window 2 was R85 billion. A total of 79 CSP, Landfill Gas, Onshore Wind, Solar PV and Small Hydro projects were involved and a total of 3233 MW would be generated. 22,590 construction jobs and 1,371 operations jobs were involved. 19 preferred bidders were short-listed.
Presentation by the Sustainable Energy Society
Mr Stephen Forder, Representative, SESSA advised that the presentation prepared covered the establishment and organisation of SESSA (see attached document). SESSA was a member of SAREC, which had prepared a more detailed presentation document on the bidding process. The SESSA presentation document was tabled for information purposes only and was not discussed.
Presentation by the South African Renewable Energy Council (SAREC)
Mr Johan van den Berg, Chairperson: Steering Committee, SAREC presented the submission (see attached document).
The presentation covered the establishment of SAREC and a summary of the outcomes of the bidding process. The Council commented on the complexity, cost and secretive nature of the procurement process. The objective to increase local content was welcomed. An assessment of the visibility, stability and predictability of the procurement process was included.
SAREC commented on the development of the renewable energy industry in
The presentation was concluded with remarks on job creation, the achievement of the socio-economic objectives, the experience gained from the first two rounds of the procurement process and the need for coordinated effort to meet the challenges. SAREC offered to host a workshop for stakeholders to find the best way forward.
Presentation by the Black Business Council (BBC)
Mr Kashif Wicomb, Representative, BBC presented the submission (see attached document).
The presentation focused on four areas of concern and included specific observations and recommendations. These areas were the ability of local black business to participate in the renewable energy sector, the financial aspects, job creation and the technical aspects
The major concerns involved the absence of a broad-based black economic empowerment (BBBEE) policy; the lack of access to capital by BEE developers, the costly and complex procurement process and the limited economic impact; the limited number of jobs being created and the unskilled, temporary nature of most of the jobs; the limited skills and knowledge base available in South Africa and the limited extent of local content in the industry.
The presentation was concluded with suggestions for some micro solutions that could be considered by government.
Presentation by the Southern African Alternative Energy Association (SAAEA)
Mr David Lipschitz, Representative, SAAEA presented the submission (see attached document).
The presentation focused on Solar PV. The illustration of the lifespan of various global energy resources highlighted the limitless availability of renewable energy resources, in particular energy derived from the sun. Coal reserves used in the production of electricity would be exhausted by 2054.
The presentation examined the need for electricity and the challenges. Graphs illustrated the significant increase in Solar PV production since 2007, the relative cost of producing and buying electricity and the impact of increases of 10% and 6% in the cost of electricity on the City of
SAAEA considered the nature of the financing required for large-scale and small-scale power stations and the potential for small, micro and medium-sized enterprises (SMME’s) and homeowners to produce electricity. The ultimate cost to
Presentation by the South African National Energy Development Institute (SANEDI)
Mr Kevin Nassiep, Chief Executive Officer, SANEDI presented the submission (see attached document).
The presentation dealt with the impact of imported renewable energy technology and the opportunities for localisation. The reasoning behind promoting local content and the local content requirements in Windows 1 and 2 were outlined. The total investment in the first two rounds of bidding was R75 billion, of which 31% (R23 billion) would be for local content. Imported content extended across the entire project value chain.
The percentage of total and the amount of MW produced by the various technologies were analysed. Wind generated 47%, Solar PV was 43%, Solar CSP was 8% and mini hydro projects produced less than 1%. The greatest opportunities for local content and job creation were in the waste-to-energy industry.
There were currently only two solar energy component manufacturers in
SANEDI commented on the socio-economic development and the skills development and skills transfer aspects of the programme. The potential for job creation in the short-, medium- and long-term was illustrated.
Observations on the Window 1 and Window 2 procurement processes included the focus on price minimisation; the failure to achieve critical mass because of the diverse technologies; the lack of coordinated government effort to promote manufacturing activities; the focus on short-term benefits and the lack of a mechanism to coordinate and implement socio-economic and enterprise development. The presentation was concluded with recommendations to address the shortcomings that were identified.
The Chairperson thanked the presenters for the input provided. He would have liked to hear more about the response of the financial markets to the Window 1 procurement process. The financial sector would be invited to future discussions. He welcomed suggestions on innovative ways to deal with the process.
Mr A Williams (ANC), Member of the Portfolio Committee on Labour said that the renewable energy programme was a tremendous opportunity for
Mr Lipschitz wanted to know more about the cancellation of agreements. He asked what was done to ensure that the power grid was reliable as the IPP’s were dependent on it.
Ms Liz McDaid, The Green Connection said that civil society acted as a watchdog to ensure that the interests of communities were not compromised. The procurement process had been secretive and her organisation was unable to advise a local community on what the risks and benefits would be. The community had been approached by an international developer. No information was made available to the public and the procurement documents could only be obtained if the fee of R15,000 was paid. She asked why the DOE had decided not to release the tender documents to the public, which was contrary to normal practice. She asked if the Department would publish the information on its website so that it could be accessed by interested parties free of charge.
Ms B Ferguson (COPE), Member of the Portfolio Committee on Energy shared the concerns over the perception of secrecy and suggested that the DOE addressed the issue. Her main concern was over the few job creation opportunities, despite the significant amount of money being invested in the programme. She understood that there had been no entirely South African bidder and she wanted to know how the government’s BBBEE policies would be implemented. She understood that the industry was in its infancy and that foreign partnerships were necessary but it was essential that provision was made for the transfer of skills. There were no monitoring mechanisms in place for local content and little provision for promoting local manufacture. There was no reason why the components could not be manufactured in
Mr Jaco du Toit, Project Officer, WWF South Africa also wanted to know if the funding available to developers to establish manufacturing enterprises would be increased. He asked how the initiatives to promote localisation would be improved, what lessons had been learned and how the plans for localisation were related to the Integrated Resource Plan (IRP).
Mr Dave Crombie, Senior Engineer, GIBB Engineering and Science observed that the IRP was considered to be the guideline for the roll-out of the renewable energy programme. A portion of the Eskom tariffs was intended for the renewable energy programme. He proposed that the allocation of 3725 MW was extended in line with the accumulated funds from the Eskom tariffs, which was being held in the government coffers.
Ms Dzvinka Kachur, Intern, Community Development Resource Association noted that 2.1% of project costs were earmarked for socio-economic development. However, there were no clear guidelines on how this money would be spent. Communities had been approached by developers but there was uncertainty over how the socio-economic development programme would be implemented.
Mr Peter Venn, Managing Director, Windlab queried the accuracy of the bidding prices quoted on slide 18 of the DOE presentation document. The prices differed from the information that had been published. For example, the published price cap for Onshore Wind energy was 89c/kWH but the presentation quoted a price of R1.05/kWH. Window 3 was due on 20 August 2012 but no information had been released by the Department on the third round of bidding.
Prof Philip Lloyd, Research Professor, Energy Institute, Cape
Ms Abigail Knox, KZN Sustainable Energy Forum said that none of the Window 1 allocations were for KwaZulu Natal. Biomass was critical for the province and she wanted to know what the plans were for rolling out the biomass programme, particularly for small-scale producers generating less than 1 MW.
Mr Audat explained that the implementation agreement included the commitments and obligations of the IPP. If the IPP failed to meet its commitments, government had the legal right to cancel the agreement and the IPP would forfeit its investment. Likewise, the IPP could take government and Eskom to Court if the other parties failed to honour their obligations.
Mr Audat advised that other work was being done outside the renewable energy programme to ensure improved access to the grid and increase the level of grid reliability. He denied that there was any secrecy about the procurement process. Windows 1 and 2 were reserved for large, commercial operators. The total value of the programme was approximately R120 billion. The DOE had decided to recoup the cost of producing the documents from the bidders, who did not consider the fee of R15,000 to be excessive. Subsequent phases of the programme would be aimed at small scale producers and householders and the cost of the tender documents would be adjusted accordingly. A different process would be followed as there would be significantly more bidders involved than was the case during the first two rounds of bidding. The information would be made available on a dedicated website, which would have controlled levels of access.
Ms McDaid clarified her earlier questions. She understood the issues concerning bonds and cavalier bids but felt that this was a public tender and there was no reason for the documents not to be freely available.
Mr Audat replied that the RFP was available to any interested party in the world. The Department had not received any complaints about the cost of the documents. There was no prohibition on parties in possession of the documents from sharing the information with others. The requirements and processes for small-scale operators would be significantly different from the process involving large commercial organisations.
Mr Audat acknowledged that the DOE was disappointed by the low level of participation by local companies. The issue of localisation of the renewable energy programme was highlighted by the Department on all platforms. The RFP included minimum BEE requirements for bidders. The Department was disappointed that there were no South African bidders during the first two rounds but anticipated that there would be more local participants during subsequent phases. Renewable energy was a new industry in
Mr Audat said that extensive detail on the number and type of jobs that would be created had to be provided by bidders. The IRP gazetted in May 2011 formed the basis for the renewable energy programme. In developing the programme, the Department had to make certain assumptions. A key assumption was the number of ‘green’ jobs that would be created. In reality, the number of jobs was far less than the assumption. The Department had to reconsider how to derive the maximum possible advantage to the country from the renewable energy programme.
Mr Audat said that the average renewable energy tariff was at least five times more expensive than the current average price of electricity in
Mr Venn was not satisfied with the response to his question. He insisted that the correct price cap for wind energy published by the DOE was 89c/kWH.
Mr Van den Berg explained that the prices quoted in the presentation were based on the average price of the bid winners. The lower price referred to by Mr Venn was the average price quoted by all the bidders.
Mr Audat explained that a number of public hearings were held during 2010 when the IRP was developed. Much of the information on renewable energy made available to the public at the time was based on research and was theoretical. After Windows 1 and 2, the DOE had more realistic data. The new information would be used to revise the Department’s response to the IRP.
Mr Audat explained that 12.5 MW for biomass energy was allocated for Window 1. No bids were received. Bids were received for the biomass allocation for Window 2 but none of the bidders qualified for preferred bidder status. KZN had approached the Department with a request to review the biomass PPA. The review was underway and the Department acknowledged that the original PPA had not been attractive to potential bidders. The Department did not prescribe to bidders on what socio-economic development projects should be included in their agreement commitments. The preferred bidders would be held accountable for delivering on the specific commitments included in the Implementation Agreement.
Ms Teri Kruger, Director: Stakeholder Relations, Juwi Renewable Energies asked when Window 3 would commence.
Ms Jesse Burtin, Student, University of
Mr Kamal Parker, Chief Director, Economic Development Department (EDD) said that the EDD and the DOE were working together on the job creation aspect of the programme. It had become apparent that international donor funding was being used by certain organisations to leverage funding from the National Treasury for training programmes that would benefit other countries, e.g.
Ms Rentia van Tonder, Head: Green Industries, Industrial Development Corporation (IDC) said that the IDC was the leading financier of the renewable energy programme in
Mr Thomas Roos, Council for Scientific and Industrial Research (CSIR) supported the views put forward by the IDC. His major concern was the need for inter-governmental collaboration and coordination.
Mr Wicomb observed that all parties agreed on the need for localisation and socio-economic development. The focus should be on research and development, developing local solutions and developing and transferring high-level skills rather than “carping” on the number of low-level jobs that was being created.
Mr Van den Berg said that the secrecy issue was not so much the fee of R15,000 that was charged for the tender documents but the undertaking that had to be given by the bidder that information contained in the documents would not be divulged. The average price of electricity was 55c/kWH and subject to increases of between 15% and 25% p.a. The lowest renewable energy price was 89c/kWH, increasing at half the rate of inflation p.a. He disagreed that the price of renewable energy was five to six times higher than the price of electricity generated from non-renewable resources. At a recent workshop arranged by the Department of Trade and Industry, a Chinese delegate advised that
Ms Louise Tait, Researcher, University of
Mr Lipshitz pointed out that renewable energy was not a new industry in
Mr Audat advised that the lessons learned from the first two rounds of the bidding process needed to be assimilated before Window 3 was opened. Window 3 would probably be delayed and the commencement of the subsequent bidding rounds would be delayed as well. The criteria applicable to smaller IPP’s would differ from the criteria applicable to large commercial enterprises and the producers of energy from non-renewable resources. Small producers would be paid for the energy delivered. The criteria were based on what was ultimately expected from the renewable energy programme. Any increase in the MW allocation would be advised by Ministerial announcement. The DOE noted the comments regarding CSP. The Department was aware of the interest of communities and was considering requests to increase the CSP allocation. The issue of the involvement of the Department of Science and Technology in research and development was noted. SANEDI was also involved in research and development of new technologies. The comments concerning the number of low-level jobs were noted but the Department also required IPP’s to provide information on the number of high level, skilled and managerial jobs.
Mr Audat said that the price of renewable energy could not be compared to the price of electricity generated from non-renewable resources. The price of electricity from coal-fired power stations could be expected to increase as carbon-emission taxes were implemented. The socio-development commitments made by IPP’s were included in the Implementation Agreement. The points made concerning community development were noted. The evaluation panel included legal expertise, which was able to evaluate the legalities of the commitments that had been made. The Department was establishing a monitoring and evaluation unit to monitor and report on the implementation of the agreements. The National Treasury and the Departments of Environmental Affairs, Science and Technology and Trade and Industry would be represented on the monitoring team.
Mr L Greyling (ID), Member of the Portfolio Committee on Energy observed that the Department’s response to the question about whether the same criteria applied to non-renewable resource energy producers had been that different criteria applied to the different energy sectors. More was expected from the renewable energy IPP’s and it had to be recognised that there would be a trade-off and that renewable energy would cost more. Consideration should be given to reviewing the scoring as there was a heavy emphasis on price, resulting in a price war amongst energy producers. If the renewable energy sector was expected to deliver other socio-economic benefits to the country, the cost of this should be taken into consideration. The most important issue for producers was policy certainty. Investors had to be sure that the government would not change the rules when there were changes in government or policy, as had been done in other countries. The price of capital was a major component of the cost of the product and the government needed to accelerate the process of making funding available for the renewable energy programme.
Mr Chris Carnegie, Developer, Anglo American and Group 5 advised that his company had developed a 100 MW CSP project. The benefits of CSP were not being sufficiently realised, particularly in job creation, localisation and the ability to deliver power to the market. The limited allocation was a great concern and there was no clarity on what would be announced when. Another area of concern was the uncertainty around Window 3.
Mr Williams asked if there were other forums where interested parties and stakeholders could engage. He wondered if more benefits could be derived from awarding tenders to a single IPP operating in the different technological fields.
Mr Roos had much respect for the work done by SANEDI and the industry was grateful for the grants made available by the Institute. However, SANEDI could only disperse funding that had been received from the DOE and from the DST. The DST had to make funding available to SANEDI for research grants.
The Chairperson commented that SANEDI was unable to implement all the plans made by the Institute because of insufficient funding allocations.
Mr Crombie remarked that many of the issues raised during the proceedings would be addressed by the revised IRP. He suggested that the 2012 IRP was implemented as soon as possible. Another suggestion was to change the tariff structure to allow for a different tariff to be charged during peak periods. This would benefit CSP projects as well.
Prof Lloyd remarked that renewable energy technology was largely unproven and most countries had experienced unanticipated challenges, for example wind turbines breaking down more often than expected. The equipment used for Solar PV had a limited lifespan and the impact of aging equipment needed to be taken into account. Another major problem experienced by other countries was grid integration.
The Chairperson thanked all participants for their valuable contribution. Much information had been provided and the comments and suggestions made during the proceedings would be considered by the Committee. A summary of the proceedings would be made available. IRP was an interactive process and the Committee would be briefed by the DOE on its plans and on the outcomes of the review of the procurement process to date. He thanked the representatives from the EDD and the IDC for the input provided.
The meeting was adjourned.
- PowerPoint presentation: Black Business Council, 7 June 2012
- PowerPoint presentation: Department of Energy, 7 June 2012
- PowerPoint presentation: Southern African Alternative Energy Association, 7 June 2012
- PowerPoint presentation: South African National Energy Development Institute, 7 June 2012
- PowerPoint presentation: South African Renewable Energy Council, 7 June 2012
- PowerPoint presentation: Sustainable Energy Society Southern Africa, 7 June 2012
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