Report of the Portfolio Committee on Energy on the Energy Stakeholder Meeting, scheduled on 07 June 2012, dated 18 February 2014

Theme: Independent Power Producers Renewable Energy Procurement Bidding: Window 1

 

1.     Opening remarks by the Chairperson, Hon SJ Njikelana

 

The Chairperson welcomed delegates to the third public stakeholder’s meeting on renewable energy hosted by the Portfolio Committee on Energy.  The Chairperson pointed out that there is much to discuss in the energy sector, thus the committee resolved that it had to create a platform for robust debate by the various organisations in the public and private sectors and civil society involved in the renewable energy industry.

 

2. Presentations

 

2.1. 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.

 

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 selected 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 of the following; 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) are applicable to the seven different types of renewable energy technologies.  The Implementation Agreement is 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 summarized.  The bid evaluation team included the following; 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 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 was involved and a total of 3233 MW would be generated.  22,590 construction jobs and 1,371 operations jobs are involved.  19 preferred bidders were short-listed.

 

2.2. Presentation by the Sustainable Energy Society Southern Africa (SESSA)

 

Mr Stephen Forder, Representative, SESSA advised that the presentation prepared covered the establishment and organisation of SESSA.  SESSA is a member of SAREC, which had prepared a more detailed presentation document on the bidding process. 

 

2.3. Presentation by the South African Renewable Energy Council (SAREC)

 

Mr Johan van den Berg, Chairperson: Steering Committee, SAREC presented the submission.

 

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 South Africa and included a list illustrating the country’s global ranking and potential for improvement.  The Council warned against the dangers of “cavalier” bids, a pricing ‘race to the bottom’ and the need for long-term sustainability.  A table summarizing the cost/output data from a study of the Kusile power station published by the University of Pretoria was included.

 

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 a coordinated effort to meet the challenges.  SAREC offered to host a workshop for stakeholders to find the best way forward.

 

2.4. Presentation by the Black Business Council (BBC)

 

Mr Kashif Wicomb, Representative, BBC presented the submission.

 

The presentation focused on four areas of concern and included specific observations and recommendations.  These areas are; 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 presentation was concluded with suggestions for some micro solutions that could be considered by government.

 

2.5. Presentation by the Southern African Alternative Energy Association (SAAEA)

 

Mr David Lipschitz, Representative, SAAEA presented the submission

 

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.  It was also pointed out to the committee that coal reserves used in the production of electricity would be exhausted by 2054.

 

The presentation examined the need for electricity and the challenges faced.  Graphs illustrated;

 

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 South Africa if the old methods to generate electricity are continued with is a staggering R2.3 trillion over 20 years.  The relative speed of delivery of tenders, the feed in tariff (FIT) and the net metering processes was compared.  Finance options for the net metering alternative were examined.  It was pointed out to the committee that it is a myth that energy had to be supplied by big technology and big business.

 

2.6. Presentation by the South African National Energy Development Institute (SANEDI)

 

Mr Kevin Nassiep, Chief Executive Officer, SANEDI presented the submission

 

The presentation dealt with the impact of imported renewable energy technology and the opportunities for localization.  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 analyzed.  Wind generated is 47%, Solar PV is 43%, Solar CSP is 8% and mini hydro projects produced less than 1%.  The greatest opportunities for local content and job creation are in the waste-to-energy industry.

 

There are currently only two solar energy component manufacturers in South Africa.  Suggestions on initiatives to increase local content are made.  The wind technology and PV component value chains are illustrated to demonstrate the opportunities for manufacturing the components in South Africa.  A summary of the local content requirements for comparative programmes in China, Brazil, India and Canada was included.  South Africa only requires 35% local content, which is a low percentage compared to other countries.

 

SANEDI commented on the

 

The potential for job creation in the short-, medium- and long-term was illustrated.

 

Observations made on the Window 1 and Window 2 procurement processes included;

 

3. Discussions

 

 

4. Recommendations