ATC140314: Report of the Portfolio Committee on Energy on the Energy Stakeholder Meeting, scheduled on 07 June 2012, dated 18 February 2014
Independent Power Producers
Renewable Energy Procurement Bidding: Window 1
Opening remarks by the
Chairperson, Hon SJ Njikelana
The Chairperson welcomed
delegates to the third public stakeholders 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.
2.1. Presentation by the
Department of Energy (DOE)
, 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.
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.
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 (PPAs) 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)
The RFPs received
from IPPs were subjected to a qualification process.
Preferred bidders had to meet all six
If the bid was
over-subscribed, the bidders were subjected to a comparative evaluation
The comparative evaluation
assessed the economic development criteria (30%) and the price criteria
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.
evaluation team included the following; international reviewers, a legal
evaluation team, a technical evaluation team and a financial evaluation
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.
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.
shortcomings identified during the financial evaluation process were
33 bidders passed the financial
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.
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
2.2. Presentation by the
Sustainable Energy Society Southern Africa (SESSA)
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
The Council commented on the
complexity, cost and secretive nature of the procurement process.
The objective to increase local content was
An assessment of the
visibility, stability and predictability of the procurement process was
SAREC commented on the
development of the renewable energy industry in South Africa and included a
list illustrating the countrys global ranking and potential for
The Council warned against
the dangers of cavalier bids, a pricing race to the bottom and the need for
summarizing the cost/output data from a study of the
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)
Wicomb, Representative, BBC presented the submission.
The presentation focused on
four areas of concern and included specific observations and
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
absence of a broad-based black economic empowerment (BBBEE) policy;
lack of access to capital by BEE developers,
costly and complex procurement process
limited economic impact;
limited number of jobs being created and the unskilled, temporary nature
of most of the jobs;
limited skills and knowledge base available in South Africa and
limited extent of local content in the industry.
The presentation was concluded
with suggestions for some micro solutions that could be considered by
2.5. Presentation by the
Southern African Alternative Energy Association (SAAEA)
Representative, SAAEA presented the submission
The presentation focused on
The illustration of the
lifespan of various global energy resources highlighted the limitless
availability of renewable energy resources, in particular energy derived from
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.
significant increase in Solar PV production since 2007,
relative cost of producing and buying electricity and
impact of increases of 10% and 6% in the cost of electricity, on the City
of Cape Town.
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 (SMMEs) and homeowners
to produce electricity.
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.
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)
Chief Executive Officer, SANEDI presented the submission
The presentation dealt with the
impact of imported renewable energy technology and the opportunities for
The reasoning behind
promoting local content and the local content requirements in Windows 1 and 2
The total investment in
the first two rounds of bidding was R75 billion, of which 31% (R23 billion)
would be for local content.
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
South Africa only requires 35%
local content, which is a low percentage compared to other countries.
SANEDI commented on the
skills development and
transfer aspects of the programme.
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;
focus on price minimization;
failure to achieve critical mass because of the diverse technologies;
lack of coordinated government effort to promote manufacturing activities;
focus on short-term benefits and the lack of a mechanism to coordinate and
socio-economic and enterprise development.
Members agreed that the challenges of a
complex and expensive bidding process, the lack of BBBEE policies, job
creation, skills transfer and the lack of initiatives to take advantage of
the opportunities to increase local content had to be addressed as a
matter of urgency.
The focus must
be on the establishment of a local manufacturing industry as soon as
possible to avoid foreign interests from dominating the sector in future.
Members from civil society raised concern
as to why the Department of Energy decided not to release the tender
documents to the public, and reasoning why the process was contrary to
normal practice. The
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 is
approximately R120 billion.
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.
Members pointed out that even though
several foreign bidders were successful in their bidding, the issue of
skills transfer will become paramount. It is essential that a skilled
labour force resulted from the billions being spent on the renewable
that the implementation agreement included the commitments and obligations
of the Independent Power Producers (IPP).
If the IPP failed to meet their commitments, government had the
legal right to cancel the agreement and the IPP would forfeit its
Likewise, the IPP could
take government and Eskom to Court if the other parties failed to honor
According to a representative of civil
society 2.1% of project costs are earmarked for socio-economic
However, there are no
clear guidelines on how this money would be spent.
Communities were approached by
developers but there is uncertainty over how the socio-economic
development programme would be implemented.
acknowledged that they were disappointed by the low level of participation
by local companies.
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
Renewable energy is a new
industry in South Africa and it is acknowledged that there had been more
development in other countries.
Several foreign companies had opened offices in South Africa with
the intention of taking advantage of the opportunities in this country.
that extensive detail on the number and type of jobs that would be created
had to be provided by bidders.
IRP gazetted in May 2011 formed the basis for the renewable energy
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 is far less than the
The Department had to
reconsider how to derive the maximum possible advantage to the country
from the renewable energy programme.
The National Energy Regulator of South
Africa (NERSA) had approved the inclusion of a charge for renewable energy
development in the Eskom tariff.
The EDD and the DOE are working together on
the job creation aspect of the programme.
The Industrial Development Corporation
(IDC) is the leading financier of the renewable energy programme in South
The IDC approved funding
for projects totaling R10.5 billion since November 2011, of which R7.5
billion was for approved bidders.
The IDC is very involved with community
instruments had been developed for communities and a social support
department has been established to work closely with communities.
The IDC conducted a needs analysis of
the area, shared information and worked closely with the communities
during the procurement process.
R1.5 billion of the approved funding is to ensure that the
community obtained a share in the renewable energy projects in their
Most of the projects funded
by the IDC allowed for at least 10% shareholding by the local community.
The IDC takes localization very seriously
and acknowledged that it is difficult to achieve the 35% local content
According to the IDC, CSP must not be
CSP has the greatest
potential for creating jobs and has the potential to supply the bulk of
the base load.
Much is being done
to develop new CSP technologies and it is easy to achieve a 60 percent
local content target.
The Department is encouraged to consider
the amount spent on research and development, not only in renewable energy
technology but also on the development of new products.
Some research is being done at
Universities but there is a critical research gap requiring funding
At a recent workshop arranged by the
Department of Trade and Industry, a Chinese delegate advised that China
had no localization targets for the first few years of its renewable
It must be
acknowledged that it takes time to establish a new industry
The Department of Energy to urgently
consider challenges of the complex and expensive bidding process, BBBEE
policies, job creation, skills transfer and work with other departments to
address such challenges;
The Department of Energy to try and reverse
the lack of initiatives to take advantage of the opportunities to increase
local content had to be addressed as a matter of urgency;
The Department of Energy to ensure focus
must be on the establishment of a local manufacturing renewable energy
industry particularly achieve a 60 percent local content target;
The Department of Energy to closely monitor
skills transfer which is also paramount;
The Department of Energy to ensure the 2.1
percent of project costs that are earmarked for socio-economic development
are strictly adhered to such must include clear guidelines on how this money
should be spent;
The Department of Energy should motivate
South African bidders such that there are more local participants during
subsequent phases beyond windows 1 and 2;
The Department of Energy to work more
intensively with Department of Economic Development and the Department of
Trade and Industry on the job creation aspect of the programme;
The Department of Energy to mobilize
provincial Development Financiers to enhance their contribution on the
renewable energy programme
The Department of Energy to ensure that
spending on research and development, not only in renewable energy
technology but also on the development of new products be enhanced
including working with SANEDI, universities and the renewable energy
industry to minimize the critical research gap that requires funding.
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