September 22, 2014
South Africa has raised the hopes of small solar PV developers with projects of less than 5MW, after proposing a dedicated fund to enable them meet their capital expenditure.
The Department of Energy has also announced changes to the procurement procedures Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to enable Small Independent Power Producers (IPPs) cut on costs.
The developers could soon find alternative funding after big lenders shunned them for larger projects under REIPPPP, which hopes to generate 1,450MW of solar PV by 2030. The 20-year $645 billion program is also expected to generate an additional 2,275MW from onshore wind, concentrated solar thermal, biomass solid, biogas, landfill and small hydro.
Reducing transaction costs
The fund for small renewable projects could be up and running by February next year, according to top government officials, for the benefit of projects being developed under the Small Independent Power Producer Programme with a combined capacity of 200MW. No allocation has been given for each of the renewable energy technologies for this particular category of projects.
Energy minister, Tina Joemat-Pettersson, says the financing of projects with a capacity of less 5MW is a major challenge, but pledged government intervention in ensuring development of standard documents for the projects “to reduce transaction costs.”
She confirmed South Africa is working at a proposal for a dedicated fund to assist small IPPs with transaction costs.
“This will ensure that new entrepreneurs can also enter the renewable energy IPP market. I want to give the small IPP entities and developers the assurance that the fund will be up and running by February 2015, in time for the second round (of small IPP procurement).”
The fund will be established with the support of the German government-owned development bank KfW. The bank will make the funds available to the government on concessionary terms to enable beneficiaries to achieve their project objectives.
The Department of Energy explains that the Small Independent Power Producer Programme, whose first request for proposals was released in August 2013, is “to allow South African citizens who are, or who own or control, small or medium-sized enterprises (SMEs) and/or emerging, smaller power developers an opportunity to participate in the Renewable Energy generation sector”
The programme also affords South African power generation equipment manufacturers, “who may not have international certification the opportunity to supply equipment for the projects procured under the Small Projects IPP Procurement Programme.”
Effective implementation of the small IPP programme will also make it possible “to limit the cost‐at‐risk incurred by bidders through participating in the Small Projects IPP Procurement Programme in two stages.”
Reducing costs of procurement
Apart from the push for a dedicated fund to cushion small IPPs from high project costs, the government has also announced drastic changes to the procurement process to make it cheaper for the “little” developers to bring their projects on board within timelines.
Senior project adviser in the Private Public Partnership at the National Treasury, Karen Breytenbach, says the department of energy would make the changes before the fourth bidding round in November.
“To reduce costs incurred in submitting tender documents, the department would reduce the number of documents required,” she said.
“We are also going to change the request for proposal to make it less expensive for small IPPs to bid. We are looking at ways for bidders to submit their bids without going through sourcing support letters from banks.”
The amendments to the bidding process and proposal for fund for small-scale renewable energy projects come barely months after developers raised concerns over the requirement that they, too, be subjected to the high compliance costs under the department of energy’s REIPPPP for projects bigger than 5MW.
South African Photovoltaic Industry Association (Sapvica) Vice-Chairperson, Mike Levington, said in an interview with the Engineering News online magazine two months ago that lack of capacity in the debt market to fund smaller IPPs is a challenge because banks are not keen on them.
“Delays in the procurement processes, such as the delay in announcing the dates of the bid windows for the small-scale IPP programme, places financial strain on companies and small, medium-sized and micro-enterprises in particular,” Levington said.
The small IPPs were also subject to compliance costs that included the $4,923 that is payable to South Africa power utility Eskom for estimate letters, which gives details on how a particular project could be connected to the grid.
South African Renewable Energy Council chairperson Johan van den Berg said, “This relatively high compliance cost has a significant impact on the price that smaller projects require to be feasible.”
Until the pledge by the Department of Energy on changes to procurement of small IPPs is honoured, the project developers are subjected to the same application process like those constructing projects of larger capacity, which the industry stakeholders argue disadvantages them.
Levington said the proposed changes to RFP for the fourth round would “hopefully be extended to the small-scale IPP process in the future.”
Eskom had previously defended the estimate letter charges saying the utility has to recover its costs related to “detailed engineering, pricing and legal work to produce the cost estimates.”
“Between the first three bid windows (of the REIPPPP), Eskom processed in excess of 1,000 cost estimate letters without direct cost recovery from the potential IPPs and, therefore, this cost had to be recovered from all customers,” Eskom was quoted saying in a previous statement.
“Many of these IPPs eventually never submitted bids (for) the government procurement programme. Preparation of a cost estimate letter requires network planning and grid studies to be conducted and this is followed by a vetting process involving pricing and legal teams,” it said.
South Africa leading in PV development
Meanwhile, South Africa has now been ranked among the top 10 global leaders in solar PV development according to a July release by wiki-solar.org, which monitors deployment of utility-scale projects globally.
The country has deployed 15 solar PV plants with capacity of 503MW under the REIPPPP. The projects include SolarReserve‘s 75MW Lesedi and 75MW Letsatsi in the Northern Cape and Free State provinces respectively.
Others are Norwegian-based firm Scatec Solar‘s 75MW Kalkbult solar plant near Petrusville in the Northern Cape, Globeleq consortium’s 50MW De Aar and 50MW Droogfontein solar plants near De Aar and Kimberley in the Northern Cape, US company SunPower‘s 22 MW Herbert and 11 MW Greefspan solar plants in the Northern Cape, which it owns jointly with Spain’s AMDA energy and South Africa’s Alt-E Technologies.
Separately, small rooftop solar PV installers in South Africa have also raised concern over the lack of legislation which hampers the growth of small and medium enterprises (SMEs) from deploying the technology to its full potential.
South African subsidiary of German solar PV mounting systems specialist,Schletter, said in July the Department of Energy should make changes to the legislation around the solar PV industry to enable that small power producers “feed power into the grid structure.”
The company’s South Africa head electrical engineer Mr Abdul-Khaaliq Mohamed said, “Grid energy management and metering must be upgraded and legislation should be revised to enable SMEs and property owners with rooftop solar PV systems to sell their excess power to the national grid.”
Mohamed said South Africa’s solar PV rooftop market is picking up in tandem with the growing number of SMEs and industries – this mainly as response to the increase in tariffs by the country’s power utility, Eskom and a desire to save more on electricity costs.
“If all SMEs strive to have solar PV cater for 20-30% of their energy needs this will reshape South Africa’s energy mix and make a massive difference to the country’s carbon footprint, thereby ensuring a sustainable energy supply for future generations.”
Written by Shem Oirere, a freelance writer based in Nairobi who specialises in renewable energy.