Africa's Public Procurement & Entrepreneurship Research Initiative – APPERI


Renewable energy

Standard Bank Group is leading investor in South Africa procurement process


By Nilima Choudhury

November 13, 2012

South Africa’s Standard Bank Group has emerged as the leading investor in the first round of the country’s renewable energy independent power producer (REIPP) procurement process, backing a total of 11 solar and wind projects.

The South African government has allocated 1,416MW for this first round of the procurement process, worth about R47 billion (US$5.3 billion) of fixed investment, of which the majority, around R27 billion (US$3.1 billion), will be funded by debt.

Standard Bank Group will provide comprehensive corporate and investment banking services to all its clients in the REIPPP programme, including underwriting R9.4 billion (over US$1 billion) worth of debt, providing interest and currency hedges, carbon trading credits and corporate bonding and guarantee facilities.

The bank’s clients include 338MW of wind and 235MW of solar PV, out of the combined 1,416MW per year expected to be produced by all the projects. Standard Bank Group itself has also taken an equity stake in four projects.

Alastair Campbell, Executive Vice President, Power & Infrastructure Finance at Standard Bank Group said: “Standard Bank will be ready to disburse funding for most of the projects as soon as all documentation is finalised and hedges are closed.”

Developers will have until 16 November 2012 to finalise all their documents and foreign currency hedges, after which projects can be rolled out.

“This confirms that there is considerable appetite from developers and banks to invest in renewable energy projects in South Africa. Standard Bank has been involved in the emerging story of power generation from inception. We participated in the Integrated Resource Planning public hearings which re-affirmed REIPP procurement process as an accepted way of diversifying our energy mix and reducing carbon emissions,” continued Campbell.

Further bidding rounds are expected to take place roughly six months apart from 2013 onwards to allocate the total 3725MW. In line with the country’s long-term power plan, South Africa aims to secure a total of 17,800MW of renewable energy or 42% of South Africa’s new generation capacity by 2030.

Standard Bank Group said it is already preparing for the financial close of the second bidding window and is supporting the third bidding window. The second bidding window is expected to close in the first quarter of 2013.

“We have already committed a total of R6.1 billion of debt out of a total R19 billion to preferred bidders on the second bidding window. The second programme is smaller than the first and will have a total of 19 projects. Standard Bank is supporting preferred bidders on five of these projects,” said Ntlai Mosiah, Head of Power and Infrastructure SA Advisory and Coverage at Standard Bank Group.

“As the programme unfolds, an increasing number of benefits are expected for the South African electricity consumer. Chief amongst these is the expected fall in tariffs bid due to increasing interest and competition in the process. We are expecting that renewable energy prices will reach grid parity in the foreseeable future.”

Mosiah continued: “An aligned major benefit will emerge from increased local component manufacturing with its associated industrial development and job creation, an aspect that government has insisted should be accelerated.”

S.Africa okays $5.4 bln in clean energy projects

Reuters Africa

October 29, 2012

JOHANNESBURG (Reuters) – South Africa has given the green light to an initial $5.4 billion worth of clean energy projects that will allow it to procure 1,400 MW of electricity and help reduce reliance on coal-fired plants, the energy minister said on Monday.

The government has selected 28 wind and solar projects in the first stage of the programme, with the contracts expected to be signed on November 5, Energy Minister Dipuo Peters said.

“These bidders will be investing about 47 billion rand in power generation and will create a number of jobs during construction and operation of these power plants,” Peters said in a statement. The plants are due to be operational between 2014 and 2016.

Africa‘s largest economy depends on coal for 85 percent of its electricity supply of around 41,000 MW. Last year it launched a process to procure cleaner energy to reduce carbon emissions and bolster electricity supply.

A key producer of platinum, gold, iron ore and coal, South Africa has been struggling to meet fast-rising demand for power.

The process of adding more renewable power to the grid has dragged on for years and raised doubts about the government’s ability to deliver on its plans.

It has also chosen another 19 renewable energy projects worth 1,043.9 MW in the second stage of the programme, which it hopes to finalise by late March next year. A third bidding round will close on May 7.

South Africa wants to use the green energy drive to boost job creation through manufacturing and requiring energy companies to source materials locally.

While the original procurement plan was to eventually add up to 3,725 MW of green energy to the national grid by 2016, the programme has recently been expanded to source an additional 3,200 MW of renewable power by 2020.

Apart from green energy, South Africa plans to procure more than 9,000 MW of new electricity produced from coal, gas, regional hydro and co-generation at industrial plants by 2025. Other plans include a tender for 9,600 MW worth of nuclear power.

© Thomson Reuters 2012 All rights reserved

S Africa: renewables interest dampened by legal hurdles

Beyondrics, Financial Times

By by Ruona Agbroko

July 26, 2012

South Africa’s latest round of renewable energy contracts has attracted interest from European developers after home subsidies have dried up, but legal uncertainty and rules over local ownership may cut the temper their enthusiasm.

So far the third round of bids for solar and wind projects has seen some developers stop short of a full committment, which is hardly helped by government holdups.

The deadline for bids to supply another chunk of the 3,725MW of renewable energy that South Africa wants to cut its reliance on coal is October 1. From previous rounds, foreign direct investment in renewables is at $12bn in the year to May. There are two further bid rounds slated for April 2013 and July 2014.

DLA Piper Australia and its South African partner DLA Cliffe Dekker Hofmeyr have advised more than 50 per cent of the successful bidders in the first two rounds of contracts and are working with companies in their current bids. “The majority of the developers are European based, particularly Italian and Spanish, and there is an increase in interest from German, French, Chinese and US-based developers,” Damian McNair, head of finance and projects for Asia Pacific at DLA Piper told beyondbrics… Read more.

South Africa: Rush for renewable energy

Mail&Guardian Online

By Lynley Donnelly

April 20th, 2012

Billions of rands of investment are flowing into South Africa as a result of the government’s plans to move towards renewable energy. The rush is a boon to South Africa’s nascent renewables market and major companies from across the globe are partnering in the first round of the independent power producer procurement programme for renewable energy. 

But the test, according to experts, will be in how the market develops once projects begin delivering power in an environment in which complicated ownership structures are becoming a key feature of the companies emerging as the forerunners.

In December, the 28 preferred bidders in the state’s independent power producer procurement programme were announced and the second round of bidding closed in March. The first 1 451 megawatts allocated out of a total 3 725MW were divided across wind, solar photovoltaic and concentrated solar power. By June 19 the first-round bidders will be expected to complete financial closure on their projects and begin construction (see “The Players”).

Gareth Blanckenberg, energy and power systems research analyst at consultancy Frost & Sullivan, said although the ownership of the bidding companies was complicated because of the structure of the various consortiums, many large international renewables players linked to these projects were becoming active in South Africa.

The ownership structures were complicated for two reasons, he said. Firstly, the local-content requirements had resulted in many larger international companies partnering with local companies and communities. Secondly, the cost of investing in renewables was expensive and required a lot of equity.

Considering that renewable energy is a fledgling industry, the scale of investment, at this stage estimated to be at least R50-billion, is highly significant, according to Greg Nott, director at Werksmans Attorneys. “We are seeing immediate growth in a very short period of time,” he said, and the entire scope of the country’s economy would be affected by this development, from grassroots and community levels upwards.

The procurement process had attracted the interest of international groups, finance houses, manufacturers and development finance institutions. Renewables development had “many moving parts” across a range of sectors in the economy and as such invited careful scrutiny, Nott said. A test of our emerging renewables sector would be to see how these new companies operated, given the complex nature of their structures.

“The fundamentals of good business practice, such as creating good cash flows and maintaining good governance and operating performance will have to remain a focus.”

Nott said there was a great deal of interest in establishing manufacturing capacity in South Africa, particularly from China in terms of solar photovoltaic power. This was in addition to interest from companies in Scandinavian countries and the European Union, which had a longer history in renewable energy and manufacturing.

But there was substantially bigger interest from more traditional partners in the realm of engineering, procurement and construction, Nott said. In addition, companies were seeking to “root themselves here” ahead of expected future growth and to take advantage of opportunities in the rest of Africa. The potential for local manufacturing was in large part thanks to government requirements for local procurement and economic development.

Among the challenges to maintaining the growth of the renewables sector locally was to ensure that the market was not treated in isolation from economic developments around the globe, said Nott. “We can’t see ourselves as an island.”

Because a number of investors hailed from Europe, which is beset by a sovereign debt crisis, threats of ratings downgrades for countries in the EU would have an impact on any investors from these countries, said Nott. Another key challenge was the government’s capacity to regulate the industry and develop and adapt policy to ensure it could function.

This assertion was echoed by Michael Bean of professional services firm Step Strategic Venturing. He said the industry was still highly regulated, which made it difficult for smaller companies to enter the market as more than merely service providers to larger firms. It was critical that regulatory practices and processes were managed properly and operated smoothly, particularly because more independent power producers were expected to come on stream.

Just as important was how the country’s grid coped with a more diverse set of power suppliers, which were expected to increase dramatically in the coming years to meet South Africa’s energy shortage. The entrance of independent power producers into the market meant improved technologies were needed both to allow and account for the power that would be flowing back into the grid from a more widely distributed set of power generators, Bean said.

Money still guesswork
The amount of money that will be spent to establish green power in South Africa has been estimated at a possible R120-billion, as reported by the Mail & Guardian in February.

The Integrated Resource Plan 2010 allocates about 17 800MW to renewable energy in the next 20 years.

Frost & Sullivan’s Gareth Blanckenberg said it was difficult to quantify just how much money would be invested in renewables. The plan was still subject to review and the prices of renewable technologies would decrease in coming years. Simultaneously, fossil fuels such as coal might become subject to carbon taxes in a bid to mitigate climate change.

Blanckenberg cited research done by consultancy firm Black & Veatch for the United States-based National Renewable Energy Laboratory, which priced the installation of utility-scale onshore wind at $1 980/kW and at $2 830/kW for photovoltaic power solar for installations of more than 10MW. The numbers did allow for a 25% uncertainty rate.

But, based on these numbers, a very rough estimate brought the allocations for wind and solar photovoltaic power alone to investments of $133-billion and $190-billion respectively.

However, the manufacturing and installation costs of these technologies are declining all the time. According to Jochen Magerfleisch, chief operating officer of Juwi Renewable Energies, the cost of solar installations has dropped by 50% over the past year. “In the last three years we have seen a dramatic decrease in the cost of renewables.”

This is in part thanks to the increase in production and economies of scale as demand for green energy increases.

Magerfleisch said South Africa’s local-content requirements were sensible, but the global supply for items such as solar modules was twice the demand — a factor the country had to bear in mind when making decisions about establishing manufacturing capacity locally. — Lynley Donnelly

The players
Licence hearings held by the National Energy Regulator of South Africa in March shed some light on South Africa’s green boomers and the trend towards a range of ownership consortiums was clearly evident.

The largest of the projects is the 135MW Cookhouse wind farm being developed by African Clean Energy Developments, 50% of which is held by African Infrastructure Investment Managers, a joint venture split equally between Macquarie Africa and Old Mutual Investment Group South Africa.

The other 50% is held by African Power Corporation, a Mauritius-registered company incorporated for the sole purpose of its investment in the consortium.

Apart from financing supplied by Nedbank, Standard Bank and the Industrial Development Corporation (IDC), key partners include Indian-based wind turbine manufacturer Suzlon, listed on the National Stock Exchange of India and the Bombay Stock Exchange.

But African Infrastructure Investment Managers is also a partner in the Hopefield wind farm being developed by Umoyo Energy in the Western Cape. The project is among the top 10 bidders in the first round and promises a R1.5-billion investment. According to its presentation, Umoyo’s shareholders consist of funds managed by African Infrastructure Investment Managers, including the Kagiso Infrastructure Empowerment Fund and the Infrastructural Developments Environmental Assets Fund, a Nedbank investment arm, as well as grassroots entities such as a company owned by the Hopefield wind farm local community.

The second-largest project is the Jeffreys Bay wind farm being developed by South African Mainstream Renewable Power. The company is a joint venture between the local arm of Mainstream Renewable Energy and home-grown Genesis Eco Energy.

Mainstream is a well-known Ireland-based renewable energy development company. Its South Africa arm is also involved in two of the other preferred bids, both for solar photovoltaic power installations in De Aar and Kimberley in the Northern Cape.

The third-largest of the bids is the 100MW concentrated solar plant being developed by the KaXu Solar One Consortium in Pofadder. Spain-based renewables company Abengoa Solar owns 51% of the company, according to its presentation, the IDC owns 29% and the remaining 20% is owned by a community trust.

Between the KaXu project and a second one — the 50MW Khi Solar One project in Upington — Abengoa will be committing R10-billion in investment.

Other preferred bidders include the 28MW Soutpan Solar Park being developed by Erika Energy in the Waterberg in Limpopo. The holding company’s shareholders are Astronergy Solar Korea, a subsidiary of China-based Chint, and the United States-listed Monsanto Electronic Materials Company.

R2bn E Cape wind project passes key enviro, community milestones

Photovoltaic system
Image via Wikipedia

Engineering News

22nd July 2011

Renewable energy developer Red Cap has received environmental approvals for three contiguous wind farm sites in the Eastern Cape and has also concluded an agreement with the Industrial Development Corporation (IDC) to facilitate material community ownership in its proposed projects.

CEO Mark Tanton tells Engineering News Online that it is now keen for the long-awaited procurement process to begin “in whatever shape, or form”. But it also wants to be given a reasonable timeframe in which to refashion its bid to fit with the new procurement framework.

He also believes that it would not be “unreasonable” for potential developers to expect some form of consultation from the Department of Energy and the National Treasury, which will together run a procurement process that will include both price and non-price selection criteria.

In a joint open letter to policymakers, the South African Wind Energy Association, the South African Photovoltaic Association and the Southern Africa Solar Thermal and Electricity Association said new consultations were necessary to ensure the revised procurement process is “workable”.

Tanton says such consultation need not take the form of a review, which would delay the process. Instead, government could simply outline the new principles and extend the response period for the request for proposals to between 90 and 120 days to allow developers time to recalibrate their bids to the new rulesRead more.

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