IPP Risk Mitigation

The Risk Mitigation IPP Procurement Programme

The promulgation of the IRP 2019 and associated ministerial determinations guide the roll out of the Independent Power Producers Procurement Programme (IPPPP). The IRP 2019 indicates that there is a short-term electricity supply gap of approximately 2 000 MW between 2019 and 2022.

The DMRE launched a Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) on the 23rd of August 2020. The objective of the RMIPPPP is to fill the current short-term supply gap, alleviate the current electricity supply constraints and reduce the extensive utilisation of diesel-based peaking electrical generators. The Determination for the RMIPPPP was gazetted on the 7th of July 2020.

In response to the Determination, the 2 000 MW of new generation/supply capacity will be procured from a range of energy technologies and are based on the following criteria:

It will be technology agnostic;
Based on the plant-performance needs of the electricity system operator;
It will procure dispatchable flexible generation that should be able to provide energy, capacity and ancillary services;
Should be able to operate between 5h00 to 21h30;
It must have an AGC load following ability, flexible capacity factor and must be “scalable” with changing capacity requirements; and
Must be able to connect power to the grid by June 2022.

The Risk Mitigation IPP Procurement Programme

The key principles for the design of the RFP will be based on a least cost and least regret basis taking into consideration the present socio-economic challenges and the importance of affordable electricity and the significance there of for economic growth.

In fostering an environment that will allow for least cost options the Department will introduce the opportunity for a bidder to bid in a portfolio manner with the objective of combining a range of technologies that will meet the system operator demands, but also, through the use of a cost optimal approach, combine technologies to reduce the average bid tariff and ultimately the cost of electricity to the end consumer.

The Project may therefore comprise of any of the following:

a single Facility using a single technology solution, on a single Project Site;
multiple Facilities using different technology solutions (i.e. Fuel and non-fuel based generation), on a single Project Site, or
multiple Facilities using different technology solutions, on multiple Project Sites.

The minimum Contracted Capacity of a Project shall be 50 MW and the maximum Contracted Capacity shall be 450 MW, subject to availability and transmission evacuation capacity at the connection point.

The Risk Mitigation IPP Procurement Programme

Due to the emergency nature of the RMIPPPP, the objective is to procure energy from projects that are near ready. The timelines from the release of the RFP in the market to bid submission and then again from preferred bidder stage to financial close will be short to ensure that electricity can be connected to the grid as soon as possible. The RMIPPPP will allow for a phased grid connection, incentivising early power with a long stop date for the last permissible commercial operation dates before end June 2022

The connection timelines will not allow for any deep strengthening of the grid and the qualification criteria will therefore facilitate projects where grid capacity is available and do not require any deep grid works.

The RMIPPPP will provide for long term power purchase agreements up to 20 years.

The Risk Mitigation IPP Procurement Programme

The Economic Development Elements of the RMIPPPP are aligned with the outcome of the REIPPPP Bid Window 4 Value for Money negotiations with further alignment to the amended BBBEE Codes to introduce specific aspects such as supplier development and elements to cater for youth, women and those living with disabilities.

Specific focus is placed on local content with local content now also introduced in the operational phase over the lifespan of a Project.

It is fundamental to the success of the RMIPPPP that the pricing will be the key factor in the process of awarding projects to bidders. In this regard, the Department will align with the 90/10 principles espoused in the PPPFA and Regulations in the price and specific goals (BBBEE/ED) evaluation.

The procurer, in respect of the procurement programme, will be the Department of Mineral Resources and Energy and the electricity must be purchased by Eskom Holdings SOC Limited designated as the buyer.

Qualification and Evaluation Process

The Qualification and Evaluation process will be based on the known and internationally recognised two-staged evaluation approach as used in all previous procurement rounds.

The first stage is a qualification stage that has a number of minimum qualification requirements for the legal, financial, technical and economic development responses. The qualification criteria has been designed to elicit, amongst others, an indication of the readiness of Projects. A project has to pass all of the qualification criteria to advance to the evaluation stage.
The second evaluation stage is a comparative evaluation of price and economic development (competitive evaluation) using the 90/10 split as per the PPPFA 90/10 price evaluation principles in order to score and rank the Bid Responses.
The outcome of this stage is a list of preferred bidders.