Agreements in the renewable energy independent power producer programme (REIPPP) will not be signed on October 28 as expected, but some progress is being made, according to industry spokesmen.
Former energy minister Mmamoloko Kubayi promised in early September that the independent power producer (IPP) deals for bid rounds 3.5 and 4, delayed for two years when Eskom refused to sign, citing affordability, would be signed by the end of October.
She said she had instructed the IPP office to renegotiate with all bidders at a maximum price of 77c/kilowatt hour (kWh).
After only five months in the job, Kubayi was replaced by David Mahlobo on October 17.
Brenda Martin, CEO of the South African Wind Energy Association, said legal opinion obtained on the postprocurement negotiation of the tariff was that after the minister had published a determination on a finalised procurement process, she had no power to amend it. In view of this advice, "we are confident that there should be no concern in relation to the conclusion of power purchase agreements with the Cabinet reshuffle", Martin said.
"As far as we are aware, the process is moving forward, may be slightly delayed due to the updates that needed to be addressed on preferred bids now two years old, but should be concluded shortly after the deadline of end-October."
Mike Levington, chairman of the South African Photovoltaic Industry Association’s green economy subcommitee and a former member of the ministerial advisory panel on energy, said Kubayi was understood to have signed off two weeks ago on conditions to enable the IPP Office to move ahead with financial close of the 26 REIPP projects, although he was unaware of the details.
It was now up to the preferred bidders and, if they were dependent on bank finance, for their financiers, to decide whether they could meet the conditions she had set.
Other concerns had to be tackled, Levington said. It was uncertain whether the new minister would endorse what Kubayi had signed off.
Once projects reach financial close, financial institutions need to hedge the interest rate risk associated with project loan facilities.
SA’s interest rate swap market becomes very illiquid from the middle of November until the new year and due to the risk of volatility from the political situation, banks would be reluctant to expose themselves to this risk until the new year.
Another aspect to the IPP signing was that for multinationals, SA was a very different investment destination from two years ago, Levington said. With the growth of renewables in both sub-Saharan Africa and the Middle East and North Africa, multinationals had almost certainly rebalanced their budget allocation to SA.
A banker, who asked not to be named, said some issues had to be resolved before the projects could achieve financial close, but he understood the 77c/kWh cap was unenforceable and Eskom was preparing to sign the agreements.
Levington said the country’s REIPP had attracted international interest because it was managed according to a very clear programme.
The deviation from the programme raised the risk of legal challenges by losing bidders or other interested parties.
The Department of Energy did not respond to questions.