Summary: BLP partners Alexander Sarac and Kiran Arora explain how South Africa's REIPPP model could be translated to work in other sub-Saharan African economies, as well as the current challenges faced when implementing the right mix of renewable energy projects.
In 2011, South Africa instigated the most successful and effective public-private renewable energy policy initiative in the African region. Together the Department of Energy, National Treasury and the Development Bank of South Africa established the Renewable Energy Independent Power Producer Procurement Programme (REIPPP), borne of a need to combat South Africa's escalating energy prices and disproportionately high emissions levels.
So far, the scheme has successfully produced 39 functioning projects, with almost 30 more under construction, generating more than 2000MW of renewable energy. It is estimated that in the coming years, generation will double to at least 4000MW to supply the country's ever-growing energy demands.
The cornerstone of the REIPPP is its competitive bidding process, which encourages private investors to bid on renewable energy power projects including solar photovoltaic, concentrated solar thermal, onshore wind, biogas, biomass solid, landfill gas and small hydro. Eskom, the South-African Government-owned electricity utility then purchases the power generated by the renewable projects and transports it onto the main power grid.
The tender and bidding process has been designed to promote intense competition between bidders, therefore keeping costs comparatively low. This has been achieved by introducing caps on the maximum capacity to be acquired through certain renewable energy categories in addition to caps on the price for each renewable energy technology itself.
An unusual feature of the bidding process is the requirement for bidders to 'lock-in' their financing before bids are submitted. This way the burden of risk is shifted onto the lenders and enables deals to be closed with greater efficiency by encouraging realistic offers that are practically viable once the contracts are agreed. The demanding participation requirements and the related costs and risk for the investors and developers were off-set by the fact that the REIPPP included several bidding rounds, thus allowing unsuccessful bidders to resubmit their project.
There have already been several successful rounds of bidding, each time the process is being refined to streamline the procurement system and to further increase competition amongst investors.
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