IPP's scrutinising Kubayi's 77c deal

Johannesburg - Bidders in South Africa’s renewable energy programme are currently scrutinising their bids to see whether their projects would still be viable at 77c per kilowatt-hour.

This comes after Energy Minister Mmamoloko Kubayi announced two weeks ago that  Independent Power Producers (IPP) would have to renegotiate their previously-agreed tariffs down to 77c per kilowatt-hour, if they wanted Eskom to sign power purchase agreements with them.

The preferred bidders, selected in the last rounds of the government’s Renewable Energy Independent Power Producers Programme (REIPPP), will need to consider the various legal, financial, and credit risk implications on their projects, before signing on the dotted line, the South African Photovoltaic Industry Association (SAPVIA) has warned.

She said that Eskom and the IPP’s would sign the new power purchase agreements by the end of October.

Kubayi’s announcement affects 26 projects in rounds 3.5 and 4, representing at least R60bn in capital expenditure.

SAPVIA Programme Manager Niveshen Govender said there were a number of issues that each of the IPPs involved in these rounds need to consider before proceeding with financial close. This included the obvious financial considerations of a lower price, the overall legitimacy of the process, and the risk of legal challenge after closure.

Govender said that it would be a “disaster” if the agreements were challenged after signing the power purchase agreements.

This decision will also affect the more than 70 bidders in the expedited round that followed round 4.  The bidders are waiting for official clarification around the status of those bids, said Govender.

“We request the energy department leadership to communicate with those projects who have been sitting in limbo for the past two years. If there is a decision to be made, it needs to happen soon because the validity of those bids expire at the end of September” Govender says.

Community Trusts

Apart from price, she said the management of community trusts also had to bear greater scrutiny.

Govender said the minister had raised concerns with regard to the funding of the community trusts in these projects. “We believe that greater clarity over those concerns would assist in moving towards a resolution.”

The association said that they would continue to do what is best for the Solar PV industry and support the decisions of the individual Preferred Bidder IPPs once they have evaluated their positions and made a decision as to whether they are willing to proceed under the new conditions.

“We believe that the majority of the IPPs are willing to offer more value and engage openly and honestly with the department and its IPP office regarding the Minister’s statement, but ultimately the decision lies with each of them individually,” said Govender.

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