ENERGY
The unfolding landscape for
IPPS IN SOUTH AFRICA As legal experts in the energy sector, Cliffe Dekker Hofmeyr (CDH) has been instrumental in steering key projects though to commercial operation in South Africa and sub-Saharan Africa. CDH directors Andrew van Niekerk and Tessa Brewis weigh in on the challenges and opportunities in the South African Independent Power Producer (IPP) arena. By Alastair Currie
T
he growing instability of South Africa’s power distribution network presents a major socioeconomic risk and needs an accelerated approach. Within this context, the growth of the IPP market presents a viable addition to offset Eskom’s ageing coalfired generation network, and the operational teething problems faced by its more recent Medupi and Kusile power stations. This was the motivation for the launch of the Renewable Independent Power Producers Procurement Programme (REIPPPP) by the Department of Mineral Resources and Energy (DMRE). Introduced in a phased approach since 2012, Bid
Andrew van Niekerk, director and sector head: Projects and Infrastructure, Cliffe Dekker Hofmeyr
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IMIESA January 2022
Window 5 is the most recent development, with 25 preferred bidders announced on 28 October 2021. Bid Window 5 will add 2 583 MW, either via wind farm or solar PV plants, at an estimated investment value of around R50 billion. This is welcome news but, depending on the scale, larger projects are anticipated to take a minimum of 36 months to reach their COD (commercial operation date). The DMRE says it expects to conclude financial close on these agreements by Q2 2022. Part of this process includes the conclusion of a power purchase agreement (PPA) with Eskom, as well as an implementation agreement with government, which is standard practice for IPP activation. According to the DMRE, 93 IPP agreements have been concluded since the start of Bid
Tessa Brewis, director, Cliffe Dekker Hofmeyr
Window 1, equating to some 7 308 MW. Of these, 89 (including Bid Window 4 projects signed in 2018) are now connected and feeding 6 855 MW into the national grid. Alongside this are the 11 preferred bidder projects – amounting to some 1 995 MW – announced in terms of government’s Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), which was launched in August 2020. The signing of these commercial agreements is scheduled to take place in Q1 2022, with COD anticipated some 18 months later. As an independent transaction advisor, CDH has been involved on Windows 1 through 5, both for IPPs and general investors like pension funds securing a stake in projects. “Despite the recent stop-start nature of the REIPPPP, Bid Windows 1 through 4 have successfully proven the value of going this route to secure South Africa’s future power security,” says Van Niekerk, who has been involved in more than 30 renewable energy projects. “In the past five years or so, traction did slow. One of the key reasons was a general reluctance from the market to conclude new PPAs given the challenges experienced by Eskom. However, Window 5 signals renewed investor appetite, and a positive longer-term view for the power parastatal’s eventual restructuring,” Van Niekerk continues. As CDH’s sector head: Projects and
