South Africa’s Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP)
It is no secret that one of South Africa’s biggest concerns in relation to development is the shortage of power and the fact that Eskom has the monopoly with regards to the power supply in South Africa.
The more Eskom and its management fail, the more costly their failures become to the consumers. Even though in recent years changes have been made to get Eskom back on track and to eradicate corruption, very little progress has been made thus far.
Thankfully, the South African government has decided to roll out the Risk Mitigation Independent Power Producer Procurement Programme. The two main objectives of the program are to procure new generation capacity from a range of source technologies to address the electricity capacity supply gap and to reduce the extensive utilisation of expensive diesel-based peaking open cycle gas turbine generators in the medium-to-long-term.
The RMIPPPP was not aimed at a specific type of technology like its predecessors such as the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). This programme was targeted at all technologies related to power supply. Various elements were considered such as cost effectiveness of the project, how quick the project could be up and running, and how feasible the project would be, to name a few.
After careful consideration by the independent committee, the minister announced a total of 8 Preferred Bidders and 3 Eligible Bidders on 18th March 2021. Amongst the technologies represented were Gas (LNG) and Storage (Batteries).
The urgency of the power constraints was one of the most important driving factors of this project. In other words, the RMIPPPP has very tight deadlines to reach commercial operation as soon as possible, but no later than December 2022.
The self-dispatch regime of the REIPPPP is a take or pay obligation from the Buyer, but this is not the case under the RMIPPPP. The minimum dispatch commitment from the Buyer means that the projects will have to rely on the Buyer to issue a dispatch instruction.
Even though the bidders have been identified, the Power Purchase agreements (PPA) will only be signed once the bidders have finalized all required licences, permits, and other relevant legal requirements.
What makes this project so exciting is the fact that the bidders, not the consumers, carry the risk in relation to the success of the project.
Another exciting by-product of this programme is the realization of the effectiveness of gas for power supply. As we develop a gas industry in South Africa, we must appreciate that we are not going to manufacture everything locally from day one. We will have to rely on international suppliers to kick start this process, and even though we do not currently have local LNG supply available, recent explorations and findings offer very exciting prospects.
This RMIPPPP offers a very positive contribution towards improving South Africa, its economy, and its future if the execution and intention of the programme is carried through.
Written by Corné Broodryk, attorney based in South Africa.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.