The South Africa Wind Energy Association (SAWEA) has called on the South African government to ensure consistency in procurement of new renewable energy capacity in order to support the localisation requirements, and establishment of local manufacturing capacity for renewable energy components.
SAWEA shared this impression ahead of the expected Department of Mineral Resources and Energy’s (DMRE) virtual Bidders’ Conference for the bid window (BW5) of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). The conference is anticipated to take place this month.
In order to achieve a successful localization programme, with incremental local content thresholds, a consistent procurement pipeline should be establishedSAWEA
The Request for Proposals (RFP) for the BW5 of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) retained the 40% threshold local content requirement from the previous bid windows. The requirement for procurement of local content for IPP renewable energy projects is to stimulate industrialisation in South Africa in alignment with the government’s Industrial Policy Action Plan (IPAP).
“There are two key aspects of BW5 that are worth unpacking, namely the local content requirements and the bid evaluation weighting, which has now shifted in line with governments standard procurement norms,” said Ntombifuthi Ntuli, CEO of SAWEA.
There is no local content target for BW5, only a local content threshold is prescribed. Should components be unavailable locally, bidders can apply for exemption, which needs to be lodged with the Department of Trade, Industry and Competition (DTIC).
A noted change in BW5 is the evaluation weighting, which has changed from a 70/30 weighting to a 90/10 weighting, indicating a distinct emphasis on tariff. Black Women Ownership in the project company is a new requirement and has a 5% threshold, otherwise all other Economic Development requirements as per BW4 have been retained.
Inconsistency discouraged industrialisation and localisation
South Africa is procuring new renewable energy capacity for the first time in 7 years after its renewable energy programme went into limbo as a result of energy policy uncertainty and Eskom’s reluctance to sign power purchase agreements with bid winners of the last bid window.
The government has been embarking on a number of energy reforms to ensure security of energy supply and attract renewable energy investment. Africa’s most industrialised nation has been battling economically devastating power outages that have contributed to an economic recession.
The country issued a tender to develop new generation capacity of 2 600 MW, including 1 600 MW from onshore wind energy and 1 000 MW from Solar Photovoltaic (Solar PV) power plants, in line with the government’s intention to increase generation capacity.
South Africa’s wind energy industry representative body, SAWEA says “in order to achieve a successful localization programme, with incremental local content thresholds, a consistent procurement pipeline should be established. This would be a positive development as it facilitates augmented job creation and skills development as the economy recovers from the COVID-19 pandemic and looks to accelerate economic growth.”
SAWEA cautioned that the stop-start nature of procurement, and the latent bid windows, severely damaged the meaningful momentum, pre-2015, which established new manufacturing capacity within the wind and solar value chains in South Africa. Significant manufacturing capacity was lost in the delay between BW4 and BW5, with many companies being forced to shut down as a result of the delays, unable to carry the cost of overheads indefinitely.
Post COVID-19 Manufacturing sector recovery
Looking at the recovery of the manufacturing sector and the possibility of re-investment, SAWEA CEO, Ntombifuthi Ntuli commented, “Whilst we wholeheartedly celebrate the new impetus, one must be mindful that regaining the investor confidence will not be an overnight process. To enable the required quantity and very importantly, quality of components will require at least two to three years of investment and development. It is therefore crucial that further interruptions or delays are not encountered. A controlled roll out of procurement will allow all aspects of the value chain, and not only the manufacturing sector, to expand.”
SAWEA says the industry remains confident in its ability to meet local content requirements and reiterates that it has no reservations or concerns that the sector will respond positively. The Association also facilitated conversations between the DMRE, DTIC and the other key sector stakeholders, to align strategically and map the way forward to deliver on increased local content requirements.
“The wind industry has further submitted its vision to practically increase local content in the next few years and remains fully supportive of growing the local manufacturing sector,” explained Ntuli.
The industry body expressed that it is “heartened” by the establishment of the South African Renewable Energy Masterplan (SAREM), which is set to contribute immensely to fast tracking the establishment of local manufacturing capacity. It is intended that this framework will provide a blue-print from which government departments such as the DTIC and the DMRE can provide incentives for investment into local manufacturing.
“This is once again important for future Bid Windows and the renewable energy sector’s ability to deliver jobs and investment, in the post-COVID-19 recovery period.”
“SAREM represents an opportunity to identify jobs and investment in our sector linked to the country’s resource plan, as well as to clearly outline how job creation and investment might be enhanced if impediments are removed and replaced rather with supportive policy,” added Ntuli.