South Africa

September 05, 2012

SOUTH AFRICA is expected to see a significant number of renewable energy projects under its so-called REFIT program reach financial close shortly.

The program seeks to procure 18,000 megawatts of renewable energy over the next 20 years.

The first phase of the program to procure 3,725 megawatts by 2016 launched in August 2011. There are five “bidding rounds” in the first phase staggered from November 4, 2011 to August 13, 2013.

The program has attracted keen interest from developers, investors and engineering, procurement and construction contractors from across the globe, including the US, Germany, Italy, Spain, France, China and India.

Bids for 53 projects amounting to 2,128 megawatts were received by the Department of Energy in round 1. Of these, 28 bids, representing 1,416 megawatts, were selected as preferred bidders. These are made up of 18 solar photovoltaic projects, representing 631 megawatts, two concentrated solar power projects, with a combined capacity of 150 megawatts, and eight wind farms, representing 633 megawatts. 

Financial close for these projects had originally been scheduled to occur by June 19, 2012 before the Department of Energy extended the date to the end of July. This date was then
postponed by the Department of Energy citing the finalization of internal and regulatory approvals by various counterparties. Subsequently, the Department of Energy indicated that it would be sending requests to bidders for an extension of the bidding period beyond the August 31, 2012 bid validation period, effectively putting the market on notice that the  financial-close period could extend beyond that date. Despite these delays, it is widely expected that the process for closing the first of the round 1 projects will commence soon.

Seventy-nine bids for 3,200 megawatts of capacity were submitted for round 2. Following the round 2 evaluation, 19 additional projects representing 1,043 megawatts have also been named as preferred bidders. These projects are made up of nine solar projects with a combined capacity of 417 megawatts, seven wind farms representing 562 megawatts and one 50-megawatt concentrated solar project. These projects are required to achieve financial close by December 13, 2012. 

Although the official line is that this deadline will be maintained, a delay is widely expected due to the delay in closing round 1 projects. 

The round 2 projects were characterized by a significant reduction in bid tariffs compared to round 1. This was most notable among the solar photovoltaic projects, highlighting the extent to which the round 1 projects had benefited from the above-market tariffs under the program. Average prices of solar photovoltaic projects fell from 2.75¢ per kWh (SA rand) in round 1 to 1.65¢ per kWh (SA rand) in round 2.

The next round of bidding is currently scheduled for October 1, 2012, although once again it is widely expected that this date will slip. 

Some 1,300 megawatts of capacity remain available for allocation under the first phase of the program, although Energy Minister Dipuo Peters recently announced that she would be issuing a further declaration “soon” extending the amount of capacity to be procured in the first phase beyond the 3,725 megawatts already in process.