Intense interest as power producers line up for R30bn renewables stake

The appetite of local and international independent power producers (IPPs) to play a part in South Africa’s multibillion-rand renewable energy sector remains strong in spite of recent delays in opening the bidding process.

This is the experience of Standard Bank Group’s (SBG) head of power finance Alastair Campbell.

Speaking at the third Wind Power Conference in Cape Town (held 9 to 11 May), he saidthat with hundreds of local and international IPPs preparing their bids, project financing activity by major South African banks is already shiftingtowards the energy sector in anticipation.

Government was expected to commence the process of requesting proposals for about US$4.5-billion worth of renewable energy projects to IPPs in April, but the process was halted following the National Energy Regulator of South Africa’s (Nersa’s) decision to hold public hearings on revised renewable energy tariffs.

Mr Campbell says this has started a kind of gold rush as about 300 local and international IPPs are said to be interested in these projects.

He says Standard Bank Group has already taken a number of strong mandates fromseveral interested players to advise, undertake due diligence or act as lead arranger on proposed projects worth billions of rand.

“In spite of the delays caused by the Nersa public hearing process, there is still considerable interest out there. A lot of major international players are here, and many are establishing themselves in preparation of the bidding process. As soon as the tendering process is finalised, Standard Bank Group will be ready to disburse finance to some of the projects.”

He pointed out that capital investments by IPPs in the renewable energy sectorcould easily reach R200-billion over 20 years – nearly half of which would be investments in wind power generation. Companies that stood a chance of winning stakes in the bidding process were those that were already doing preparatory work.

The introduction of IPPs into the local renewable energy sector will boost state-owned utility Eskom’s supply capacity by adding as much as 5,000megawatts, more than 10% of new power by the year 2020. This would be a significant boost to South Africa’s total current power generating capability of about 40 000-megawatts, and further diversify energy streams away from carbon emitting sources.

The tender process will follow the finalisation by the Department of Energy of the Integrated Resource Plan (IRP) in April this year, which forecast South Africa’s electricity demand to increase at an annual average growth rate of 4.5% over the next 20 years.

“There is a huge amount of anticipation in the market, with the bidding process expected to open towards the end of May when a host of documents are expected to be released,” said Mr Campbell. “These include the actual bid document, power purchase agreement, and critically the letter of support from the government.”

The bidding process is expected to last for four months, which will put biddingconsortia under considerable pressure to meet requirements. Four local law firms and one international firm have been commissioned by government to ensure that documents are prepared to an international “bankable” standard.

Time is critical because we believe that the Department of Energy would like to see a number of deals being finalised before the COP17 (the 17th session of theConference of the Parties) global climate conference in Durban later this year,” he said.

For more on the Wind Power Conference see www.afriwea.org/events/wpa2011.