Bidders scramble for scarce megawatts
AN ANXIOUS group of bidders and financial backers of renewable energy projects outnumbered a posse of journalists at a Department of Energy media conference on Monday to announce successful projects for the second bid "window".
The sheer number of bidders and financial backers who made the early morning journey to Pretoria to hear for themselves if their respective projects were successful tells a story about the significance of the independent power producer (IPP) procurement programme. The programme will procure 3725MW of renewable power by 2016.
There is a lot at stake for the developers and their financial backers. A lot of hard work goes into making renewable energy projects "bid ready". The department says it has set stringent requirements for bidders. For instance, the department has set ambitious local content requirements, which stipulate the extent to which project developers must use locally made parts and components.
In some technologies, the local content requirement is as high as 60%, according to Energy Minister Dipuo Peters.
Developers are coming to terms with the programme's onerous requirements though.
Matt Nash, a director of law firm Norton Rose SA, says some developers are struggling with the issue of how to handle risk and responsibilities.
But the stringent requirements come at a cost, hence the nervousness at the department on Monday. With each passing bid, "window" megawatts from the 3725MW set aside for the programme are taken up.
Now that Ms Peters has unveiled the successful 19 projects - out of 79 - for the second bid window, the real work begins for the project developers.
One of the biggest hurdles for the project developers is closing their financial arrangements. The projects announced on Monday must reach financial closure in December.
Already Ms Peters has warned about possible financial difficulties for developers and appealed to financial institutions to "come to the party".
The department does not want to see any of the projects collapse, and certainly not when there is so much competition for the available megawatts.
Out of the 79 projects submitted, 51 met the programme's qualification criteria. So there are a number of bidders whose projects qualify, but must wait for the next bid round. Commenting on liquidity in the South African market, Julian Jackson, a director at Norton Rose, says that with the value of the programme estimated at R100bn, debt finance will come to about R70bn.
"The local financial markets will be stretched, but I expect that strong projects will continue to be able to raise finance." Mr Jackson does, however, expect financial institutions to pick the best projects.
CEO of Cennergi Thomas Garner says the company will fund the equity from its balance sheet and the debt will be raised with commercial banks.
The company is a preferred bidder for two projects - the 140MW Amakhala Wind Farm project near Bedford in the Eastern Cape and the 94,8MW Tsitsikamma Wind Farm project, which is also in the Eastern Cape.
Cennergi says it aims to have 16GW of energy-generation capacity projects in Southern Africa by 2025.
It is not only SA that is grappling with the financing of renewable energy projects.
A study by specialist research firm Bloomberg New Energy Finance says the financing of US solar projects is undergoing a transformation.
"New financing vehicles and new investors across the solar project lifecycle - development, construction, commissioning, and then long-term operation of assets - will cause the costs of equity, debt, and potentially even tax equity to migrate down," says Michel Di Capua, Bloomberg New Energy Finance head of analysis in North America.
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