INEXPERIENCED bidders in the government-driven private power procurement programme might struggle to meet some of the stringent funding requirements for their projects, Bloomberg New Energy Finance analyst Logan Goldie-Scot said last week.
It is now crunch time for developers of renewable energy projects selected as part of the government's independent power producer (IPP) procurement programme as they must reach financial close by month-end. It remains to be seen if any of the 28 wind and solar projects selected in the programme's first bid window will fall by the wayside because of funding problems.
Mr Goldie-Scot said that some of the developers of renewable energy projects might struggle to meet stringent requirements from funders. "For instance, the banks may say 'give us more (renewable energy) resource data'," he said.
The banks wanted to ensure that they got a good return, he said. "Each party, including the banks, needs to make a margin on this to justify their involvement."
Mr Goldie-Scot said a number of the experienced developers understood how the process worked. "They know whether the projects will be profitable or not," he said.
In the second bid window, the tariffs were lower compared to the first window. As a result, there were doubts if the inexperienced developers would be able to raise finance for their projects in time. He said the local procurement criteria also made projects expensive.
Mr Goldie-Scot said there had in the past been limited interest in the South African renewable energy market. This, however, changed nine months ago when the government abandoned the renewable energy feed-in tariff approach in favour of a competitive bidding process.
Such a move was an important development because the biggest barrier in the development of renewable energy was lack of policy. With a stable policy framework, investment would flow, he said.
"Overall, the IPP programme has been transparent, hence the flurry of interest from local and international investors." However, it has had its "teething problems", he said.
The biggest concern, he said, was Eskom's ability to connect the IPPs into the national electricity grid. Eskom did not prioritise the connection of IPPs into the national grid, he said.
However, last week Eskom said that it was committed to facilitate the entry of IPPs into the national electricity grid.
The utility had established the Grid Access Unit, which would "focus solely on the connection of IPPs to the Eskom network, as well as managing the relationship before, during and post connection".