The IPPP risk mitigation program is increasingly disorganized |
By Chris Yelland, Managing Director, EE Business Intelligence
Following the announcement on March 18, 2021 of the preferred bidders for 2,000 MW of new emergency generation capacity in South Africa as part of the IPPP risk mitigation program, the ânon-negotiableâ deadlines for financial close by the end of July 2021 and the supply of the network by mid-July at the end of 2022, seem increasingly unlikely.
In addition, local content designated by the Department of Trade, Industry and Competition (the dtic) for installations and components purchased under this independent supply program from mitigating power producers risk (RMIPPP) turns out to be considerably unrealistic.
Some 1,220 MW, or 61% of the 2,000 MW, of transportable generation capacity acquired under the RMIPPP program will come from three floating power plants (powerships) and floating storage and regasification units (FSRUs), all leased. to the Turkish company Karpowership and moored in South African ports for 20 years.
Already, Karpowership has successfully requested an exemption from the local content designated by the dtic for ships, in the request for proposal documents (RFP) of the IPP office of the Ministry of Mineral Resources and Energy (DMRE). Powerships, FSRUs and all associated on-board equipment will be fully equipped, with no local content.
In addition, electric vessels are powered by fully imported liquefied natural gas (LNG) arriving from abroad periodically in tankers to fill the FSRUs. After regasification of the LNG, the natural gas obtained is transported by pipeline to supply the gas engines driving the generators of motor ships.
Legal challenges key in work on how and when emergency feed will go live
A legal challenge from an unsuccessful bidder, DNG Energy, is scheduled to be heard in court from July 14-16, 2021, and could put a damper on the road. DNG Energy claims that the granting of preferred bidder status to Karpowership was irregular and corrupt, and that DNG Energy, with its onshore gas-electricity bid, should be substituted as preferred bidder in place of Karpowership.
In addition, the decision by the Department of Forestry, Fisheries and Environment (DFFE) to deny environmental clearance applications for the three Karpowership projects, and the subsequent internal appeal announced by Karpowership, will likely also delay the financial close of these. projects.
Even if Karpowership’s internal appeal to the DFFE succeeds in overturning this ruling, it is expected that it will simply trigger legal action in courts by environmental groups, in a bid to continue efforts to prevent the projects from becoming go forward.
Financial close by the end of July 2021 for the eight projects representing the balance of 780 MW of transportable generation capacity to be acquired under the IPPP risk mitigation program also seems increasingly unlikely.
Did you read?
Government denies Karpowership environmental clearance
Emergency Power Selection: Renewable Energy Powerships and Storage
Localization within the IPPP risk mitigation program seems increasingly unlikely
These 780 MW of transportable power would include 160 MW of wind power, 1,700 MW of solar photovoltaic, 640 MW of battery storage and 350 MW of diesel / gas to be supplied. There are indications that developers and financiers are in discussions with the IPP Office, and that a two-month extension until the end of September 2021 for financial close could also be considered for these projects.
First, since the announcement of the eight preferred bidders incorporating some 1,700 MW of solar PV panels into their projects, it has become apparent that Hulamin has closed its aluminum extrusion and anodizing lines for solar PV module frames, and that aluminum frames will now have to be fully imported.
Thus, the 65% local element content designated by the dtic for aluminum frames cannot be complied with. The two potential local manufacturers of solar photovoltaic modules in South Africa (ARTsolar / LONGi and Seraphim) have since requested and obtained the exemption of the local content designated by the dtic for the frames of photovoltaic solar modules of the RMIPPP program. However, such exemption has not been obtained for supply window 5 of the REIPPP program at this stage.
Second, the ambitious deadlines initially proposed for the local assembly of solar PV modules for the 1,700 MW of solar PV projects in the RMIPPP program appear to have been overestimated and unrealistic.
Situation of chickens and eggs resulting from the use or not of locally produced products
In an article on EE Business Intelligence website, ARTsolar has indicated that it will begin local assembly, testing and quality assurance of Tier 1 certified 540W LONGi PV solar modules in August 2021 from a new ARTsolar plant with a capacity of 500 MW per year. The photovoltaic solar panels would be in storage and delivery to project developers would begin in the first quarter of 2022.
The latest information from ARTsolar is that it still has not finalized the import of the machines for the new factory from the foreign suppliers, as no letter of intent or committed order has yet been received by ARTsolar / LONGi from the from developers. This is perhaps not entirely surprising since financial close has always been envisaged for the end of July 2021.
ARTsolar now says that instead of the new 500 MW per year LONGi solar PV assembly line up and running by August 2021, it intends to upgrade its existing assembly line in Pinetown to one line. installation of 200 MW per year photovoltaic solar modules, Tier 1 certified by January 2022. The new Tier 1 certified assembly line of 50 MW per year would then not be ready to supply until March 2022 at the earliest , all this being subject to committed orders from the developers, in time to justify the new installations.
Questions raised about how localization in the risk mitigation program affects auction window 5
There is significant industry concern among the successful developers and their financiers for the IPPP Risk Mitigation Program, as well as potential bidders for the REIPPP Program Offer Window 5, about the capacity of ARTsolar / LONGi and Seraphim to deliver products assembled locally, level 1 certified photovoltaic solar modules, respecting the deadlines and volumes required, and with the minimum local content initially designated by the dtic both for the anodized aluminum module frames and for the photovoltaic solar modules themselves.
Discussions are therefore underway between the developers, the financiers, ARTsolar / LONGi, Seraphim, the dtic and the IPP Office to obtain a partial exemption from the requirements of designated local content of the photovoltaic solar modules or of the eRMIPPP program and possibly also for the REIPPP Program offer window 5.
With a partial exemption, part of the solar PV modules to meet the 1,700 MW of solar PV for the RMIPPP program would have to be assembled locally, the rest could be entirely imported.
This of course raises interesting issues regarding the distribution of locally assembled and imported PV solar modules among RMIPPP program projects, noting that locally assembled PV solar modules cost more to project developers, compared to fully solar panels. imported. photovoltaic modules.
Disarray in program highlights siled approach to energy supply in South Africa
It is also highly unlikely that a developer will authorize solar PV modules from two independent manufacturers with different product specifications, on a particular solar PV project. The maximum that a developer can allow on a particular solar project is locally assembled PV solar modules, Tier 1 certified from ARTsolar / LONGi or Seraphim, used with identical imported modules manufactured by LONGi or Seraphim in China respectively.
This would block the LONGi and Seraphim solar PV modules for the full requirement of the 1,700 MW of solar PV capacity for the RMIPPP program, which ARTsolar / LONGi and Seraphim would likely consider to be quite appropriate, as they are the ones who stepped in. the upcoming neck with local installations for assembling photovoltaic solar modules for the RMIPPP and REIPPP programs.
The significant disarray in which the RMIPPP program of the DMRE finds itself clearly indicates the silos in which the dtic, the DFFE, the DMRE, the IPP Office, Eskom, developers, financiers and local industrialists find themselves. This underscores the need for much more effective communication and engagement among these energy sector participants, in the national interest.
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