Challenges to Investment
Before 2011, South Africa had minimal renewable energy capacity, with over 90% of electricity generated from coal and controlled by the state-owned utility, Eskom. Participation from Independent Power Producers (IPPs) was low, given perceived risks to investment including financing challenges and inadequate grid infrastructure. Potential private sector investors also cited limited confidence because of the lack of clarity on energy sector governance, procurement, and evaluation processes. As a result, South Africa had limited success in expanding overall electricity generation and attracting investments in clean energy.
Approach
To address these challenges, in 2011, the South African Department of Mineral Resources and Energy (DMRE) launched the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to replace the existing Feed-in-Tariff system that was active since 2009. The REIPPPP implemented a competitive bidding process, whereby private sector developers would submit proposals to build and operate renewable energy projects during a “bid window.” Qualified technologies included onshore wind, solar PV, solar thermal, solid biomass, biogas, landfill gas, and small hydroelectric plants.
The bid window was structured as a one-stage tender, where bidders could compete for a fixed amount of MW for each technology. All compliant offers were allowed to participate, fostering competition, but were subject to stringent proposal requirements, with winning bidders selected based on bid price and a range of economic development criteria (e.g., job creation and localization). For each technology, bid prices had to be equal or lower than the technology tariff cap set by the government. Finally, winning bidders were required to sign standardized, non-negotiable contracts. The contracts were 20-year inflation-indexed power purchase agreements (PPAs), paid by Eskom and 100% guaranteed by the National Treasury (falling to 80% in Bid Window 7 in 2023).
Key Enabling Conditions
Ongoing improvements in the bidding process and transparent procurement processes enhanced efficiency and ensured fair competition among bidders in the REIPPPP. Moreover, the availability of guaranteed long-term tariffs, the size of the program, and the speed of implementation all helped to instill greater investor confidence. Last, South Africa’s well developed capital market facilitated access to long-term financing, enabling the successful financing and execution of REIPPPP projects.
Impact / Outcomes
As of May 2024, the DMRE had completed six bid windows, with projects awarded in Bid Window 5 (BW5) already under construction and most projects awarded in BW6 nearing financial close. From 2010 to March 2019, the first four bid windows of the REIPPPP programme attracted significant private sector investments of $20.5 billion (ZAR209.7 billion). Out of this figure, 20%, or $4.1 billion (ZAR41.8 billion) came from foreign direct investment. These investments amounted to over 6,200 MW of capacity across 92 IPPs, with wind and solar PV projects comprising 86% of the total. The competitive bidding process led to an average tariff reduction of 52% and 26% for solar PV and wind, respectively, even lower than tariffs for new coal and nuclear power plants. Moreover, the programme projected the creation of 109,444 jobs for local citizens, with 84,564 jobs specifically benefiting black citizens and 57,690 jobs benefiting the local communities surrounding the project sites.
Additional Sources
- Eberhard, A., Kolker, J., Leigland, J. (2014), South Africa’s Renewable Energy IPP Procurement Program: Success Factors and Lessons, https://www.gsb.uct.ac.za/files/ppiafreport.pdf
- Eberhard, A., & Naude, R. (2016), The South African Renewable Energy Independent Power Producer Procurement Programme: A review and lessons learned, Journal of Energy in Southern Africa,27(43), 1-14, https://scielo.org.za/pdf/jesa/v27n4/01.pdf
- Eberhard, A., & Naude, R. (2017), The South African Renewable Energy: IPP Procurement Programme, https://www.gsb.uct.ac.za/files/EberhardNaude_REIPPPPReview_2017_1_1.pdf
- GGA (2023), The state of the renewable energy independent power producer procurement programme: Where to from here? https://digitalmallblobstorage.blob.core.windows.net/wp-content/2023/12/IR-REIPPPP.pdf
- Kruger, W. (2023), South Africa’s Renewable Energy Auctions: An Exploration of Factors, Processes and Outcomes, Administratio Publica, 31(2), https://journals.co.za/doi/epdf/10.10520/ejc-adminpub_v31_n2_a4
- Leigland, J., & Eberhard, A. (2018). Localisation barriers to trade: The case of South Africa’s renewable energy independent power program. Development Southern Africa, 35(4), 569–588. https://doi.org/10.1080/0376835X.2018.1487829
- PCC (2023), A Critical Appraisal of South Africa’s Just Energy Transition Investment Plan, https://pccommissionflow.imgix.net/uploads/images/PCC-analysis-and-recommenations-on-the-JET-IP-May-2023.pdf
- Winkler, A., Keen, S., Marquard, A. (2021), Funding to set up the Renewable Energy Independent Power Producer Procurement Programme in South Africa, https://www.diw.de/documents/dokumentenarchiv/17/diw_01.c.794589.de/background_report_south_africa_funding.pdf
- https://fsr.eui.eu/contracts-for-difference/
- https://www.gov.za/about-government/government-programmes/renewable-independent-power-producer-programme
- https://www.iea.org/policies/5393-renewable-energy-independent-power-producer-programme-reippp
- https://www.ipp-projects.co.za/
- https://www.pv-magazine.com/2021/09/30/reippp-one-of-the-worlds-best-renewable-energy-tenders-but-theres-room-for-improvement/