Some of the preferred bidders that participated in the Small Renewable Independent Power Producer Programme (Smalls), which has subsequently been terminated, are considering legal action against Eskom and the Department of Mineral Resources and Energy (DMRE) to have the projects reinstated or to be reimbursed for costs incurred.

The 100 MW programme was launched in 2013 for projects between 1 MW and 5 MW in size and was open to bidders employing onshore wind, solar photovoltaic, biomass, biogas or landfill technologies.

It was specifically designed to open the market to emerging and smaller-scale South African independent power producers (IPPs), which had struggled to compete in the larger Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Following two bidding rounds, a total of 20 projects were identified as preferred bids in 2013 and 2015 but, as with the REIPPPP, the Smalls programme was disrupted by a power purchase agreement (PPA) signing impasse between 2014 and 2018.

The impasse arose after the then Eskom leadership refused to conclude new PPAs with renewables IPPs on the basis of a supposed return to a surplus generation position by the State-owned utility.

The argument has since been proven to be false, with the progressive intensification of load-shedding to the point where Eskom has recently been implementing 6 000 MW of rotational cuts to stave off a blackout.

When government finally moved, in 2018, to sign outstanding PPAs for the projects concluded under Bid Window 4 of the REIPPPP the Smalls projects were not included.

The programme was, nevertheless, still referenced in a 2020 Government Gazette published by the Presidential Infrastructure Coordinating Commission, which listed infrastructure programmes that had been officially designated as Strategic Integrated Projects in line with the Infrastructure Development Act.

The DMRE reportedly undertook “value for money interactions” with the preferred bidders and provided a report to Eskom in December 2020.

By November 2021, however, the Smalls preferred bidders were informed by the DMRE that the programme had been terminated based on an “Eskom board decision and an Eskom board request to cancel the Smalls projects”.

In its correspondence confirming the cancellation, the DMRE expressed regret at Eskom’s decision, but said that it had been left in a “precarious position”, as proceeding had become impossible in the absence of a buyer.

“The department did not contemplate that the Eskom board would not approve the projects,” the DMRE told Engineering News in response to questions.

“The department and preferred bidders had ongoing engagements with Eskom for several months prior to the decision to improve the value for money outcomes to meet buyer requirements.”

The DMRE adds that the conclusion of a procurement process is contingent on the approval of Eskom board to enter into the PPA as the buyer of the energy output as contemplated in the Ministerial Determination and the Request for Proposals.

“Without such an approval, the department could not further pursue the closure of the preferred bidders,” it said, adding that it is unaware of any possible legal action by the preferred bidders.

Eskom tells Engineering News that the board decision was made after the utility adopted a “uniform risk profile with respect to the IPP programmes” that took account of drafting improvements made to procurement documentation “as a result of valuable contract management learnings” over a nine-year period.

“Consequently, by December 2020 Eskom together with the IPP Office had agreed drafting updates to the PPA for the Smalls Projects, which was aligned with the risk profile adopted by Eskom under the Bid Window 5 REIPPPP PPA and the Risk Mitigation IPP programme.

“Eskom was advised that the Smalls projects were not amenable to concluding their projects on the basis of this updated PPA and were insisting that their projects be concluded using the PPA and the risk allocation matrix that was used when the original procurement request for proposals was put out to the market,” the utility said in response to questions.

However, several aggrieved preferred bidders tell Engineering News that communication between themselves, the IPP Office and Eskom was extremely limited after 2018 and that they feel that they were unfairly strung along for years, during which they incurred costs associated with maintaining their bids.

In some instances, these costs included securing updated grid connection budget quotations from Eskom.

In an interview with four of the bidders, some of which had more than one project identified under the Smalls programme as preferred bids, the IPPs indicated that, at a minimum, they felt that they should be remunerated for the costs they had incurred in both bidding and in keeping the bid active for nearly ten years.

A group of bidders has, therefore, approached lawyers to prepare legal action against the department and Eskom.

“I can’t talk on behalf of all the projects, but if we were aware that the programme would be cancelled because of the fact that we were not amenable to sign the new PPA, we would have agreed to signing the new PPA.

“This was never communicated to us as a reason for the programme not going ahead,” Busby Renewables Consortium head Rudi Kriese tells Engineering News.

“Our biggest frustration is that we can see that our tariffs are far below the cost incurred by Eskom to run the diesel-fuelled open-cycle gas turbines and yet we are being told that our bids are not competitive,” Ventura Alternative Energy’s George van Rensburg asserts.

The wind and biomass projects were either equal to or only slightly below their respective price caps of 100c/kWh and 140c/kWh, the solar PV projects were well below their cap of 140c/kWh and generally in line with the REIPPPP BW 3 average solar PV bid tariff of 99c/kWh.

All four bidders indicate, too, that they had not been transparently updated about changes to Eskom’s approach towards IPPs, while it took them months to confirm with government that a decision had indeed been taken to terminate the programme.

The correspondence was sent only after several requests and after some bidders travelled to meet an IPP Office official, who did not immediately honour the engagement, which happened at a different time and venue.

They also noted that all the projects had to pass through environmental, technical and commercial thresholds that were identical to those faced by the BW 4 bidders, whose PPAs were eventually signed by Eskom in 2018.

Eskom has defended its decision not to sign, however, explaining that, had it concluded a PPA based on the 2013 framework, it would have resulted in a loss not only of the drafting improvements but also concessions achieved under the current REIPPPP risk-allocation profile.

It also insists that when the Smalls projects were “reactivated” in 2020, 12 budget quotations had expired in the absence of a reapplication, while seven others elected not to proceed with the submission of the detailed designs required for the issuance of budget quotations. The remaining bid fell within a municipal supply area.

“Failure by a customer to accept the budget quotation conditions or failure to apply to extend the budget quotation within 120 days of issuance will result in the Budget Quotation lapsing.

“Once a Budget Quotation lapses, the capacity is “released” and made available to be allocated to other interested customers,” Eskom said, adding that it is, thus, unlikely that the grid capacity set aside for the Smalls projects is still available.

Kriese says that, while he cannot comment on other projects, Busby Renewables had diligently requested an extension of the validity of the budget quote every time.

“The only reason it eventually lapsed (after us extending it multiple times) is because Eskom refused to extend the budget quote again based on the uncertainty with the Smalls projects,” he said, adding that Eskom indicated that they would have to reapply once the programme eventually went ahead.

Because the cost of obtaining a budget quote can run into millions of rands, Kriese says it is understandable that some project developers first wanted to have a PPA concluded before paying to obtain a budget quote with a limited validity period.

“I cannot speak for all the projects, but I know for a fact that the grid capacity for the Busby project is still available.

“Eskom’s technical division informed us earlier this year that their grid upgrades had been completed and asked when we would be starting with the project implementation.”

Eskom, meanwhile, highlights recent policy changes allowing municipal and other customers to buy from IPPs, as well as the lifting of the licensing requirements from 1 MW to 100 MW, which could create new opportunities for the Smalls projects that did not exist in 2013.

“The main objective of the Smalls projects programme was the development of a local market and skills in the renewable energy sector.

“Given the developments since 2013, specifically with small-embedded PV installations, it would appear that additional stimulus is not required.”

The four small IPPs interviewed by Engineering News confirmed that they were seeking alternative market opportunities, but nevertheless felt that they had been treated extremely unfairly and possibly unlawfully.

A decision as to whether or not to proceed with legal action will be made soon, they indicated.