South Africa’s REIPPP Program Drives Local Content via Compliance Requirements

Africa Oil & Power recently spoke with Janine Espin, Managing Director of Economic Development Solutions (EDS), about the anticipated compliance requirements associated with the Bid Window 5 of South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) Program; the benefits of compliance for both renewable energy project owners and local communities; and the impact of the recently launched window on the national economy.

What are the primary compliance issues facing South Africa’s renewable energy industry?

If we look at what the compliance requirements were for the Risk Mitigation Independent Power Producer Procurement Program, which took place last December, we are left to assume that Round 5 will have similar requirements, as we don’t know the specifics at this stage. We are anticipating compliance around ownership, skills development and transfer, supplier development, enterprise development, socioeconomic development and local content. Specifically, we are looking at compliance in relation to the designated local content that has been defined and set out per the Department of Trade and Industry (DTI). Additionally, we have to consider management control and bringing in gender and race representation under the management control elements of the economic development. We also saw compliance with regards to key equipment, which also aligns with the DTI, and the inclusion of carbon tax – which has been a new compliance element.

What are the benefits of compliance for renewable energy organizations?

From a project owner perspective, the benefits include being a compliant bid that can be submitted and accepted, and hopefully, if the tariffs and value for money are strong, they can be elected as a preferred bidder and get their licenses issued in the long-term. The benefits are not only specific to the projects that are bidding, however, but also apply to the economy and local communities where the projects are going to be constructed. From an economic point of view, if we look at local content compliance requirements specifically, there are spinoffs with opportunities for local manufacturers and local goods and services being procured, as well as spinoffs for local job creation.

How can compliance ensure long-term and sustainable project development within the country’s renewable industry?

There also exist socioeconomic benefits for local communities where projects are built. From a long-term perspective, compliance can ensure local manufacturing and job creation opportunities within the downstream supply sector. However, we cannot exclude long-term benefits from the country having a stable and sufficient electricity supply. This not only speaks to other industries that will be impacted, such as businesses and households, but there will be other investment and opportunity spinoffs, as well. This is what we really need to kick-start our economy after COVID-19.

With regards to the recently launched Bid Window 5 of the REIPPP Program, what can organizations do to ensure participation in the current and upcoming bid windows?

If we look at project owners specifically, they need to have a biddable and competitive project. The IPP office looks at value for money as one of the components of compliance. By looking at value for money, you are acknowledging that you are building a project with a certain number of megawatts, which has proven to have a competitive tariff. But you also have to look at the downstream and broader economic benefits, in terms of local community participation and impacts, implemented sustainable development programs, and skills development and transfer. Additionally, you have to look at broader national development objectives and how a project will meet and fit into these objectives. Value for money considers community dynamics that are often overlooked. Building a project is one thing, but when you have communities that are desperate for opportunities, projects need to be wary of these community expectations. If they aren’t, it may risk unnecessary delays that can cause a dire impact on not only the projects, but also the economy as whole.

In your view, what is the value of the Bid Window 5 for South Africa’s economy?

The value of this bidding window is the message that the Government is sending: we are open for business. The value is also related to economic benefits. The majority of renewable projects built in the past are internationally funded, and even though we have local banks that are lenders, most of these project owners are international firms. Therefore, there are huge investment flows from these projects. Additionally, there is value with regards to job creation. Considering job losses due to COVID-19, the window will allow opportunities for work to be gained not only directly through construction, but also in the downstream sector. The value is not only necessarily from an electricity supply and investment perspective, but also from a job creation perspective.

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