Making Sense of South Africa’s RMIPPPP
2 July 2021
Since 2007, South Africa has experienced widespread rolling blackouts (also known as “load shedding”) which are primarily due to insufficient power generation capacity.
The crisis has continued to worsen.
Despite the pandemic, 2020 marked the worst year on record. Data from the Council for Scientific and Industrial Research (CSIR) showed there were 859 hours of load shedding endured by residences, industries and business.
Business Unity South Africa (Busa) has claimed South Africa faces an energy supply gap of around 5,000MW until at least 2025.
This has had numerous negative effects on the country’s economy and reputation. For example:
In response, the South African government has finally announced a comprehensive response with its Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP).
While the programme promises to help address the country’s electricity shortage woes, it’s already steeped in controversy and criticism.
Here’s a brief summary of what the RMIPPPP was intended to do, and what’s happened since …
The crisis has continued to worsen.
Despite the pandemic, 2020 marked the worst year on record. Data from the Council for Scientific and Industrial Research (CSIR) showed there were 859 hours of load shedding endured by residences, industries and business.
Business Unity South Africa (Busa) has claimed South Africa faces an energy supply gap of around 5,000MW until at least 2025.
This has had numerous negative effects on the country’s economy and reputation. For example:
- Mining companies have reported that hundreds of thousands of ounces of gold and platinum production have been lost annually.
- A small business sentiment report found that 44% of small business owners claimed to have been severely affected by the crisis, with 85% stating that load shedding had reduced their revenue.
- Standard & Poor’s Global Ratings has downgraded government-owned national power utility and primary power generator Eskom’s credit rating to BB, which is two levels below the investment threshold and into junk bond territory.
- Busa chief executive Cas Coovadia claims: “Load shedding was estimated to cost the economy between R80-R160-billion in 2020 and continues to impede economic recovery. Security of supply to enable economic recovery is paramount and every and all avenues to secure additional supply in the short to medium term should be explored and leveraged."
In response, the South African government has finally announced a comprehensive response with its Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP).
While the programme promises to help address the country’s electricity shortage woes, it’s already steeped in controversy and criticism.
Here’s a brief summary of what the RMIPPPP was intended to do, and what’s happened since …
What the RMIPPPP is
The RMIPPPP represents the government’s response to the short-term electricity supply gap of approximately 2 000 MW between 2019 and 2022.
It was launched August 23, 2020 to fill the short-term supply gap, alleviate electricity supply constraints and reduce chronic dependency on expensive and polluting diesel-based peaking electrical generators.
The programme’s stated aim is to procure scalable, flexible and technology-agnostic power generation and supply which can connect power to the grid by June 2022. Key principles included a “least cost and least regret” design that considered socio-economic, affordable electricity and economic growth challenges.
And since RMIPPPP is considered an emergency, near-ready projects to incentivize early power with short timelines were preferred.
Such projects could be comprised of single or multiple facilities using fuel and non-fuel based generation as long as the amount ranges between 50 MW and 450 MW per project.
What’s more, the RMIPPPP provides for long term power purchase agreements ranging up to 20 years.
So what’s happened?
It was launched August 23, 2020 to fill the short-term supply gap, alleviate electricity supply constraints and reduce chronic dependency on expensive and polluting diesel-based peaking electrical generators.
The programme’s stated aim is to procure scalable, flexible and technology-agnostic power generation and supply which can connect power to the grid by June 2022. Key principles included a “least cost and least regret” design that considered socio-economic, affordable electricity and economic growth challenges.
And since RMIPPPP is considered an emergency, near-ready projects to incentivize early power with short timelines were preferred.
Such projects could be comprised of single or multiple facilities using fuel and non-fuel based generation as long as the amount ranges between 50 MW and 450 MW per project.
What’s more, the RMIPPPP provides for long term power purchase agreements ranging up to 20 years.
So what’s happened?
The RMIPPPP results so far
In a word: controversy.
The government’s actions so far have been described as a debacle, but before we examine those accusations, let’s cover the key points the government has announced:
The Mineral Resources and Energy department has amended regulations to enable municipalities to build or procure power from Independent Power Producers (IPPs). Companies can build their own power plants with up to 100MW of generating capacity without requiring a license. This breaks the monopoly of government-owned Eskom.
There’s also a proposal to procure 2,600 megawatts from renewable energy, as well as additional proposals for 9 213 megawatts from renewables, coal, gas, and battery storage between now and March 2022.
The department is procuring 1,995 megawatts with preferred bidders given until the end of July to reach financial close and Power Purchase Agreements to be signed shortly after that.
It’s this last point that’s generated most of the controversy.
Turkish firm Karpowership builds and owns a fleet of power supply ships known as powerships. These are barge- or ship-mounted floating power plants which operate on heavy fuel oil and natural gas.
Karpowership has been selected to provide 1,200MW of electricity via gas-burning floating power stations moored in three of South Africa’s largest harbors for 20 years.
So what’s the problem?
The government’s actions so far have been described as a debacle, but before we examine those accusations, let’s cover the key points the government has announced:
The Mineral Resources and Energy department has amended regulations to enable municipalities to build or procure power from Independent Power Producers (IPPs). Companies can build their own power plants with up to 100MW of generating capacity without requiring a license. This breaks the monopoly of government-owned Eskom.
There’s also a proposal to procure 2,600 megawatts from renewable energy, as well as additional proposals for 9 213 megawatts from renewables, coal, gas, and battery storage between now and March 2022.
The department is procuring 1,995 megawatts with preferred bidders given until the end of July to reach financial close and Power Purchase Agreements to be signed shortly after that.
It’s this last point that’s generated most of the controversy.
Turkish firm Karpowership builds and owns a fleet of power supply ships known as powerships. These are barge- or ship-mounted floating power plants which operate on heavy fuel oil and natural gas.
Karpowership has been selected to provide 1,200MW of electricity via gas-burning floating power stations moored in three of South Africa’s largest harbors for 20 years.
So what’s the problem?
Why there’s controversy over this RMIPPPP bid
Environmentalists fear the powerships will trigger a cascade of direct and indirect environmental impacts, with reporter Tony Carnie of Daily Maverick warning of “high water temperatures that will kill off a variety of marine life in the immediate vicinity of the powerships and possibly change underwater oxygen levels and disrupt the wider marine ecology.”
The ships “may emit up to 56 million tons of C02e (carbon dioxide equivalent) over the next 20 years” despite South Africa already ranked among the world’s top 14 greenhouse gas emitters and having pledged to ramp down emission levels with clean fuels and technology.
Karpowership disputes this claim. The company’s commissioned environmental impact (EIA) reports state the ships’ greenhouse gas emissions should be only 0.16% of greenhouse gas emissions at a national level.
Meanwhile local firms are also unhappy about the company’s blanket exemption from complying with a 40% local content stipulation to boost locally based manufacturers and suppliers.
One further issue that lawyers on both sides are debating is whether or not ship-based power plants can be moored in South Africa’s ports.
And losing bidder DNG Power has claimed the tender process was "grossly and blatantly flawed, corrupt and procedurally unfair" and filed court papers accordingly.
So who’s correct?
That’s ultimately for the government and the courts to determine.
However, the latest development is not in Karpowership’s favour: the Department of Environment, Forestry and Fisheries has refused all three Karpowership applications on environmental grounds.
Yet the story is surely far from over.
Only one thing is certain: the end result of all these arguments and counter-arguments is that project delays are inevitable.
Alternatives to the existing selection and why
Concerns over corruption, cost overruns and government indecision over energy sources and private producers have all contributed to the dilemma.
Yet South Africa needs power now.
The advantage of the ships was their speed of deployment, but that no longer appears to be the case.
Could the proposal have focused more on battery storage?
After all, Eskom is installing a flagship 360MW/1440MWh flagship battery energy storage system (BESS) at 90 sites in the Western Cape, Northern Cape, Eastern Cape, and KwaZulu-Natal.
Could the power plants have been built onshore?
The production of power from wind is already expected to grow by 900% by 2030, and power from solar photovoltaic by 560%. This is while coal’s contribution is expected to drop from 71% to 43% over the same time period.
South Africa’s additional capacity mix up to 2030 is planned as follows:
If and when this happens, the entire risk mitigation purpose of the RMIPPPP could be invalidated as businesses and the public will be forced to endure continued prolonged power blackouts the emergency procurement process was intended to solve.
However, many opportunities remain in the South African power industry.
That’s because despite this crisis, energy sector projects continue to be built and deployed successfully in the country and the region.
After all, we have been successfully operating in Southern Africa for more than a decade. We are very familiar with all aspects of the industry.
Are you considering a project in South Africa or elsewhere in the region?
Yet South Africa needs power now.
The advantage of the ships was their speed of deployment, but that no longer appears to be the case.
Could the proposal have focused more on battery storage?
After all, Eskom is installing a flagship 360MW/1440MWh flagship battery energy storage system (BESS) at 90 sites in the Western Cape, Northern Cape, Eastern Cape, and KwaZulu-Natal.
Could the power plants have been built onshore?
The production of power from wind is already expected to grow by 900% by 2030, and power from solar photovoltaic by 560%. This is while coal’s contribution is expected to drop from 71% to 43% over the same time period.
South Africa’s additional capacity mix up to 2030 is planned as follows:
- 1,500 MW of generation from coal
- 2,500 MW from hydro
- 6,000 MW from photovoltaic (solar)
- 14,400 MW from wind
- 2,088 MW from storage
- 3,000 MW from gas
If and when this happens, the entire risk mitigation purpose of the RMIPPPP could be invalidated as businesses and the public will be forced to endure continued prolonged power blackouts the emergency procurement process was intended to solve.
However, many opportunities remain in the South African power industry.
That’s because despite this crisis, energy sector projects continue to be built and deployed successfully in the country and the region.
After all, we have been successfully operating in Southern Africa for more than a decade. We are very familiar with all aspects of the industry.
Are you considering a project in South Africa or elsewhere in the region?
How ADC Projects Can Help
We sell energy market expertise to commerce and industry, including both big and small hybrid solutions. We provide Project Development, Project Management Operations and Maintenance, Engineering and consulting services to develop and install a variety of power projects including gas engine operations.
We operate in numerous countries besides South Africa, such as Mozambique, Kenya, the DRC, Lesotho, Namibia and Portugal.
Managing risk and developing much-needed energy projects is a key part of our expertise.
To learn more about assessing project liabilities and hazards, becoming less dependent on utility power, saving time and money, and gaining a real advantage over your competition, please contact us today.
We operate in numerous countries besides South Africa, such as Mozambique, Kenya, the DRC, Lesotho, Namibia and Portugal.
Managing risk and developing much-needed energy projects is a key part of our expertise.
To learn more about assessing project liabilities and hazards, becoming less dependent on utility power, saving time and money, and gaining a real advantage over your competition, please contact us today.