Renewable energy bid selection and allocation criteria in SA flawed

October 29th, 2015, Published in Articles: EE Publishers, Articles: Energize

 

The current bid selection criteria of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme’s narrow evaluation and spatial blindness favours projects that are not necessarily the least-cost option for renewable energy at the point of consumption. This not only impacts energy costs for Eskom, and therefore for consumers, but also creates transmission congestion and delayed connections to an already constrained grid, incurring even further costs.

Renewable energy (RE) generation forms part of the national integrated resource plan for electricity, IRP 2010-2030 [1], a plan adopted by the DoE in 2011 that establishes an energy generation mix and profile for South Africa up to 2030. The REIPPP programme is the implementation vehicle for RE in terms of this plan.

IRP 2010-2030 allocates 17 800 MW for RE generation, which includes solar photo-voltaic, concentrating solar, wind, gas and hydro power generation. Although some generation sources are geographically bound (e.g. coal), others such as solar PV are not.

Solar PV best exemplifies the bid criteria shortfalls for two reasons: solar PV forms a large part of the REIPPP programme, and solar PV is more “flexible” in respect of geographic location in that solar irradiation is good in most parts of South Africa.

Fig 1a Fig 1b

Fig. 1: Solar PV makes up a large proportion of planned RE generation capacity [15].

Most of the planned 8400 MW of IPP solar PV farms allocated under the IRP 2010-2030 have to date been placed in the “Solar Corridor” – an area in the Northern Cape where solar irradiation is optimal. Currently, some 6400 MW is allocated in the Solar Corridor, with another 2000 MW distributed elsewhere in the country [6, 8].

Flawed bid selection criteria

For the procurement, the South African Department of Energy (DoE) favoured a “competitive tender” bidding approach over a “feed-in-tariff” (the latter being a widely used international policy instrument for procuring RE).

The current bid evaluation process has three parts, the third and most important part being the comparative evaluation.

In the comparative evaluation, the levelised cost of RE supplied at the point of connection to the grid (R/kWh) and the socio-economic development objectives are the determining factors in the comparative evaluation, and are weighted 70 : 30 respectively [7].

Fig 2 - ContractaulAgreement

Fig. 2: Contractual arrangement for RE generation. [Credit: Eskom]

There are five bid phases (or windows) – the first three already completed, and the fourth currently underway. Already the DoE has praised the ever-lower bid prices, with the average energy price from bid window 1 to bid window 4 decreasing from R3228/MWh to R786/MWh (adjusted for April 2014 base) [6, 9].

Because the lowest RE price per kWh at the point of connection to the grid is so important in the bid process, solar PV bidders generally opt for areas with the highest irradiation and thus the best energy yields – typically in the Solar Corridor. In the process, the bid criteria ignore the costs of additional grid infrastructure and upgrades, and transmission losses to the point of consumption. This results in grid congestion, time delays and importantly, additional real delivered costs when the transmission grid upgrades and transmission losses are included [8, 10, 11, 12].

Part of the problem is that the IRP 2010-2030 and REIPPP programme do not spatially define the generation capacity allocations – and this is important not only in cost terms, but also for transmission grid planning, design and grid stability [5, 8, 12].

Solar irradiation map

Fig. 3: Solar irradiation map of South Africa. [Credit: GIZ/SolarGIS]

Holistic, viable, spatial approaches

A GIZ study report (German Collaboration) [8] prepared for the DoE and Eskom compared the current bidding criteria (and its resulting allocation of solar PV bids) with two alternative PV allocation strategies. In “Analysis of options for the future allocation of PV farms in South Africa”, (published in March 2015) [8], the authors considered the total levelised cost of electricity for the allocation of solar PV bids based on three options, namely:

  • Scenario A: Current allocation strategy predominantly in the Solar Corridor (maximum energy yield);
  • Scenario B: Allocation predominantly close to load centres (minimum grid reinforcements); and
  • Scenario C: Allocation predominantly within defined Renewable Energy Development Zones (REDZs).

REDZs [13] have been identified by the CSIR and Department of Environmental Affairs (DEA) as part of the Strategic Environmental Assessment project (see Fig. 4) [2]. The project integrates environmental, economic and social factors to identify geographical areas where in the medium to long-term wind and solar PV development will have the lowest impact on the environment while yielding the highest possible social and economic benefit [2, 8, 13, 14].

The REDZs also take into account transmission losses, municipalities with high social need and development potential, priority areas for renewable energy manufacturing and import activities, and existing transmission infrastructure. The once-off environmental pre-assessment of designated areas further help reduce the necessity to repeat the process for each individual project, and solar PV and wind developers, provincial governments, the private sector and the public were consulted in the refinement of REDZs.

In Scenario A, 6400 MW is considered within the Solar Corridor, with the remaining 2000 MW distributed across the country. In Scenario B, 2600 MW is considered within the Solar Corridor, with the remaining 5800 MW distributed across the country close to major load centres. In scenario C, 2800 MW is considered in the Solar Corridor, with the remaining 5600 MW distributed predominantly in the REDZs.

 

Proposed-REDZs

Fig. 4: Proposed REDZs [Credit: CSIR]

In the GIZ study, the total levelised cost of RE (US$/kWh) for the current and above two alternative allocation strategies were calculated, comprising the levelised cost of RE at the point of connection, plus the required transmission grid upgrades, plus transmission system losses based on load-flow simulations.

The GIZ study concludes that the total levelised costs of RE for all three solar PV bid allocation options, when considered holistically, are very similar. The authors thus argue that the other allocation options are not only viable, but would mean less grid congestion with timelier realisation of projects.

This means the geographic placement of solar PV for most parts of SA does not significantly or negatively impact on the total levelised cost of RE, and that other considerations such as the environmental and socio- economic aspects, can be better accommodated and taken into consideration.

Fig 4 - Cost comparision

Fig. 5: Total levelised cost of electricity of solar PV generation. [Credit: GIZ]

The current bid selection criteria unfairly favours projects with a low levelised cost of RE at the point of connection to the grid, while the alternative allocation strategies result in better distribution of solar PV allowing much-needed generation capacity to be connected faster, through minimisation of transmission grid upgrades and transmission losses.

While the GIZ study only considered solar PV, the same arguments can perhaps also be applied to other RE technologies, including concentrating solar power and wind power, where similar grid congestion, delays and transmission losses occur as a result of the best RE yield sites occurring in limited geographic areas far from load centres.

Rethinking the bid selection and allocation process

Both IRP 2010-2030 and its RE implementation vehicle, the REIPPP programme, are outdated and need serious rethinking. IRP 2010-2030 was needed to chart an energy generation course for South Africa, and the REIPPP programme for initiation and implementation of a major, utility-scale RE procurement. Had we waited for the perfect strategy, progress toward implementation would have been delayed even further.

The IRP 2010-2030 and its REIPPP programme counterpart are spatially blind, and yet the implementation of RE generation is a spatially-based process – not only in the siting of RE generation plant itself, but also in the geography of the transmission grid and the location of the load centres for the electricity generated.

The geographic blindness of the current bid criteria is exacerbating current generation capacity constraints. A flawed bid evaluation process results in bidders choosing the highest-yield locations with the lowest-cost of RE at the point of connection to the grid, which is not necessarily optimal for minimising grid congestion, connection delays, transmission grid upgrades and transmission losses.

The IRP 2010-2030 set out to be “living plan” that was meant to be updated every two years, but it is now five years old, without any DoE or cabinet approved update. The REIPPP programme bid criteria are also overdue for reconsideration. At the least a more holistic approach is needed for the selection and award of successful bids.

Spatial approaches provide ways in which the growing spatial extent of renewable energy development in can be managed sustainably and cost-effectively. It also provides a means to achieve a spread of development, both technically and socio-politically as outlined in the South African National Development Plan (NDP) and New Growth Path (NGP) for South Africa and National Infrastructure Plan (NIP).

The hard work has already been done and the numbers weighted. This makes it possible to speed up RE project implementation, do so efficiently, and at a better-calculated cost. Even more importantly, REDZs take into account a more holistic approach with regard to the economic, social and industrial development of South Africa, while taking the full cost chain into account.

References

[1] Department of Energy: “Integrated Resource Plan 2010“, [Official] 6 May 2011,

[2] L Cape-Ducluzeau and C van der Westhuizen: (2015). “Strategic Environmental Assessment for Renewable Energy in South Africa – Renewable Energy Development Zones (REDZs)“, IAIA15 Conference Proceedings – Impact Assessment in the Digital Era.

[3] Department of Energy: “Fact Sheet for the Media Briefing Session on 31 August 2011 re the Renewable Energy Independent Power Producer (IPP) Programme“.

[4] IPP Office: “IPP Projects”, www.ipp-projects.co.za

[5] Eskom: “Generation Connection Capacity Assessment of the 2022 Transmission Network (GCCA)“.

[6] Department of Energy: “National Treasury of South Africa and Development Bank of Southern Africa“.

[7] Public-Private Infrastructure Advisory Facility (PPIAF): “South Africa’s Renewable Energy IPP Procurement Program: Success Factors and Lessons.

[8] M Pöller, M Obert, and G Moodley: “GIZ Study Report: Analysis of options for the future allocation of PV farms in South Africa“.

[9] Department of Energy: “Media Statement: BW Four Announcement“, 16 April 2015.

[10] A Slabbert: “Unconnected renewable energy costs Eskom R2m a month“.

[11] T Creamer: “Third renewables bid window to open ‘soon’, despite window-one delay“.

[12] R Smit: “Grid connection of renewable energy IPPs: Lessons learned“, Energize RE, Vol. 3.

[13] CSIR: “REDZs”, https://redzs.csir.co.za

[14] CSIR: “REDZs: Frequently Asked Questions“.

[15] Eskom: “Renewable Energy Independent Power Producer Procurement Programme“.

 

Send your comments to: energize@ee.co.za

  • Alastair Campbell

    It is a pity that this article is headlined with such a sensational and misleading statement about there being a flawed process. The REIPP procurement process is possibly the most successful procurement process ever undertaken by the government.
    The gist of this article is positive and it effectively advocates modifying the evaluation criteria. This is one of the logical steps that takes place in an evolving process. Further, Government has been considering prioritising renewable energy projects in the REDZ for some time now and so it isn’t as if the REIPP process has been merrily proceeding in a vacuum, without giving due consideration to the various grid constraints the country faces. Indeed the process gives the DOE a discretionary right to award preferred bidder status to projects that have slightly higher tariffs in areas with less sunshine/wind, but which would be able to contribute power to the grid at a lower all-in cost (after taking into consideration the cost of strengthening the grid in that area).
    This is further evidenced by a recent briefing note (number 29) released by the DOE notifying bidders as far back as May 2015 of the various grid constraints around the country and pointing out those parts of the country where interest far exceeded grid capacity.
    It is therefore disappointing that you have done the REIPP program a disservice by sensationalising the findings in the article by giving the article a scandalous headline

    • Alistair, I am not uncomfortable with the title of the article, because it is true, and the article goes on to explain exactly why. Indeed you go on to say say: “The gist of this article is positive and it effectively advocates modifying the evaluation criteria”. I am sure the REIPPP programme is robust enough to take some constructive criticism. For you to suggest that the title of the article is “scandalous” is quite over the top. Really.