Solar park concept resurfaces in ministerial determination

July 14th, 2016, Published in Articles: Energize, Articles: Vector

 

The concept of a large solar park, accommodating a substantial solar energy generating capacity was first mooted in 2009, when a proposal to construct a 5 GW solar park in the Upington area was made by the minister of energy.

The project has been overshadowed by the success of the REIPPPP, which ran independently of any government programmes, but has re-emerged with the publication of the “Renewable energy (Solar Park) Programme 2016 determination” in Government Gazette No 603 of 27 May 2016. The determination contains some rather wide variations of the current process applied to the REIPPPP, which could have impacts on future procurement programmes.

The original proposal was followed by a number of feasibility studies which resulted in the preparation of an “indicative master plan” in February 2011. The programme appeared to have gone dormant after that date but has re-emerged with the publication of the minister’s determination.

Fig. 1: Combined PV and CSP solar park.

Fig. 1: Combined PV and CSP solar park.

  • Paragraph 1: The determination covers the capacity allocated to “Solar PV “, including 1500 MW to be generated from solar technologies, which represents the capacity allocated to “Solar PV”, under the heading “New build”, for the years 2026 to 2028, in Table 3 of the integrated resource plan for electricity 2010 – 2030.

This may sound far in the future, but 2026 is only ten years away, and if commissioning is to take place in this period, preliminary work specified in the determination will have to commence shortly.

  • Paragraph 2: Notwithstanding that the capacity allocation referred to above is for solar photovoltaic technology, the new generation capacity determined may be generated by any solar technology that the procurer may consider appropriate, and may include storage solutions, notwithstanding that the IRP 2010 – 2030 may not have contemplated such technology or have considered it viable.

This implies that the full capacity of 1500 MW may be generated from other solar technologies, including CSP with storage, which effectively increases the potential for CSP with storage by 1500 MW. Although the decision on technology still lies with the DoE, the paragraph reduces the technology prescriptive nature of the IRP from PV specific to solar technology in general, and could place the choice of solar technology in the hands of the IPP rather than the DoE. It also opens the door to solar technologies not available at present, and which may be developed in period up to 2026.

  • Paragraph 3: The electricity produced from solar technologies as described above shall be generated from projects located within one or more Solar Parks (SP) situated in the Northern Cape.

This paragraph limits new build solar projects for the period 2026 to 2028 to within the area of the solar park, the size and location of which will be determined by the DoE. This is a far more restrictive requirement than that of the renewable energy development zones (REDZ) which merely offer advantages to IPPs but do not restrict choice of sites to within the zone. This could have implications for security of supply and geographic diversity considerations, as reduced insolation over the concentrated area of the park could remove a large chunk of solar power from the network. Recent studies have shown that concentrating large amounts of renewable energy in a single area is not the best solution, and favour a more widely distributed generation pattern.

  • Paragraph 4: The electricity produced from solar technologies … shall be procured through IPP procurement programmes as contemplated in the Regulations, which may include, where appropriate and having regard to all relevant circumstances for some or all of the electricity procured pursuant to this determination, tendering processes, direct negotiation with one or more project developers, or other procurement procedures.

This implies that the DoE does not need to follow a tendering process but may negotiate directly with project developers, or use any other procurement procedures it sees fit. This seems to be in conflict with the requirements for transparency in government procurement procedures, as the nuclear new build program has brought to light, and allows the DoE to bypass the tender process if circumstances demand.

  • Paragraph 5: The new generation capacity shall be established by one or more independent power producers (IPPs) procured through the procurement programmes, which may in the discretion of the procurer include as a requirement that one or more state-owned companies (SOE) participate as minority strategic partners in any such independent power producer.

It is not quite clear what is meant by “strategic partnership with state owned companies” in this regard, especially a minority strategic partnership. A strategic partnership is usually seen to be a partnership which involves some shape of formal agreement between two or more parties which have agreed to share finance, skills, information and/or other resources in the pursuit of common goals. Strategic partnerships fall short of forming a legal partnership or corporate affiliate relationship. The implication here is that the state owned enterprise (SOE) would be the supplier of specialised strategic knowledge and services to the major parties of the IPP, as it could not be seen that the SOE would be the recipient of such services.

As the “strategic” relationship falls short of a legal partnership it is unclear why the term “minority” partner is chosen, as it is generally understood that a strategic partner’s function is purely the provision of services to the IPP. A strategic partnership implies mutual benefit and it is difficult to see what advantage would accrue to the SOE.

The question that arises is whether Eskom, as an SOE, would be allowed to form a partnership with an IPP to supply electricity to the buyer, and taking into consideration the provisions regarding procurement by direct negotiation, whether such a strategic partnership would be used to bypass the procurement procedures applicable at this stage. Eskom has already stated its intention to enter into the renewable energy sector, but it is difficult to see how this could be accomplished under the present competitive bidding procurement process. These provisions create the situation where a PPA may be awarded directly to an IPP/SOE partnership.

  • Paragraph 6: The electricity may only be sold to the entity designated as the buyer, and only in accordance with the power purchase agreements and other project agreements to be concluded in the course of the procurement programmes, provided that this shall not preclude multi-buyer agreements or arrangements in terms of which, by agreement with the buyer, the electricity is sold to both the buyer and one or more third parties or related parties.

This is an interesting provision, as it allows the IPP to sell power to third parties as well as the designated single buyer, who in terms of paragraph 9, is Eskom. It is not clear who such third parties might be. One possibility is the establishment of a “green power” market, where bulk buyers may purchase directly from an IPP. Such an agreement would involve wheeling as the concept of a power park includes evacuation of energy via the grid.

  • Paragraph 7: The role of the procurer (in this case the DoE), will be to conceptualise and conduct the procurement programmes, which may include: undertaking any land development activities associated with the solar parks which it considers necessary for the purposes of developing the procurement programmes, including but not limited to identifying the appropriate location of the solar park, facilitating the acquisition of property rights including ownership or leasehold in the relevant land, applying for all relevant authorisations and approvals and undertaking the studies associated with such applications and the land development activities in general; preparing, evaluating and making procurement decisions regarding any requests for information, requests for qualification, requests for proposal and/or all related and, associated documentation; preparing and negotiating any strategic partnership documentation; preparing and negotiating the power purchase agreements; preparing and negotiating or facilitating as applicable the other project agreements, and facilitating the satisfaction of any conditions precedent to financial close which are within its control.

This implies that most of the planning, land acquisition, environmental impact studies, authorisations, transmission planning and other site related issues will be handled by the DoE, which should have an impact on the total project costs for the IPP.

This determination falls far short of the original proposed 5 GW, and seems to have seized upon the solar new build capacity already included in the IRP for 2026 to 2028 as a platform to realise the solar park concept. It will be interesting to see how this project progresses from here.

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