Geared up for South African bidding round

Market trend update from the perspective of a lender’s technical advisor

By Nicola Cencelli, Renewable Energy Engineer, 3E South Africa

Continued growth in the South Africa renewables market

To date, 64 large-scale renewable energy projects have been awarded preferred bidder status in rounds 1 through 3 of South Africa’s Renewable Energy Independent Power Producer Procurement (REIPPP) programme, representing a total private sector investment of 14 billion US dollars and capacity generation of 3 900 MW. Wind and solar photovoltaics alone represent 54 projects for 3432 MW of capacity in development. The first round 1 projects are now operational and several more projects are nearing completion.

Limited investment deterrents

The South African market is competitive on a global scale and has attracted considerable interest from international private investors. Although some requirements (preferential procurement, local content requirements…) have been judged onerous to meet, the sector remains lively, continues to grow, professionalize and gain experience. Initial deterrents, such as possible weaknesses in policy framework and limited local technical expertise, are now fading away as the country’s track-record in renewables expands.The renewable energy sector is considered a priority for the South African government as a source of energy for the current constrained energy supply, as well as an important employment driver in the country. This dispels rumours that the REIPPP program would not be able to live past Round 5.Eskom grid availability remains possibly the highest risk criteria for investment in projects. Eskom’s transmission system upgrades are lagging  with the resulting risk that completed renewable energy projects would not be able to connect and export power. In these cases, however, Eskom is contractually liable for deemed energy payments.

Changes in bidding requirements

Bidders are no longer required to submit detailed heads of terms (HoT) of the contracts entered into with Contractors/Operators. Furthermore, providers of Corporate and Equity Finance no longer have to submit confirmation to the bid that a full legal, technical, insurance due diligence of the project has been performed. Their only requirement is to confirm that there has been a review of such aspects. The intention of these measures is to reduce the time and cost for investors and developers for the bid submission. However, since pricing and rates of return for investment are strongly linked to project risk, 3E believes such due diligence will still be a strong requirement for lenders.

Large players, price pressure and new opportunities for cooperation

Round 3 marked the beginning of a shift that continues to be visible as round 4 approaches: larger players tend to dominate the development processes. This is due to several combined factors:

  • Tariff pricing has come down substantially in the last three rounds because of increased competition, increased lower-cost local experience, and lower technology costs. This makes more corporate balance sheet funding possible, especially for larger players. Pricing is now believed to have bottomed out.
  • Transaction costs for REIPPP are generally higher than would have been encountered for a REFIT program. This means that the larger and more established companies are often better equipped to develop and bid projects.
  • Smaller sponsors often lack the bargaining power to negotiate cost-effective contracts with EPC contractors and O&M contractors. This leads to many smaller projects not being commercially viable on their own.
  • The lending sector has the experience, the understanding of project finance and the capabilities to assist in the success of REIPPP projects in short spaces of time. On the other hand, South-African lenders are also aware of possible growing pains of a new market and have stringent requirements. The costs to comply with strict requirements can make it difficult for some projects to compete with others that have more balance sheet funding and can afford more risk.

The long-term effects of this trend on competitiveness and market dynamics are subject to debate. In the short-term, the general trend is pushing smaller projects to be particularly solid, with low risk, high profitability and balanced technology and design. The trend also opens up possibilities for international investors to work with local players or bring on local SMEs as minority shareholders on a number of bids. There are many SMEs still present in the renewables space and prepared to sell to larger investors.


There are challenges and big successes ahead. The upcoming close of round 4 will certainly continue to reveal the clear direction in which renewables in South Africa are headed.


3E has been advising lenders and investors in South Africa from its offices in Cape Town since in 2010. We have witnessed first-hand the evolutions of the REIPPPP process. Contact us here to get in touch with our South African experts.

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