Guide to Independent Power Producer (IPP) processes

The objective of this document is to provide an overview of the processes in the country and within Eskom relating to Independent Power Producers (IPPs).

1. Introduction and Background

It is crucial that the private sector plays a role in addressing the future electricity needs of the country. This will reduce the funding burden on Government, relieve the borrowing requirements of Eskom and introduce generation technologies that Eskom may not consider part of its core function which may play a vital role in the future electricity supply options, in particular off-grid, distributed generation, co-generation and small-scale renewable projects.

The introduction of private sector generation thus has multiple benefits. It will contribute greatly to the diversification of both the supply and nature of energy production, assist in the introduction of new skills and capital into the industry, and enable the benchmarking of performance and pricing. 

2. Country Process

South Africa has two acts that direct the planning and development of the country’s electricity sector:
     i. The National Energy Act of 2008 (No. 34 of 2008)
     ii. The Electricity Regulation Act (ERA) of 2006 (No. 4 of 2006).

In May 2011, the Department of Energy (DoE) gazetted the Electricity Regulations on New Generation Capacity under the ERA. The New Generation Regulations establish rules and guidelines that are applicable to the undertaking of an IPP Bid Programme and the procurement of an IPP for new generation capacity. They also facilitate the fair treatment and non-discrimination between IPPs and the buyer of the energy.

2.1. Formal Programmes
In terms of the New Generation Regulations, the Integrated Resource Plan (IRP) will be developed by the DoE and will set out the new generation capacity requirement per technology, taking energy efficiency and the demand-side management projects into account. This required, new generation capacity must be met through the technologies and projects listed in the IRP and all IPP procurement programmes will be executed in accordance with the specified capacities and technologies listed in the IRP.

Please click here to be re-directed to the DoE website for the current formal programme 

Please click here to read about the Independent Power Producers (IPPs) Grid Application Process

2.2 Historical Projects
Certain projects were developed prior to the gazetting of the New Generation Regulations. In the absence of regulations, these vested projects were undertaken in order to ensure security of supply. The projects and programmes that fit into this category are Eskom’s current new build programme, the medium term power purchase programme (~400MW) and the DoE’s open cycle gas turbine (OCGT) IPP project (~1020MW).

2.3 Unsolicited Projects
Per the New Generation Regulations, the “buyer” can only procure energy in accordance with the IRP. While a policy vacuum currently exists in respect of unsolicited offers (i.e. those proposals which are outside the scope and timeframe of particular programmes under the IRP, but present a unique opportunity which could leverage strategic and economic benefit for the country), work is being undertaken to establish a framework and process whereby such proposals could be considered. This will be discussed within Eskom and with the DoE and NERSA. Certain regional projects fall into this category but are covered by inter-government memoranda.

3. Independent System and Market Operator

Please note that the ISMO bill is currently under discussion with various stakeholders.

4. Current Eskom Process

The Single Buyer Office (SBO), housed within the System Market Operator Division, was established in 2007. The SBOis currently preparing itself to execute the mandate of the IPP procurement process envisaged in the New Generation Regulations. Currently the SBO consists of a core team, with support from Eskom staff providing the necessary expertise complemented by advisors as required: The SBO deals with all IPP programmes (historical, formal and unsolicited). Regional import IPP programmes are being considered within the scope of inter-governmental memoranda of understanding.

5. Current Programmes

The following programmes fall within the accountability of the SBO:

5.1 Renewable Energy Independent Power Producer (RE IPP) programme
Require up to 3725 MW of renewable energy capacity as specified in the IRP 2010.

Contact Person: Adele Greyling
Tel: 011 800 4952      email: adele.greyling@eskom.co.za

5.2 Medium Term Power Purchase Programme
The power purchase agreements for approximately 400 MW of co-generation and generation capacity, approved and concluded.

Contact Person: Akash Prakash
Tel: 011 800 2764      email: akash.prakash@rskom.co.za

5.3 Department of Energy Open Cycle Gas Turbine (OCGT) programme
The programme calls for 1020 MW and is in the process of financial close with preferred bidder.

Contact Person: Albert Van der Walt
Tel: 011 800 3889     email: vdWaltAJ@eskom.co.za 

5.4 Municipality generation
Short term contracts for security of supply .

Contact Person: Akash Prakash
Tel: 011 800 2764      email: akash.prakash@eskom.co.za

5.5 Multi-Site base load (MSBL) IPP programme
This programme commenced prior to the New Generation regulations and has been put on hold pending the finalization of IRP2. It was initiated by a committee consisting of the Ministers of Public Enterprises and Energy in 2008. It called for multiple sites and producers up to 4500 MW of base load capacity.

Contact Person: Adila Marengo
Tel: 011 800 6949      email: adila.marengo@eskom.co.za  

5.6 Regional Import IPP programmes
Currently Eskom is supporting Government led initiatives in the region without providing financial commitment. Future IRPs will have to provide specific direction on which programmes to pursue.

Contact Person: Willem Theron
Tel: 011 800 3823      Email: willem.theron@eskom.co.za

5.7 Unsolicited bids
Eskom receives enquiries on a regular basis and tracks them as part of the project development funnel without providing financial commitment. A process to deal with such bids is being developed and will be discussed within Eskom and with DoE and NERSA.

Contact Person: Dana Gampel
Tel: 011 800 2688      Email: dana.gampel@eskom.co.za

6. Enabling Environment

A key precondition to attracting private sector participation in the electricity supply industry is the creation of a supportive “enabling environment”. The enabling environment requires coordination and alignment between government departments, state-owned enterprises, businesses and development institutions.

7. Additional Information

Should you need any additional information, please contact any of the Programme Managers listed in section 5 or contact Yousuf Haffejee, Senior Manager: Market Development on (011) 871 3544  or   yousuf.haffejee@eskom.co.za

Alternatively you can visit the DoE website at www.energy.gov.za  or the NERSA website at www.nersa.org.za