South Africa's Independent Power Producer Office (IPPO) has confirmed that it is undertaking a comprehensive review of the country's public procurement framework for independent power producers (IPPs), which has hitherto been dominated by renewable energy.

The model was once lauded internationally but is currently facing significant headwinds, with analysis by the University of Cape Town's (UCT's) Power Futures Lab showing that of the 14 800 MW tendered since 2020, only 7 343 MW has been awarded, while less than 20% has reached financial close.

The IPPO tells Engineering News that the review is being conducted in line with the Energy Action Plan and will guide the design of future bidding rounds for IPP generation capacity, including the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

The IPPO has not provided details on the terms of reference, but indicates that the review will consider the lessons learnt from recent bid windows, as well as feedback from Electricity and Energy Minister Dr Kgosientsho Ramokgopa's engagements with the market during 2024.

"Inputs into the review are also drawn from transaction advisers that have been involved in previous bid windows, and cooperating partners on international best practices," the IPPO tells Engineering News, while noting that timelines for the next bid windows have not yet been determined.

The REIPPPP is still regarded as a success overall, having facilitated investments of R292-billion, a steep decline in tariffs since the first few bidding rounds, and the construction of over 8 000 MW across 111 wind and solar projects since 2011, with a further 21 projects with a combined capacity of more than 3 000 MW advancing toward commercial close.

However, recent bidding rounds have faced serious problems, including Bid Window 5 where several projects were unable to close having been bid at tariffs that could not be sustained as a result of the spike in energy prices associated with Covid supply disruptions and Russia's invasion of Ukraine.

Then, Bid Windows 6 and 7 were rocked by South Africa's grid constraints and an absence of an approved curtailment framework, which could have unlocked immediate capacity for more than 3 000 MW of mostly wind investments.

Thus, all the industry experts and practitioners canvassed by Engineering News expressed support for the review, as well as the need to sustain a public procurement mechanism. This, despite recent changes to the market, as well as still nascent moves towards the establishment of the competitive market structure.

UCT Power Futures Lab Emeritus Professor Anton Eberhard argues that all available routes to market are still required, including centrally run auctions which can mobilise large investments.

"Given the tens of gigawatts of investment needed over the next decade, as a large chuck of Eskom's coal fleet is decommissioned, it would be prudent to keep centrally run auctions going," Eberhard says.

"The private power purchase agreement market for large corporates will be saturated soon, the South African Wholesale Electrify Market will take time to mature, the growth of merchant greenfield investments will be cautiously slow, and we're unlikely to see any subsidies to incentivise a large enough breakthrough in rooftop solar feeding back to the grid," he adds.

Likewise, Mike Levington, of Navitas Holdings, describes public procurement as important to safeguard the energy system over the medium-term, as those market participants that have enjoyed dominance in a centrally planned and managed electricity sector adjust to a competitive environment.

"Also, even though the commercial customers might be content to procure their own energy and capacity needs from IPPs, ensuring grid system stability will most likely require national procurement," Levington adds.

EE Business Intelligence MD Chris Yelland adds that the process under way is "evolutionary".

Therefore, Yelland believes that public procurement will c...