Publications & Events
Client Alert
Alert

City of Cape Town to Procure 300MW of Renewable Energy from IPPs

Following an announcement by the mayor of the City of Cape Town during the 2022 Solar Power Africa conference, the City of Cape Town has advertised a tender process for the procurement of renewable energy from independent power producers ("IPPs").

 

Introduction

In an effort to reduce its reliance on Eskom and to enable access to more affordable and reliable power supply, Cape Town Mayor Geordin Hill-Lewis announced that the City of Cape Town intends to procure up to 300MW of renewable energy from IPPs over the next few months. According to the announcement, the City will consider proposals for various projects, including projects focused on generation-only, generation and storage, as well as storage-only. Additionally, the City intends to launch a second tender process for dispatchable projects over 20MW, shortly following the conclusion of the tender process. 

On 18 February 2022, and following the mayor’s announcement, the City advertised a tender process for embedded generation not exceeding 200MW in aggregate.1

 

Technology

The City will consider all competitive low carbon generation technologies, including:

  • Solar PV;
  • Wind;
  • Organic Waste-to-energy;
  • Any of the above combined with storage.

Projects requiring a fuel / feedstock agreement with another City of Cape Town department (for instance, waste, water or solid waste) will not be considered.

The City will also consider other, innovative technologies, provided that the proposed technology has been been successfully implemented at utility scale, either locally or internationally, with a 5 year operational track record. 

 

Procurement Process

According to the Tender Document, the City intends to award the tender to multiple preferred bidders through a two-stage tendering process. First, bidders will be required to submit a technical proposal which complies with the specifications set out in the Tender Document as well as the eligibility criteria set out in clause 2.2.1 (Eligibility Criteria) of the Tender Document. Bidders who meet these criteria will be invited to submit final proposals, encompassing a financial offer in the second stage of the tender process. 

To assist in developing their financial offers, bidders who are invited to the second stage of the process will be issued with cost estimate letters (CEL) which will set out the grid connection cost to be paid by the preferred bidder at their selected point of connection. The City will also provide bidders in the second stage of the process with the R/kWh adjustment that will be used during bid adjudication and which will reflect the increase / decrease in technical losses incurred pursuant to the connection of the proposed generation facility to the City’s network at the proposed point of connection. 

The City intends to announce preferred bidders on an incremental scale, starting with the highest scoring bid and continuing with progressively lower scoring bids, up to a maximum allocation of 200MWp. Awards made to preferred bidders will be determined by:

  • A combined total generation capacity not exceeding 200MWp AC; and
  • Network operational constraints, which if breached will result in non-compliance with the applicable technical standards, the National Grid Code and other applicable legal and statutory requirements.

 

Additional Eligibility Criteria

In addition to the eligibility criteria set out in clause 2.2.1 (Eligibility Criteria) of the Tender Document, bidders must provide the following information to progress beyond the first stage of the tender process2:

  • That the proposed technical solution utilises a proven technology that has been implemented successfully at utility scale;
  • That the maximum instantaneous generation of any single project can be accommodated by the grid capacity at the chosen point of connection, as determined by the City’s Electricity Generation and Distribution department;
  •  The total generation downstream of an Eskom in-take feed must not result in export of electricity into Eskom’s grid during all foreseen network conditions. An initial assessment by the City will need to confirm this;
  • Peak output of power plant, irrespective of technology, per point of connection is equal to or greater than 5MWpAC;
  • Proof of land ownership/access (title deed; rental agreement; notarial lease; option to lease; option to purchase) for the proposed power plant, for the full duration of the power purchase agreement (PPA); and
  • That the proposed project will connect to the network within the City’s supply authority boundaries.

 

Functional Requirements

Each proposal must comply with the following functional requirements:

  • Each proposal may consist of a number of component power generation plants that may use multiple technologies and may be located at different sites. Component plant(s) owned by the City or any other municipality may not be included and will result in bid rejection.
  • Component plants may be included in more than one project proposal. In such a case, only one proposal can be successful in the second stage.
  • Every component power generation plant must connect directly to the City’s network and no wheeled energy from generators connected to grids other than the City’s grid will be purchased.
  • The successful bidders must finance all aspects of each project proposal including design, procurement, construction, grid connection, commissioning, operation, maintenance and decommissioning as appropriate for each of the proposed plant.
  • The power generation project must enhance energy security and details of annual supply characteristics (energy, capacity, time of supply, dispatchability) must be provided for each component plant. 
  • The power generation project proposal must contribute to reduced carbon emissions and the total combined CO2/kWh of energy supplied must be specified.

 

Performance Security

Each bidder that is invited to participate in the second stage of the tendering process is required to provide the City with a Bid Guarantee (in Rands) in an amount equal to R50,000 (fifty thousand Rand) per MW of the capacity of the proposed facilities for the Project in respect of which the bidder submits a bid response. Notwithstanding receipt of the notification of a contract award, the preferred bidder must furnish the performance security within 14 (fourteen) days of written notice by the City to the effect that the City is entitled to enter into power purchase agreements of the nature contemplated in the Tender Document.3 

 

Scoring and Awarding of the Tender

The City will make an award to bidders with the highest scoring bids comprised of 90 points for cost and 10 points for preferential procurement per point of connection. Furthermore, the contract will be awarded to the successful bidder subject to the following:

  • Approval of the Municipal Financial Management Act Section 33 process;
  • A determination application in terms of Section 34 of the Electricity Regulation Act (ERA); and
  • All project-specific authorisations being obtained.
     

Following successful completion of its tender process, the City intends to enter into PPAs for a 20-year period with the preferred bidder. The maximum R/kWh rate payable by the City under the PPAs will be determined by the City and communicated to all bidders, but will not exceed the transmission local authority tariff set by Eskom at the time of award of the tender, including all kWh-based levies.4

The City hopes that in procuring power directly from IPPs, it will be gradually create a competitive energy market in which the price of electricity decreases for residents.5

 

Key Dates

  • A clarification meeting will be held on 11 March 2022 at 10h00.
  • The closing date for submission of the technical proposal is 26 May 2022 at 10h00.

 

Rhulani Matsimbi (Trainee Lawyer. White & Case, Johannesburg) co-authored this publication.

1 N Pombo-van Zyl "Powerful electricity declarations unfolding in South Africa" (21 February 2021)
2 See page 9 of the Tender Document.
3 See page 57 of the Tender Document.
4 Ibid.
5 N Pombo-van Zyl "Powerful electricity declarations unfolding in South Africa" (21 February 2021)

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2022 White & Case LLP