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Mineral Resources and Energy on pricing of projects under the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP)

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  The Department remains committed to ensuring the completion of the RMIPPPP procurement process to ensure that additional power is brought online in the shortest time possible PRETORIA South Africa December 14 2021 APO Group Pricing of projects under the Risk Mitigation Independent Power Producer Procurement Program RMIPPPP The Department of Mineral Resources and Energy DMRE has noticed inaccurate media reports on the prices of projects designated as Preferred Bidders under the Risk Mitigation Independent Power Producer Procurement Program RMIPPPP in recent weeks Certain media outlets and journalists including AmaBhungane appear to misinterpret the basis for the evaluation of all bidders under the RMIPPPP including the payment mechanism underlying the Power Purchase Agreement PPA which was set out in the Request for Proposals RFP The issues of effective fees and take or pay concessions specifically raised by AmaBhungane have been clarified above and are also clearly addressed in the Department s factual summary of the RMIPPPP Risk Mitigation IPP Program in Context which can be found at https www ipp rm co za link is external The concept of take or pay is a global standard in any commercial contract where there is an obligation on the part of the power plant to supply when there is a dispatch instruction from the system operator This is not new in South Africa and in fact all PPI programs purchased to date have followed a similar payment mechanism including wind or solar energy projects The rate is a comprehensive rate in which the IPP assumes all risks associated with availability and performance There is no guaranteed payment under RMIPPPP Eskom has made a minimum load commitment and will only pay for actual power production if it is delivered in response to a shipping instruction from the system operator The evaluation price used to classify the bidders was established on the base date of April 2020 and was calculated as a weighted average price composed of 95 for the price of capacity and energy production and 5 for the price of auxiliary services This was done for the purpose of comparing offers fairly Actual payments to Sellers IPP by Buyer Eskom may differ depending on the System Operator s shipping instructions for the specific service provided For example an IPP will only charge Eskom for additional ancillary services or energy based on what the system operator requires Eskom is not required to purchase the ancillary services but for evaluation purposes the contractor required each bidder to assume that 5 of the ancillary services price is an input in the evaluation price to ensure fairness In response to the Request for Proposals RFP Bidders submitted Charge Rates that include fixed and variable components including Capital cost recovery rate Fixed rate of operating and maintenance costs Fuel charge rate applicable to projects that use diesel or gas Variable operational cost rate and Rates for the provision of mandatory auxiliary services specified by the System Operator Preferred Bidders submitted these Charge Rates at the Bidding Stage at the April 2020 base rate to NERSA as part of their license application The payment mechanism in the PPA allows Eskom to compensate the IPP for Available Capacity energy production and ancillary services The energy payment will be based on the Fuel Charge Rate if applicable and the Variable Cost Charge Rate based on the actual energy production delivered Both fuel and non fuel projects can only recoup variable rates if they are shipped In terms of the wind or solar energy PPA of the IPP Renewable Energy Program there is no capacity charge but Eskom is required to pay for all energy delivered to the grid Therefore a capacity charge is not required The RMIPPPP has a capacity charge to ensure that the dispatchable generation plant maintains the capacity contracted under the PPA If capacity is unavailable during a period Eskom does not pay IPP for capacity that is unavailable to operate during that period It is also critical to understand that IPPs under the RMIPPPP must provide capacity ancillary services and power to the buyer whereas a typical wind or solar project only provides power As noted above the pricing mechanism in the PPA for the RMIPPPP allows the IPP to recoup the cost associated with all of these services if the service is available Therefore it is incorrect to assume that the IPPs under RMIPPPP will have guaranteed income since the IPPs are required to be available and able to generate according to the instructions of the system operator to receive the capacity payment and the energy payment respectively The minimum load commitment made by Eskom is necessary as the plant will be shipped at the discretion of the system operator and therefore IPP needs some degree of certainty to be shipped in order to have a viable business case The Minimum Load Commitment that the Buyer must achieve in any contract year from the Commercial Operation Date is equal to 72 727 of the sum of the Net Available Capacity MW measured for each hour during the dispatchable period of that particular year The difference if any between the minimum load commitment and the actual shipping instructions will be reconciled monthly and paid annually based on the annual accumulated difference This means that if for example at the end of the year the plant was shipped above the minimum load commitment for the year there will be no payment This is normal practice for contracting dispatchable power plants It is important that the buyer indicates the Minimum Load Commitment in the RFP to ensure that each bidder sets the price of their offer in accordance with the required commitment The Department remains committed to ensuring the completion of the RMIPPPP procurement process to ensure that additional power is brought online in the shortest time possible The RMIPPPP bidding window was launched on the market in August 2020 following the promulgation of the 2000MW Ministerial Determination with the consent of NERSA The main objective of the bidding window is to help close the immediate supply gap indicated in the Integrated Resource Plan IRP2019 and reduce the extensive use of expensive diesel based peak electric generators in the medium and long term The 11 preferred bidder projects totaling 1 995 76 MW offer a mix of technologies and facilities in the same geographic location or in different locations in South Africa
Mineral Resources and Energy on pricing of projects under the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP)

The Department remains committed to ensuring the completion of the RMIPPPP procurement process to ensure that additional power is brought online in the shortest time possible.

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PRETORIA, South Africa, December 14, 2021 / APO Group / –

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Pricing of projects under the Risk Mitigation Independent Power Producer Procurement Program (RMIPPPP)

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Department of Mineral Resources and Energy

The Department of Mineral Resources and Energy (DMRE) has noticed inaccurate media reports on the prices of projects designated as Preferred Bidders under the Risk Mitigation Independent Power Producer Procurement Program (RMIPPPP) in recent weeks.

Power Purchase Agreement

Certain media outlets and journalists, including AmaBhungane, appear to misinterpret the basis for the evaluation of all bidders under the RMIPPPP, including the payment mechanism underlying the Power Purchase Agreement (PPA), which was set out in the Request for Proposals ( RFP). The issues of effective fees and take-or-pay concessions specifically raised by AmaBhungane have been clarified above and are also clearly addressed in the Department’s factual summary of the RMIPPPP (Risk Mitigation IPP Program in Context which can be found at https: / / www. .ipp-rm.co.za / (link is external).)

South Africa

The concept of “take or pay” is a global standard in any commercial contract where there is an obligation on the part of the power plant to supply when there is a dispatch instruction from the system operator. This is not new in South Africa and in fact all PPI programs purchased to date have followed a similar payment mechanism, including wind or solar energy projects.

The rate is a comprehensive rate in which the IPP assumes all risks associated with availability and performance. There is no guaranteed payment under RMIPPPP. Eskom has made a minimum load commitment and will only pay for actual power production if it is delivered in response to a shipping instruction from the system operator.

The evaluation price used to classify the bidders was established on the base date of April 2020 and was calculated as a weighted average price composed of 95% for the price of capacity and energy production and 5% for the price of auxiliary services. This was done for the purpose of comparing offers fairly.

System Operator

Actual payments to Sellers (IPP) by Buyer (Eskom) may differ depending on the System Operator’s shipping instructions for the specific service provided. For example, an IPP will only charge Eskom for additional ancillary services or energy based on what the system operator requires.

Eskom is not required to purchase the ancillary services, but for evaluation purposes, the contractor required each bidder to assume that 5% of the ancillary services price is an input in the evaluation price to ensure fairness.

In response to the Request for Proposals (RFP), Bidders submitted Charge Rates that include fixed and variable components, including:

System Operator

Capital cost recovery rate; Fixed rate of operating and maintenance costs; Fuel charge rate: applicable to projects that use diesel or gas; Variable operational cost rate; and Rates for the provision of mandatory auxiliary services specified by the System Operator.

Preferred Bidders

Preferred Bidders submitted these Charge Rates at the Bidding Stage (at the April 2020 base rate) to NERSA as part of their license application.

IPP for Available Capacity

The payment mechanism in the PPA allows Eskom to compensate the IPP for Available Capacity, energy production and ancillary services. The energy payment will be based on the Fuel Charge Rate, if applicable, and the Variable Cost Charge Rate, based on the actual energy production delivered. Both fuel and non-fuel projects can only recoup variable rates if they are shipped.

PPA of the IPP Renewable Energy Program

In terms of the wind or solar energy PPA of the IPP Renewable Energy Program, there is no capacity charge, but Eskom is required to pay for all energy delivered to the grid. Therefore, a capacity charge is not required. The RMIPPPP has a capacity charge to ensure that the dispatchable generation plant maintains the capacity contracted under the PPA. If capacity is unavailable during a period, Eskom does not pay IPP for capacity that is unavailable to operate during that period.

It is also critical to understand that IPPs under the RMIPPPP must provide capacity, ancillary services, and power to the buyer, whereas a typical wind or solar project only provides power. As noted above, the pricing mechanism in the PPA for the RMIPPPP allows the IPP to recoup the cost associated with all of these services if the service is available.

Therefore, it is incorrect to assume that the IPPs under RMIPPPP will have guaranteed income, since the IPPs are required to be available and able to generate according to the instructions of the system operator, to receive the capacity payment and the energy payment, respectively.

Minimum Load Commitment

The minimum load commitment made by Eskom is necessary as the plant will be shipped at the discretion of the system operator and therefore IPP needs some degree of certainty to be shipped in order to have a viable business case. The Minimum Load Commitment that the Buyer must achieve in any contract year, from the Commercial Operation Date, is equal to 72.727% of the sum of the Net Available Capacity (MW), measured for each hour during the dispatchable period. of that particular. year.

The difference, if any, between the minimum load commitment and the actual shipping instructions will be reconciled monthly and paid annually based on the annual accumulated difference. This means that if, for example, at the end of the year the plant was shipped above the minimum load commitment for the year, there will be no payment. This is normal practice for contracting dispatchable power plants.

Minimum Load Commitment

It is important that the buyer indicates the Minimum Load Commitment in the RFP to ensure that each bidder sets the price of their offer in accordance with the required commitment.

The Department remains committed to ensuring the completion of the RMIPPPP procurement process to ensure that additional power is brought online in the shortest time possible.

Ministerial Determination

The RMIPPPP bidding window was launched on the market in August 2020, following the promulgation of the 2000MW Ministerial Determination, with the consent of NERSA.

Integrated Resource Plan

The main objective of the bidding window is to help close the immediate supply gap indicated in the Integrated Resource Plan (IRP2019) and reduce the extensive use of expensive diesel-based peak electric generators in the medium and long term.

South Africa

The 11 preferred bidder projects, totaling 1,995.76 MW, offer a mix of technologies and facilities in the same geographic location or in different locations in South Africa.

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