COPYRIGHT AND CITATION CONSIDERATIONS FOR THIS THESIS/ DISSERTATION o Attribution — You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use. o NonCommercial — You may not use the material for commercial purposes. o ShareAlike — If you remix, transform, or build upon the material, you must distribute your contributions under the same license as the original. How to cite this thesis Surname, Initial(s). (2012) Title of the thesis or dissertation. PhD. (Chemistry)/ M.Sc. (Physics)/ M.A. (Philosophy)/M.Com. (Finance) etc. [Unpublished]: University of Johannesburg. Retrieved from: https://ujcontent.uj.ac.za/vital/access/manager/Index?site_name=Research%20Output (Accessed: Date). An assessment of the factors that influence the successes and failures of independent power producer projects A Minor Dissertation Submitted in Partial Fulfilment of the Degree of MAGISTER PHILOSOPHIAE in ENGINEERING MANAGEMENT at the FACULTY OF ENGINEERING AND THE BUILT ENVIRONMENT of the UNIVERSITY of JOHANNESBURG by Buhlebethu Mfundo Ndlovu 11 April 2018 Supervisor: Prof Arnesh Telukdarie Page 1 of 89 DECLARATION I declare that this research project is my own unaided work. It is being submitted for the Degree of Magister of Philosophiae in Engineering Management to the University of Johannesburg. This research has not been submitted before for any degree or examination to any other University Author’s Signature: Page 2 of 89 ABSTRACT The introduction of the Independent Power Producers Procurement Programme (REI4P) in 2011 yielded significant results for South Africa. The REI4P is initiated to procure 17.8 GW of electricity generated from Renewable Energy Sources (RES) over the period 2012-2030. The REI4P had a perception of being expensive from the onset, the average electricity tariff for Renewable Energy (RE) projects is currently 40% cheaper than new coal generation facilities. By the end 2016, a total capacity of 3134 MW has been added to the grid with investment estimated to be $14 billion, thus making South Africa one of the leading destination for RE investment. This has led to the REI4P being acclaimed internationally as a great success. South Africa’s track record in executing major capital expenditure projects has been found wanting in recent times as both Medupi and Kusile coal based power stations have experienced rising execution costs and construction delays. The REI4P’s future beyond round three is currently unclear for Independent Power Producers (IPPs) as the fourth round of winning projects has not started since November 2014. With the announcement made by the South Africa government that the winning projects will be approved before the end of 2017, the challenges and success of IPPs during the first three bidding rounds of the REI4P are studied in this research. This paper aims to define the current REI4P market condition, recommend solutions in order improve the ability of IPPs to survive and be competitive in the future rounds of projects. The researcher uses the main sources of data, including primary data and secondary data. Secondary data is first analysed to assess the current situation of the electricity generation from RES in South Africa when compared with the leading and follower countries. Even though secondary data provides invaluable background information, it does not provide all the necessary information required to address aim of the study. Some primary data collection was gathered through questionnaire survey which assisted to fill the information gaps. The best fit method to address the research problem was to follow a quantitative method. This method enabled the researcher to quantify factors that has an influence on the performance of IPPs in South Africa. According to countries’ gross domestic product, the investment in REI4P is close to parity with the leading economies such as Germany. This has positively influenced South Africa’s installed capacity of both solar PV and Page 3 of 89 onshore wind to be above follower countries such as India in terms of capacity per capita. The REI4P is demonstrating abilities to be a global leader in RE generation owing to the best solar and wind resources in world available in South Africa. However, the progression of the REI4P is under enormous threat owing to regulatory framework. With the reduced RE tariff proposed by the South African government, the study finds that IPPs are more like to opt for the cost viable multiple contracting method to procure future projects compared to the Engineering, Procurement, and Construction (EPC) contracts that are popular during the first three bidding rounds. Pinto and Slevin [60] list of critical success factors in project management are highlighted as important strategies can be adopted by IPPs to enhance the desired project outcomes. Keywords Renewable energy, Independent power producers Page 4 of 89 TABLE OF CONTENTS DECLARATION .................................................................................... 2 ABSTRACT .......................................................................................... 3 LIST OF FIGURES ............................................................................... 8 LIST OF TABLES ................................................................................. 9 1. INTRODUCTION ......................................................................... 10 Background.................................................................................... 10 Relevance of the research ............................................................. 11 Aims and objectives of the research .............................................. 12 Research questions ....................................................................... 12 Value of the study .......................................................................... 13 Research methodology .................................................................. 13 Chapter layout ............................................................................... 14 2. LITERATURE REVIEW ............................................................... 16 2.1 Introduction .................................................................................... 16 2.2 The need for alternative energy sources in South Africa ................ 18 2.2.1 Reduction in carbon emulsions ............................................... 18 2.2.2 Additional generation capacity required in Africa ..................... 18 2.2.3 Creation of opportunities for economic development ............... 19 2.2.4 The implementation of REI4P in South Africa ......................... 20 2.3 Global development of RES ........................................................... 21 2.4 Regulatory risk associated with RE projects................................... 23 2.4.1 The importance of independent regulation .............................. 25 2.4.2 Grid availability ....................................................................... 25 2.5 Fiscal incentives provided for RES development ........................... 26 2.5.1 Costs of RE in South Africa ..................................................... 27 2.6 Ownership and financing of IPP projects ........................................ 28 2.7 Contracting methods ...................................................................... 29 2.7.1 EPC and EPCM contracting strategies.................................... 30 Page 5 of 89 2.7.2 The preference towards EPC contracts in engineering ........... 32 2.7.3 The future of the EPC contracts in South Africa ...................... 35 2.7.4 Benefits and challenges of multiple contracts.......................... 36 2.8 Project management ...................................................................... 36 2.8.1 Project success ....................................................................... 38 2.8.2 Project management critical success factors........................... 38 2.9 Summary ....................................................................................... 41 3. RESEARCH METHODOLOGY.................................................... 42 3.1 Introduction .................................................................................... 42 3.2 Research design ............................................................................ 42 3.3 Methodology rationale .................................................................... 43 3.4 Market economic assessment ........................................................ 44 3.5 Survey research method ................................................................ 46 3.6 Questionnaire design ..................................................................... 47 3.6.1 Introduction ............................................................................. 47 3.6.2 Questionnaire layout ............................................................... 47 3.6.3 Development of questions....................................................... 47 3.7 Population and sample .................................................................. 48 3.8 Questionnaire validity ..................................................................... 50 3.9 Ethical considerations .................................................................... 50 3.10 Data analysis and interpretation ..................................................... 51 3.11 Summary ......................................................................................