Small IPP Programme

The Small Projects Independent Power Producers Procurement Programme (SPIPPP)

The Department of Energy established the programme to offer opportunities for small-scale renewable energy producers that will stimulate participation by small and medium enterprises (SMEs). The target capacity for projects is to generate and provide energy between 1 MW and 5 MW.

On 4 October 2015, as part of round one, the Minister appointed ten preferred bidders, split across onshore wind, solar PV and biomass. Only five projects in this window had access to project finance facilities from the IDC and Mergence, with access to subsidised funding from AFD. The remaining five preferred bidder appointed projects in this round bid on the basis of corporate finance support and are facing challenges to raise finance at the right price to ensure sustainability of the projects.

The second bid window has ten preferred bidder projects that are in the contract finalisation stage and leading to financial close.

Challenges faced by the SPIPPP programme

The constraints to private-sector financing of small renewable energy projects:

  • The developers have found it extremely difficult to access equity and debt funding from commercial banks, mainly due to their SME profile and their limited track record in the renewable energy sector. None of the South African commercial banks have provided debt offers to any of the preferred bidders from bid windows 1 and 2
  • Some limited subsidised long-term debt was made available to participating bidders in bid window 1 by development finance institutions, but that offer was not sufficient to get all preferred bidders to reach financial close
  • The commercial debt facilities that developers and equity investors have been able to obtain feature credit margins that do not allow projects to maintain the tariffs that they have included in their bids (that included financing costs that were too ambitious) while at the same time ensuring a reasonable return 
  • The transaction costs incurred by bidders in bidding for the project under the programme are disproportionate to the larger project financed project costs.

The challenges reflect a market failure, namely limited interest from commercial investors in providing funding to project sponsors with SME profiles and the fact that many SMEs have difficulty in providing a reasonable equity contribution.

Proposed DBSA intervention

An intervention from the DBSA through IIPSA was required to ensure that bid windows 1 and 2 will be brought to successful conclusion, thus building support for future bid windows to proceed. The interest rate subsidy proposal was presented as one of the interventions required in order to address the challenges being faced, which thus far have prevented most of the qualified projects that did not benefit from subsidies from getting to financial close.

The interest rate subsidy principles are:

  • Maximum grant facility of R80 million reserved by the IIPSA Secretariat to cover eligible projects from the SPIPP bid window 1 and 2 allocation
  • Limitation period of 12 months during which applications can be submitted
  • Only SMEs with a B-BBEE shareholding of at least 50% will be able to benefit
  • Only IIPSA participating DFIs can qualify for the IIPSA interest rate subsidy and it should be used to crowd in other qualifying financial institutions such as commercial banks or fund managers to co-fund the senior debt with the IIPSA participating DFIs
  • The amount of the interest rate subsidy to be provided to a specific project will be limited based on fair and reasonable improvement to the debt service cover ratios (DSCRs), with consideration given to the risk and ability of a project to meet the required funding criteria. The impact on the DSCRs is an important indicator to determine if the funding challenges experienced are mitigated.

Application of the subsidy

A total of ten projects, totalling 49MW of capacity, have been awarded preferred bidder status under bidder window 1 and ten projects, totalling 51MW of capacity, have also been appointed for bidder window 2. Given the challenges to attract debt funding for the bidder window 1 projects, the IIPSA intervention is designed to support projects from both bidder window 1 and 2 for the total subsidy amount of up to R80 million, provided that specific economic development criteria are met.

Available projects


MW available

Preferred bidders appointed or to be appointed

Funding confirmed

Available for financing under this subsidy

Bid window 1

49 MW




Bid window 2

51 MW





100 MW




Development impact

This project has had the following significant developmental impacts:

  • The market failure from the lack of funding due to limited interest from commercial investors is overcome
  • It allows for qualifying projects that did not benefit from subsidies to be bankable and able to achieve financial close
  • The project ensures that SMEs with a B-BBEE shareholding of at least 50% are able to benefit from the IIPSA intervention
  • Qualifying financial institutions are afforded the opportunity to provide co-funding to the SPIPPP bid windows 1 and 2 projects, i.e. the interest rate subsidy is to be used to crowd in other qualifying financial institutions such as commercial banks or fund managers to co-fund the senior debt with the IIPSA participating DFIs (specifically avoiding crowding out of project finance facilities from IDC and Mergence, supported with subsidised funding from AFD).