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Green energy gets shot in the arm with generous SA tariff regime

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Green energy gets shot in the arm with generous SA tariff regime

Nersa member for electricity regulation Thembani Bukula on the effect of the Refit on tariffs and consumers. (31/3/2009)

1st April 2009

By: Terence Creamer
Creamer Media Editor

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The National Energy Regulator of South Africa (Nersa) gave South Africa’s nascent renewable-energy industry a major boost on Tuesday when it unveiled a generously priced renewable energy feed-in tariff (Refit) regime for potential wind, minihydro, landfill-gas and concentrating-solar power investments.

Nersa also indicated that it had already received several enquiries from potential investors and that it would be hosting its first licence application hearing for a wind-energy project next week.

The regulator also insisted that, although the tariffs were significantly higher than the current Eskom tariff of about 22c/kWh, the Refit would add only between 6% and 10% to the average tariff once the full 1 100 MW of capacity, which was being targeted for 2013, was installed and operational.

The tariffs approved were also substantially higher than those proposed in its initial consultation paper, which had come in for heavy criticism from potential investors and environmental campaigners for being parsimonious.

In addition, the new tariff regime would enable power purchase agreements (PPAs) to run for a term of 20 years, rather than the 15 years initially mooted.

However, Nersa maintained its position that technology-specific tariffs were needed, arguing that such disaggregating would prevent excessive profits from being made as the tariffs were based on the “levelised cost of electricity” produced by each technology.

For wind, which Nersa conceded was likely to be the first major renewable mover, a tariff of R1,25/kWh was sanctioned, which was a significant improvement on the 65c/kWh initially proposed. Small-scale hydro would receive 94c/kWh, landfill gas 90c/kWh and concentrated solar with a storage capacity of more than six hours would receive R2,10/kWh.

Over the next six months, the regulator would also consider which other renewable technologies would be included under the Refit, including photovoltaic solutions, which had hitherto been somewhat controversially excluded.

Regulator member for electricity regulation Thembani Bukula argued that the guidelines should create an enabling environment for achieving South Africa’s stated target of 10 000 GWh of renewable energy by 2013 and sustain growth beyond that target.

But the Refit would be reviewed every year for the first five years and every three years thereafter, and the resulting tariffs will apply only to new projects.

Nersa did not, however, yield to demands that the Renewable Energy Purchasing Agency, or Repa, which would act as a single buyer for energy dispatched from the independent power producers (IPPs), should be removed from the authority of Eskom.

Nersa CEO Smunda Mokoena said that government had designated Eskom as the single buyer and Nersa was not in a position to over-rule this policy position.

Eskom’s Medium Term Power Purchase Programme, or MTPPP, which was expected to be adopted by the utility’s board at it Tuesday meeting, would be used as the standard PPA and act as the basis for a standard Refit PPA. Further, Nersa would facilitate the adoption of such PPAs.

POSITIVE RESPONSE
The response from both potential investors and environmental campaigners was overwhelmingly positive, with World Wide Fund for Nature’s Richard Worthington congratulating Nersa for responding to the challenges raised at its recent public hearing.

He said that the tariffs were of an order that should galvanised investment and appeared to be in line with WWF’s call for the Refit framework to be “long, loud and legal”, given that the framework was set for 20 years and that the tariffs were encouraging.

However, Worthington indicated that it would be monitoring the “legal” aspects, particularly with regard to how Nersa and Eskom managed the PPAs.

He said it would be unacceptable for the Refit regime to allow Eskom, which had been only grudgingly accepted by stakeholders as the Repa, to have any discretion over which projects would and would not be accepted.

Bukula indicated that these loose ends would be dealt with over the next three months during which time the precise tariff flow-through arrangements for cost recovery would also be finalised.

Potential wind-energy investor, the Mainstream Genesis Eco-Energy joint venture, which had set out an aspiration for 500 MW of capacity inside South Africa by 2014, also welcomed Nersa’s determination.

Operations director Davin Chown, who spoke to Engineering News on his mobile phone from the Jeffrey’s Bay site where the joint venture is hoping to make its first 30-MW, R600-million wind-farm investment, said that the R1,25/kWh was “very good news”.

However, he indicated that it could also make a number of more marginal wind projects viable, which could lead to speculative activity.

To counter this, Chown proposed that Nersa considers the implementation of a “grid bond”, which would be payable to the regulator during the licence application to effectively secure a slot on the grid.

This, he argued, would bring the more serious projects to the fore and ensure that speculative initiatives did not lock up grid capacity.

But Worthington warned that Nersa also had an obligation to ensure that there was room for smaller participants and said that a grid bond could restrict access to larger participants.

Meanwhile a potential landfill gas project developer, Energy-G Systems, told Engineering News that it too was happy with the tariff proposal.

Director Richard Beningfield and project manager Tony Cummings, who attended the Nersa announcement in Pretoria, said that the 90c/kWh would unlock three of its near-term projects, the first of which, on a site in Richards Bay, could come on stream by year-end.

However, the company still had to make its formal licence application to Nersa.

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