The South African Wind Energy Association (Sawea) estimates that wind energy developers have already risked over R400-million in preparing projects to participate in South Africa’s nascent renewable-energy industry and warns that the current move to cut the tariffs ahead of the first contract having been signed could undermine investor confidence in South Africa.

The National Energy Regulator of South Africa (Nersa) has issued a consultation paper proposing a material decrease in the renewable energy feed-in tariffs (Refit) approved in 2009, including a 25% decrease in the rate on offer for wind projects, from R1,25/kWh to R0,94/kWh.

Sawea chairman Mark Tanton notes that the proposed changes have been put forward despite Nersa’s earlier acknowledgement that the Refit should be “certain and long term enough” to allow for project financing.

He adds that the Refit has also been the main source of confidence during the past few years, when South Africa’s electricity planning model, its project selection criteria and the preferred bidding process remained uncertain.

"The tariffs announced in 2009 were intended to stimulate a local renewable energy supply industry and have been effective in doing so," Tanton argues, describing the decision to revise the tariffs at the “eleventh hour” as having came as a “complete shock to the industry”.

Nersa’s consultation paper emerged ahead of a much-anticipated request for proposals (RFP) for the first 1 025 MW of Refit-related generation, 700 MW of which is likely to be reserved for wind projects. The Department of Energy and National Treasury were expected to release the RFP in late March or early October.

In discussion with the two departments, Sawea says it received “the consistent message” that the tariffs, which are already being recovered from consumers by Eskom under the second multiyear price determination period from 2010 to 2013, would be based on the 2009 rates.

However, despite enquiries Engineering News Online was unable to obtain insight from the National Treasury as to which rates would apply to the first procurement round.

Nersa has stated that the policy had always been to review the Refit annually and that the adjustments were in line with the capital cost and currency assumptions used for the completion of the Integrated Resource Plan, or IRP2010. It adds that a balance has to be struck between incentivizing new investment and ensuring that consumers pay fair rates.

Sawea says it agrees that the tariff should be periodically reviewed but argues that developers need price certainty for at least three years.

“Confidence has been building in the renewable energy sector since 2009 and revising the tariffs at this crucial stage in the development process threatens to undermine confidence and affect investment,” Tanton says.

Nersa has called for public comment on its consultation paper and will host hearings on May 5. It expects to finalise the 2011 Refit by May 26.