The slow pace of progress in South Africa’s electricity industry is both frustrating and ironic.
The prevailing shortage of power has emerged as one of the greatest risks to new investment, alongside uncertainty over mineral rights tenure, a proposed carbon tax, and a potentially debilitating set of new labour laws. Yet, action to mitigate this risk, while steady, has been painfully protracted.
Nobody would deny that some serious and diligent work has been done over the past three years to reshape the architecture of the electricity industry, and to stabilise the national utility, Eskom. But the lack of new project implementation, which is urgently required to create the capacity needed to deal with the supply shortfall and provide sufficient room for growth, is as undeniable.
Nowhere has this been more obvious than in the renewable-energy milieu, where there has been much vigour and excitement ever since the publication of the first set of renewable energy feed-in tariffs (Refit) all the way back in March 2009. This was followed up with a second phase, promulgated in October 2009, to include a host of other renewable technologies not covered in the initial release.
But since that date, not one Refit power purchase agreement (PPA) has been signed, despite the fact that the second multi-year price determination, approved by the National Energy Regulator of South Africa (Nersa) for the period 2010 to 2013, specifically catered for the collection of more than R8-billion to pay for the first 1 025 MW of Refit projects.
Eventually late last year, the Department of Energy and the National Treasury issued a request for information from potential renewable energy project developers to lay the foundation for a procurement process. The response was overwhelming, with more than 384 responses, highlighting 20 GW of potential Refit-technology projects.
No doubt, this high level of response set off alarm bells about the level of tariffs on offer, which many had already described as “generous”.
Nevertheless, there was a view that the small group of serious early movers (developers which had taken on significant risk and invested materially to get their projects Refit ready) should be rewarded. It was posited that this would send a positive signal about South Africa’s commitment to renewable energy, while getting the nascent industry off to a more than solid start.
But now Nersa has moved to materially revise the Refit rates just as the procurement process was about to get serious and just as South Africa’s long awaited Integrated Resource Plan had pointed to a larger role for renewables in the future mix.
At the time of writing, the procurement process had not formally started and it was uncertain what Refit rates would be included in the accompanying PPA. What was apparent, though, was that the already frustrated renewable community faced yet another perceived obstacle.
In my view, Nersa’s timing is unhelpful in the extreme. It had held back from reviewing the tariffs all through 2010, despite indicating that such reviews would be held yearly. Now, just as shovels were being prepared, the playing field looks likely to be adjusted.
Further delay is now quite likely. Investor appetite will probably weaken. And, much needed non-Eskom generation will remain on the back burner for a while longer as the supply/demand balance continues to deteriorate.