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Developers call for sustainable form of renewable energy procurement

Sawea CEO Johan van den Berg discusses the country's Refit programme. Editing: Lionel da Silva.
Meridian Economics partner Mark Pickering discusses the Refit programme. Editing: Lionel da Silva.

29th June 2011

By: Brindaveni Naidoo

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Renewable energy industry associations on Wednesday appealed to policy makers to engage with the industry to ensure that a sustainable form of renewable energy procurement could get under way.

This comes as concern mounts that government may decide to proceed on a basis of competitive bidding, rather than the renewable energy feed-in tariff (Refit) programme, to procure the first round of renewable energy from independent power producers (IPPs).

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Energy Minister Dipuo Peters will reportedly announce a multiple phase bidding process this week.

South African Wind Energy Association CEO Johan van den Berg said at a briefing in Johannesburg that price-competitive tender process could breach the trust on which potential wind developers have invested some R400-million, and could tarnish the country’s credibility.

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He said that shifting away from the Refit programme could be illegal and that it would stall the renewable energy drive and stifle economic growth.

The National Energy Regulator of South Africa (Nersa) is still believed to favour the Refit model, while the Department of Energy and the National Treasury questioned the legality of the programme and Nersa’s authority to set upfront tariffs.

Under the Refit programme, Nersa sets tariffs at which IPPs can sell electricity to a buyer, which is currently Eskom. The IPPs would have to apply to Nersa for a licence to sell electricity at the predetermined tariff.

In a joint statement, the wind, solar photovoltaic and concentrated solar power associations said that they had received legal option on the legality of Refit.

The associations said that the opinion stated that the Refit programme was legal, as long as Nersa retained some discretion for itself, should circumstances at the time of issuing a licence require the tariff to be amended.

“The implication is that any procurement process launched now, other that Refit, would be illegal unless Nersa, as the independent regulator, has approved it.”

Van den Berg said that industry would consider its position once the final shape of the procurement drive was known. “I am deeply concerned that it only takes a single stakeholder legally challenging the process to cause extremely long delays and a general loss of momentum,” he added.

South African Photovoltaic Industry Association chairperson Dr Chris Haw said that government had to “urgently” engage with the renewable energy industry, if it planned to change its method of procurement.

Van den Berg said that the Refit would be a strong enabler to fund added benefits, such as job creation, skills transfer and local content in a nascent industry. He added that, by the time the price discussion arose again, the industry should be large enough to succeed irrespective of new price determinations.

In March, Nersa surprised the market with its proposed downward adjustments to the tariffs, on the basis of technological and price developments internationally.

A Nersa spokesperson confirmed to Engineering News Online that the outcome of the Refit review, which was initially expected by mid-June, would be announced next week.

The review has been a frustration for relevant stakeholders, but Van den Bergh said that it was key to “get it right”.

“If it takes another month to see how the procurement process will work and ensure it meets the requirements of what investors have been promised – it is a month well spent. The current delay is not the issue, as there is a lot of positive momentum towards the procurement process. We need to ensure that extra time is allocated to make sure the Refit is sustainable,” he told Engineering News Online.

Meridian Economics, an infrastructure development and regulation firm, partner Mark Pickering said that the uncertainty surrounding the Refit was a reflection of South Africa adapting to how to incorporate renewable energy power.

“Feed-in tariffs have worked well internationally, where producers were guaranteed a price that could work. In those countries, there is a power market, which can absorb different prices and is used to having different prices. But, in South Africa, there is a regulated system, in which the regulator determines the prices [with a reasonable return]. This is a different paradigm.

“The challenge is that the two systems are not fitting well together and what government is trying to do is to establish how to make it work. The result is going to be that we end up with a form of competitive bidding on the price for renewables, which leads to a more standard rate-of-return,” he explained.

Pickering said it was necessary for South Africa to engage in discussion on whether to open up a wholesale power market, as well as on the implementation of such a possibility, and that country needed to move away from the simple regulative-return approach.

In moving forward with the Refit, it was necessary to prevent a hasty, half-informed, unilateral decision, to continue to engage the authorities with a view towards collaborative problem solving and building the broader consensus among renewable energy players, and keeping an open mind, said Van den Berg.

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