/ 10 March 2009

New energy laws may scare off investors

Green lobbyists fear that draft regulations on electricity generation, released by government in January, may undermine investment into renewable energy.

The regulations promote competitive pricing and appear to conflict with an initiative by Nersa, the energy regulator, to set up preferential tariffs to promote new, clean energy technologies.

The Department of Minerals and Energy draft regulations are intended to facilitate independent power producers. But environmentalists and energy analysts say the department will scare away investors.

Eskom is South Africa’s sole electricity provider. Last week Minister of Minerals and Energy Buyelwa Sonjica hinted at a climate change conference in Midrand that her department had started to develop a climate change strategy for the energy sector.

But critics say the published draft regulations suggest that the strategy is just lip service from the minister.

The regulations, falling under the Electricity Act 4 of 2006, are for new generation capacity of all forms of energy by independent power producers, including coal, biodiesel, sun, wind, water and waste. Only nuclear energy is excluded. The regu­lations set out how South Africa’s energy regulator will license independent producers and the process they have to follow.

In contrast to the regulations is the renewable energy feed-in tariff that has been adopted by countries such as Germany with great success. Feed-in tariffs have a proven track record of encouraging investment in renewables all over the world. Because there are no tenders involved, investment in renewables can come from any investor, who will be paid by the national regulator.

Richard Worthington, WWF’s climate change programme manager, appealed to the department to withdraw the regulations because they were not compatible with the government’s commitment, as outlined by Sonjica.

“Competitive bidding to initiate renewable energy development and deployment has a terrible international track record, while feed-in tariffs has a strong one,” he said.

Worthington urged South Africa to seek a leadership position in the renewable energy industry, as the country had an excellent resource base to start from. He said the new regulations and a proposed amendment to the Electricity Regulation Act are inconsistent with a policy to drive investment in renewable energy, as well as with ANC resolutions on renewables.

Ruth Rabinowitz, convener of the e-Parliament Renewable Energy Activists, said it was “highly likely that the tail is wagging the dog”, with the promulgation of the new regulations.

She said the timing was perfect as there is a vacuum in government, while ministers are off canvassing or waiting to be replaced.

Rabinowitz questioned whether the government had any vision around renewable energy. She said hearings held by the national energy regulator indicated that millions of dollars are waiting to be invested in South Africa by energy companies.

She said the independent producer route has, to date, produced little impact on co­generation because of the subjective nature of the contracts and the lack of certainty.

“Now the regulations offer yet another level of bureaucracy, patronage and potential for corruption through a buyer who will decide who will receive tenders to produce what, where and when,” she said.

The national regulator will have to oversee both the new regulations as well as feed-in tariffs, which Rabinowitz believes will be a huge challenge for the regulator.

The history of the energy tendering process worldwide has shown it to be unreliable in ensuring quality and cost, while feed-in tariffs are objective and place the onus on the renewable energy producer to roll out a successful technology. “One cannot help wondering who is waiting to profit from contracts, with no concern for the impact on the public, the country, job creation in South Africa or the state of the globe, but with lots of interest in personal pockets preparing to bulge,” she said.