/ 27 May 2011

Green energy roll-out stalled

There is growing unease among green energy developers that there will be even more delays to the procurement of green power — the National Energy Regulator of South Africa (Nersa) announced this week that it would release its revised tariffs for renewable energy only in mid-June. They were expected by the end of May.

Besides having to wait for clarity about what they can expect to be paid for their power, broader policy uncertainty and other bottlenecks are contributing to unhappiness over the roll-out of green power, despite the government’s commitments to boosting the development of renewable energy.

But Minister of Energy Dipuo Peters, announced on Thursday, ahead of her budget speech, that the preparation of the procurement documentation under the renewable feed-in tarriff (Refit) programme has been completed and by December 2011 government would have completed the Refit procurement process.

Peters said that the review of the Refit tariffs would only affect the second phase of the renewable procurement.

Nersa’s decision to revise the tariffs announced in 2009 has been criticised by the industry, which argues that it has introduced a great deal of uncertainty into the market — and at a time when South Africa is facing further power shortages. Demand is already peaking at levels last seen before the global economic recession.

Last year, under the auspices of the department of energy, the Development Bank of Southern Africa and the treasury, the government announced the start of a procurement process for renewable energy under the Refit programme with the release of a request for information from developers.

Nersa, in its tariff determination, required that between 2010 and 2013 a sum of R12-billion be ring-fenced for the purchase of electricity from renewable sources.

The procurement process is intended to culminate in a request for proposals from the market. This will include key procurement documentation including a standardised power purchase agreement (PPA) and standardised agreements governing transmission and connection to the grid.

Under section 34 of the Electricity Regulation Act, the minister must determine who the buyer will be under the Refit programme.

The department of energy indicated on Thursday that Eskom will be the buyer and that once Nersa finalised the tariffs, the procurement process would be launched in June.

This has not been done, although Eskom has already established a buying office that will be responsible for procuring non-Eskom generated power. In a bid to mitigate a power crisis in the short to medium term, it has been purchasing co-generated power from large industrial users, such as Sappi, and from municipal run power plants.

Meanwhile, the department of energy has published a draft Bill to establish an independent system and market operator to make this function independent of Eskom.

Thembani Bukulu, the electricity regulator at Nersa, said that the delays in announcing the revised tariffs were a result of the many inputs that the regulator received, which it had to attempt to verify. That was to ensure that when Nersa made a decision it would be one that “stimulated investment”, he said. The intention was to determine tariffs that neither dampened investment nor allowed for “windfall profits”.

But renewable developers have no clarity on price, the procurement process or the selection criteria that will accompany it. “The biggest issue right now is policy uncertainty. Industry has been waiting for almost two years to get clarity on the procurement process and selection criteria,” said Mark Tanton, chairperson of the South African Wind Energy Association. “This is obviously a crucial piece of the puzzle required to even begin.”

These concerns were echoed by Pancho Ndebele, chairperson of the Southern Africa Solar Thermal and Electricity Association. “Developers are totally in the dark about what the final selection criteria would be.”

He said that developers had been led to believe that only bids underwritten by a financial institution were likely to qualify for selection. However, banks were unlikely to underwrite a project without a signed PPA.

The PPA was likely to be released with the request for proposals documentation but that could not take off without Nersa finalising the tariff review.

Ndebele said that developers willing to go ahead and begin the costly process of raising capital were likely to do so only on the proviso that the underwriting be subject to securing a signed PPA. But they ran the risk of being forced into an untenable situation if the PPA contained terms that turned out to be unfavourable. “We shouldn’t be asking banks to underwrite projects when there is no standardised PPA,” he said. “It is not fair to developers.”

When the request for proposals would be released was the million dollar question, he said. Had the country been able to “plug renewables in sooner” it could have eased the current power gap faced and attain the 10 000 gigawatt target by 2013.

Nevertheless, the country needed the proper policy structures in place, starting with the IRP2010, to ensure that renewables were part of our future energy mix. “We needed the policy to accommodate the renewable space,” said Ndebele.

The delays, while problematic, were better than introducing renewables in a haphazard and uncoordinated way. Tanton said that there were other related policy issues that were problematic, including questions of access to land.

But even when policy uncertainty had been dealt with we would have to contend with the physical bottleneck of grid constraints, he said. “There is currently a disjoint between where renewable energy plants are being planned and where Eskom is planning to upgrade the grid.”

“Grid strengthening and extension will be required in future to ensure that good renewable energy projects are not inhibited by the reasonable requirement of grid access.”