Government finally took the wraps off its new-look green policy last week when it officially launched the Independent Power Producers (IPP) Procurement Programme.
The programme proposes a dramatic increase in green power to feed the national grid in 2014. It replaces the previously mooted Renewable Energy Feed-In Tariff (Refit) programme, in which bidders would be asked to bid for projects based on fixed tariffs.
The new approach works according to a two-phase tender system in which bidders must first meet qualification criteria (including legal, environmental and financial requirements) and will then be evaluated on bid price and economic-development objectives.
The energy department has allocated a total 3 725 megawatts (MW) to renewable energy sources, instead of 1 025MW as outlined in the much-heralded Integrated Resource Plan unveiled last year.
But while the renewable industry welcomed the gazetting of the new policy in general, concerns have been raised over compulsory fees, government capacity, quality control and the way investors have been treated.
Alwyn Smith, chief executive of the Southern African Alternative Energy Association, said his organisation did not agree with the new process. “They are not going to get anywhere near the response they would have had with the feed-in tariff system,” he said.
Also problematic, Smith said, are the required fees. To access the application documents, each bidder must pay a non-refundable fee of R15 000. And all bid responses must be accompanied by a bank guarantee for R100 000 per MW of the installed capacity proposed.
Delays
Overseas investors, Smith also said, have expressed agitation following years of delays and now they are faced with the introduction of an entirely new mechanism. “They are getting annoyed. They say that if any more new delays occur they will no longer be interested.”
Smith estimated that more than R500-million had been spent preparing independent power producers for the tariff system and a lot of work might have to be redone. “There is a possibility now that people may sue the energy department,” he said.
Kilian Hagemann, director of G7 renewable energies, said the fees were lower than the industry had expected and competition would undoubtedly be fierce. He estimated that, in the case of wind alone, developers with environmental authorisation had 1 133MW ready to be bid into the grid. That’s 60% of the whole allocation. “Whoever is starting now will most definitely miss the boat.”
Hagemann said the programme would encourage foreign investment because there was finally a way forward. “The rules have changed, but no one is really complaining.”
The increased capacity was also likely to create significant opportunities for jobs and skills development in rural areas, where unemployment was rife, Hagemann said. “It is also likely to kickstart local manufacturing of materials and components, which will create further jobs.”
Jason Shäffler, secretary general of the Renewable Energy Certificate Association (Recsa), said the increased allocation was encouraging and only a small percentage of developers were unhappy with it.
While Shäffler is positive about the proposed production-based incentive, in which developers are paid for every unit produced, he said it would require careful administration. “It’s a question of whether this is an opportunity to create more jobs, or whether there is not enough capacity.” The programme’s evaluation criteria will score 70% on price and 30% on a range of economic-development requirements.
Peet du Plooy, the programme manager for sustainable growth at trade and industry research institution Tips, said it addressed initial concerns that a competitive bidding process would only (or at least 90%) focus on price and not give sufficient recognition to projects which excelled in terms of their local-development potential.
Price competition, Du Plooy said, would have the benefit of passing additional incentives such as the Clean Development Mechanism and the proposed South African Renewables Initiative onto consumers rather than simply adding to bidders’/suppliers’ profits. Bidders would also be encouraged to pursue these additional incentives as they could then bid at a lower price and stand a greater chance of being selected.
The price caps for bids are as follows: wind: R1 150/MWh, solar PV: R2 850/MWh, CSP: R2 850/MWh, biomass: R1 070/MWh, biogas: R800/MWh, landfill gas: R600/MWh, small hydro: R1 030/MWh.
As far as quality control is concerned, “Chinese wind turbines will be the least expensive option. Some are okay and some are not,” Shäffler said. For this reason, the bidding process would take far longer than Refit would have taken, he said, as it demanded more careful adjudication so that money is spent as efficiently as possible.
There are five bidding windows: November 4 2011, March 5 2012, August 20 2012, March 4 2013 and August 13 2013.
For the five phases, onshore wind has been allocated 1 850MW, concentrated solar thermal 200MW, solar photovoltaic 1 450MW, biomass 12.5MW; biogas 12.5 MW; landfill gas 25MW, small hydro 75MW and small projects 100MW.
Projects submitted for the first window must begin commercial operation before the end of June 2014, except concentrated solar power technologies, which must begin before the end of June 2015. All projects submitted for any other window must begin commercial operation before the end of 2016.
The energy department said it also intended to introduce a separate small projects IPP Procurement Programme for generation of less than 5MW.