South Africa has decided to shelve its highly publicized renewable energy feed-in tariff model, established in 2009, in order to debut a new procurement process. Now everyone is asking just how this new change will affect the burgeoning South African renewable energy market?
The country’s Energy Ministry has determined that 3,725 MW of energy need to be generated from renewable energy sources in order ensure uninterrupted supply of electricity. With several delays in the renewable energy feed-in tariff (Refit) policy and IPP tender process, South Africa’s National Treasury and Energy Ministry decided to introduce a new financing mechanism.
The IPP Procurement Program is aimed at substantially increasing renewable energy with a two-part bidding process. The difference between this new policy compared to South Africa’s Refit is that instead of bidding on projects based on fixed tariffs, the new approach will have potential investors evaluated on bid price and objectives meeting pre-set qualifications. In addition, the Energy Ministry has allocated 3,725 MW instead of the previously determined 1,025 MW that was outlined in the Integrated Resource Plan (IRP).
Interestingly, the Energy Ministry and the National Treasury made this decision with only a slight consultation with the National Energy Regulator of South Africa (Nersa). Nersa has been the main body in control of the Refit policy and amendments. Nersa regulator Thembani Bukula told Alternative Energy Africa, “In a way, yes [the Energy Ministry and National Treasury] consulted with Nersa; initially we did not concur, but when the law was changed in a way that rendered the Refit [policy] inapplicable, we had to concur.” And now instead of Nersa deciding the pre-set tariff pricing system, the Energy Ministry, assisted by the National Treasury, will conduct the procurement process although Bukula insisted Nersa will still have the final say on the price.
Nersa’s role has also changed. Preferred bidders will now be required to apply for a license from Nersa and the regulating body will also facilitate the conclusion of the PPA’s between Eskom and the renewable energy IPPs.
This could have serious implications for investors that were looking to continue their renewable energy drive in South Africa. First, some believe that the abrupt change in policy is going to deter potential bidders. Second, the required fees to access the application documents are substantially high without certainty that the bidder will be awarded the project. According to reports, each bidder must pay a non-refundable fee of R15,000 (approximately $2,113) accompanied by a bank guarantee for R100,000 ($13,966) per MW of the installed capacity proposed.
The first phase of the bidding process began on August 3 and the preferred bidders will be announced on November 24. The second round of bidding will begin on November 25. Bukula said, “The issue was really to ensure that South Africa gets the best price hence Refits will be used as a ceiling price.” He added, “In the end, I think the two processes will yield similar results.”
Alternative Energy Africa will explore this developing story more in the September/October issue’s Markets & Policy, including a more in-depth view as to what this means for South Africa. If you are not a subscriber and would like to be, please make sure to click on the top right hand of the home page “Subscribe to Magazine.” Alternately, you may inquire about pricing for this article or other separate articles by contacting info@AE-Africa.com.
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