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Jun 23, 2011

Fresh concern that SA is poised to abandon Refit in favour of competitive bidding

Engineering|Africa|PROJECT|Projects|Renewable Energy|Renewable-Energy|Africa|Energy|Wind Energy
Engineering|Africa|PROJECT|Projects|Renewable Energy|Renewable-Energy|Africa|Energy|Wind Energy
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There is fresh concern among potential renewable energy investors that the South African government’s imminent procurement process for the first 1 000 MW of renewables projects could well proceed on the basis of a competitive bidding model, rather than being based on renewable energy feed-in tariffs (Refit) determined by the regulator.

Adding to the anxiety is the fact that the National Energy Regulator of South Africa (Nersa) failed to meet its mid-June deadline for the release of revised Refit rates, which were likely to be substantially lower than the tariffs promulgated in 2009, and on which many renewables projects had been premised.

In a response to questions posed by Engineering News Online, the National Treasury emphasised that the Electricity Regulations Act had determined that Nersa cannot “pre-determine a tariff”. Instead, a spokesperson said, Nersa could only consider applications at the licensing stage on a “project application by project application” basis.

However, Nersa regulatory member Thembani Bukula responded by telling Engineering News Online that it had secured legal opinion confirming that it was indeed authorised to determine tariffs. Therefore, he said that he still anticipated that the revised Refit rates would be published before the end of June.

Bukula stressed, too, that Nersa was taking its lead from the primary policymaker, the Department of Energy (DoE). But he indicated that efforts were still under way to ensure alignment between the various role-players, including the regulator, the National Treasury and the DoE.

During a recent media briefing, Energy Minister Dipuo Peters indicated that the 2009 Refit rates, and not the revised 2011 tariffs, would be used for the first procurement round. She also told lawmakers in her May 26 Budget vote speech that the first 1 000 MW would be procured by December 2011.

But despite National Treasury insisting that “there is no misalignment with the Nersa process” and that there would be only one procurement process, which would be determined by Peters through Section 34 of the Electricity Regulations Act, uncertainty over the rules of engagement had increased.

In fact, the South African Wind Energy Association (SAWEA) said on Thursday that it was increasingly concerned that the DoE intended pursuing competitive bidding, and warned that this could adversely affect investor confidence and “destroy” a nascent industry.

SAWEA board member Ian Macdonald told Engineering News Online that recent developments were “disappointing”, particularly owing to the fact that, until April, the one constant in the much delayed renewables process had been the tariff. The 2009 Refit stimulated material investor interest, which had also led to an investment by potential wind developers alone of more than R400-million.

However, he noted that, as the Refit procurement process was about to get under way earlier this year, Nersa surprised the market with its proposed downward adjustments to the tariffs, on the basis of technological and price developments internationally. That was followed by persistent rumours that government was considering eschewing the Refit entirely.

In her Budget vote address, Peters also appeared to keep her options open, by referring both to the Refit, as well as to taking “into consideration the legal requirements relating to public sector procurement, in terms of which procurement is required to be open, fair, transparent, cost effective and competitive”.


Many in the renewables sector have argued that the Refit model, which offers a guaranteed purchase price, had emerged as “best practice” globally for supporting the development of the fledgling renewables sector.

More than 60 countries had pursued the model and developers argue that it has delivered better results when compared with those countries that opted for competitive bidding. The key danger, they argue, was that inexperienced and overly-optimistic developers bid low in order to secure the tender, but were then unable to raise the project finance required to construct projects.

SAWEA pointed to a detailed 2008 analysis by the European Commission, which concluded that "well-adapted feed-in tariff regimes are generally the most efficient and effective support schemes for promoting renewable electricity".

On whether the Refit model provided for sufficient competition as required by South Africa's pubic sector procurement rules, Macdonald noted that SAWEA had secured legal opinion to confirm that it did.

An opinion from Advocate Wim Trengove SC noted that the Refit was legitimate under both the Constitution and the Public Finance Management Act, despite a lack of price competition - this, owing to the fact that there would be competition based on other selection criteria.

Those selection criteria were not yet known for the South African process. But they were likely to include points for local economic development, local manufacture, black economic empowerment, employment creation and social upliftment.

"Luring investors into the country with a Refit only to ditch it at the eleventh hour would harm investor confidence not only in our energy sector but in the country more generally," SAWEA CEO Johan van den Berg argued, while noting that, under the recently promulgated integrated resource plan for electricity, some R350-billion would be required for renewables-related investments over the coming 19 years.

This, SAWEA asserted, was unlikely to be achieved if an internationally proven formula was abandoned in favour of one that had been shown to be deficient.

Edited by: Creamer Media Reporter
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