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Jun 21, 2011

Cloud of uncertainty still hanging over SA renewables sector

International law firm Dewey & LeBoeuf partner Scott Brodsky discusses the need for clarity and alignment around the Refit. Editing: Lionel da Silva.
Engineering|Africa|PROJECT|Projects|Renewable Energy|Renewable-Energy|System|Africa|Energy|Power
Engineering|Africa|PROJECT|Projects|Renewable Energy|Renewable-Energy|System|Africa|Energy|Power
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Uncertainty with regard to South Africa’s renewable energy feed in-tariff (Refit) rates was a significant concern for potential investors, delegates to the Solar South Africa conference, being held in Johannesburg, heard on Tuesday.

While it was an exciting time for renewable energy development in South Africa, investors needed clarity and alignment around the Refit, international law firm Dewey & LeBoeuf partner Scott Brodsky argued.

He felt encouraging progress by the National Energy Regulator South Africa (Nersa) and government since 2009, had been offset by a range of setbacks.

“There are a number of other issues that remain to be resolved for the Refit programme to be successful,” he said. These included the identity of buyer and government support, the procurement process, risk allocation in the power purchase agreement (PPA), lender considerations and connection to the grid.

“Guaranteed and priority grid access is a key requirement of any successful,” said Brodsky. While the Refit documents refer to “guaranteed access” to the grid, he explained that they did not explain how this would be achieved, nor did the PPA provide relief for possible connection delays.

He added that developers and lenders would be looking for the final documentation that provided the information on which party was responsible for which aspects of the connection to the grid, for example any required grid strengthening, and the compensation available to the seller for any delay in connecting the facility to grid.

Clarity about the “rules of the game” were, thus, still necessary before investments could proceed.

The current review of the Refit rates needed to be clarified “as quickly as possible,” he told Engineering News Online. Nersa had indicated that the outcome of the review should be released during June.

Clarity was also needed on whether price would play a role in the selection of renewable energy projects, as well as what the other selection criteria would be.

Brodsky also motivated for confirming the identity of buyer, the timing of the roll-out, as well as process with regard to the migration to an independent system and market operator.

The draft PPA should also be revised to achieve a balanced and bankable risk allocation, while associated project documentation, such as the connection agreement, the distribution and transmission use of system, and direct agreement for review, should also be published.

“Independent power producers have been through a number of false starts and investors, whether South African or international, can only be asked to continue to spend time and money for so long.

“There are numerous markets competing for investor interest and funding. Regardless of final result, these latest developments have created uncertainty and heightened regulatory risk concerns and the problem will be exacerbated the longer the uncertainty continues - official clarification and detail is needed,” Brodsky said.

Edited by: Creamer Media Reporter
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