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May 05, 2011

Renewable energy developers say new tariffs could halt investments

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Wind, solar, biomass and landfill gas project developers speaking at the National Energy Regulator of South Africa’s (Nersa’s) public hearings into the renewable energy feed-in tariff (Refit) review, were in agreement that the revised tariffs were unsuitable to stimulate a renewable energy development in South Africa.

Gathered at Nersa’s head office in Pretoria on Thursday, various company representatives indicated that the revised tariffs, which were released to the surprise of the industry in March, would render many projects, which were in advanced stages of development, unbankable.

The proposed tariffs, which were significantly lower than the 2009 tariffs, would “render the industry stillborn”, said Solafrica Thermal Energy representative Prabashen Govender.

Mainstream renewable energy South Africa MD Davin Chown emphasised the positive socio-economic and macroeconomic benefits that the Refit would deliver for South Africa, such as rural, agricultural and skills development, and said that lower Refit rates would disable project developers from delivering these.

“The revised tariffs are not adequate to seed the industry. Developers will struggle to bring projects to financial close,” said Chown, suggesting that the prices indicated by Nersa in 2009 be applied for the first procurement round until 2013.

Red Cap Investments MD Mark Tanton added that the review had created fresh uncertainty in the renewable energy market.

He agreed that a review of tariffs was necessary, and should take place. However, the decisions taken during the review process should only be applied with a three-year lag, thus decisions would be made well ahead of time and create clarity for investors.

South African Wind Energy Association (Sawea) CEO Johannes van den Berg supported this, stating that if need be, the revised tariffs could be applied from 2014, when the industry had gained more local experience with construction, operation and maintenance of renewable energy facilities.

It was, however, strongly articulated by the wind industry that the Refit was preferred over a competitive bidding process, which could create a risk that projects never became operational.

Van den Berg said that the biggest challenge currently facing the industry association was to maintain investor confidence over the next 12 to 18 months, given the slow Refit roll-out and general regulatory hurdles and costs.

GreenCape Initiative CEO Francois du Plessis said that the Nersa Refit review has created a lot of uncertainty in the market, and had turned away investors. He noted that the higher risk and uncertainty meant that investors would require higher returns, which were not forthcoming with the lower tariffs.

Tanton described the initial Refit tariffs as a beacon, and urged the regulator to once again uphold the principles of the 2009 decision.

He further noted that there were rumours within the industry that the Refit would be scrapped entirely, and bidding would take place on a lowest cost energy price for every kilowatt hour. Tanton urged Nersa to ensure that this did not happen. “Please do the industry a favour and ensure that the Refit is upheld,” he reiterated.

The Refit was viewed by renewable energy project developers as the best way to create adequate incentives to attract investors to the fledgling market in South Africa.

The roll-out of renewable energy would diversify South Africa's coal-heavy generation mix.

Nersa electricity subcommittee chairperson Thembani Bukula said that the regulator received some 200 written submissions regarding the Refit review, and would listen to 20 oral presentations on Thursday, with more scheduled for Friday.

Edited by: Creamer Media Reporter
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