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South African wind industry calls on Government to continue on REFIT path

The South African Wind Energy Association (SAWEA) are looking forward to the national energy regulator's imminent announcement of the revised renewable energy feed-in tariffs and see this as a positive step in the implementation of renewable energy in South Africa.
However, SAWEA are concerned that the Department of Energy's intention to pursue a competitive bidding process for the first rounds of South Africa's renewable energy procurement could adversely affect investor confidence and destroy South Africa's nascent renewable energy industry.

In 2009, the national energy regulator NERSA announced feed-in tariffs - a guaranteed purchase price for electricity generated from renewable energy sources - that were intended to kick-start renewable energy development in the country.

The REFIT has sparked intense investor interest in the South African renewables sector and to date in excess of R400 million has been invested - at risk - by wind energy developers in preparing for the REFIT programme through feasibility studies, wind measurements, environmental impact assessments, other regulatory compliance and the general overheads associated with doing business.

In March this year, NERSA announced a review of the feed-in tariffs. After initially opposing the review before even one round of renewable energy procurement at the original tariffs, SAWEA and other industry associatons have supported and participated in the tariff revision process with a clear understanding that the REFIT would be implemented after consultation and input from all stakeholders.

Over the past two years, numerous government departments and documents have spoken about the REFIT programme, most recently the Minister of Energy referring to the REFIT programme in her budget speech a month ago.

Now the Department of Energy are claiming the REFIT programme to be unlawful in that it does not comply with the legislation that requires public entities to engage in a competitive procurement of goods and services.

An internationally proven mechanism
Internationally, feed-in tariffs have proven to be an effective means to establish a nascent energy industry. Conversely international experience has shown that if the industry is price competitive early on, it fails to take off.

In a competitive tender process, inexperienced and overly-optimistic developers tend to bid at a price that may secure a tender but is insufficient to raise the project finance required to construct projects.

The REFIT is a mechanism designed to do the opposite, to provide price security that facilitates the bankability of the project. In 2008, a detailed analysis by the European Commission concluded that "well-adapted feed-in tariff regimes are generally the most efficient and effective support schemes for promoting renewable electricity".

Legal opinion
SAWEA have sought legal opinion from Advocate Wim Trengove SC on Treasury's objections to the REFIT programme.

Advocate Trengove found that, under the Constitution and Public Finance Management Act, REFIT is indeed legal and constitutional. The REFIT scheme does not require independent power producers to compete on price but does require them to compete on a range of other features. Further Senior Counsel found that a competitive price bidding procurement process would be illegal if NERSA does not agree to it.

REFIT can work if stakeholders work together
Essentially, REFIT can proceed if all stakeholders, including the Department of Energy, the energy regulator, and independent power producers, work together.

Together with other industry associations in the renewable energy sector, SAWEA has engaged in discussions with various Government agencies in order to chart a collaborative way forward that will be to the benefit of all stakeholders, and to the benefit of South Africa as a whole.

"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," says SAWEA CEO Johan van den Berg. "Under the IRP2010 in the next 19 years, R350 billion needs to be invested into renewables in SA and we must retain the confidence of investors to achieve this."

This is unlikely to be achieved if an internationally proven formula to stimulate a fledgling industry is abandoned in favour of one which has been proven not to work.

Substantial benefits of a successful REFIT programme
SAWEA believes that a successful REFIT programme would stimulate a local renewable energy industry. The Association supports a procurement process that is fair and one that creates many additional spin-offs including job creation, local content, local manufacturing, broad-based black economic empowerment, rural investment and skills transfer. These spin offs would be more difficult to attain under a competitive bidding programme.

The rapid deployment of renewable energy will play a significant role in alleviating South Africa's power shortages, providing energy security, stimulate economic investment and development and contribute to Government's development objectives and while allowing South Africa to demonstrate significant strides in meeting its climate change mitigation commitments when Durban hosts the United Nations Climate Change Conference (COP17) at the end of this year.

Additional information:
News date: 24/06/2011

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