Renewable tariff cuts..refit South Africa

While the case has grown for using renewable energy feed-in tariffs to supplement the price paid for generating green electricity, there is little agreement on what the appropriate levels are.

This is true in London or Johannesburg, as evidenced by the outcry over proposed cuts this month in the feed-in tariffs paid to producers of renewable energy.

High renewable energy feed-in tariffs were used to establish markets in Germany and Spain and while developers prefer strong early incentives in new markets too, the governments or regulators in those countries aim to emulate last year’s drop in tariffs in older markets.

The consternation in South Africa and the UK stems from the fact that renewable energy industries in both countries are fledgling, and the proposals knock the viability of projects in the planning stage.

The UK says its tariff cuts are designed to discourage an unexpected number of large-scale solar park applications, as the tariff was intended for smaller projects. However, large solar farms will be affected alongside community-scale solar energy installations under 250 kilowatts proposed by schools, councils and housing estates.

In South Africa, the National Energy Regulator of SA (Nersa) first proposed Renewable Energy Feed-In Tariff (Refit) rates in 2009, but published a draft set of lower rates last week.

It did so because of a differing inflationary and exchange rate outlook, as well as falling technology costs. The proposed cuts apply to projects over 1 megawatt as small-scale installations have yet to come into the regulatory and funding net.

Nersa’s move appeared to surprise even the Energy Department, which said the higher tariff should apply for the first round of Refit bids, which are about to go out to tender, because their projects had to be ready by 2013 and thus could cost more.

We have yet to see the precise make-up of all South Africa’s Refit applicants, but when invited to submit bids they will presumably comprise consortia of international developers, local business groups and some community element.

Do these Refit applicants deserve the higher tariff at the expense of South African consumers? To me it seems logical that the tariffs fall in line with global trends as determined by Nersa after detailed consultation.

However, this doesn’t settle the issue of whether licencees should receive the higher tariff in at least the first Refit round so as not to halt the country’s first big renewable energy power production drive just as it is about to take off.

The higher Refit figures have been the basis of renewable energy project planning for the last two years, a reasonable assumption as Nersa approved Eskom tariffs using these same figures.

On the other hand, renewable energy project developers are not likely to run away from an energy market in which 42 percent of new energy generating capacity will be drawn from renewables over the next two decades.

But that is a bit like having attracted the bunnies, hiding the carrots, which is not good for building relations with people you want to build local manufacturing capacity and skills, and who are now crunching numbers to assess project viability.

There is the possibility that a higher tariff for the first round of Refit would promote corruption in the bidding process as many scrap it out for just 1 050MW of capacity. This heightens the imperative for a transparent licensing process. – Ingi Salgado