Nersa raises questions on REFIT

The National Energy Regulator of South Africa (Nersa) is set to concur with a determination by Energy Minister Dipuo Peters outlining the tender process for the first 1 025 MW of renewable energy projects. But it has also sent a letter to the Minister in which it raises a range of matters arising from government’s decision to abandon the renewable energy feed-in tariff (Refit) model and the role of the regulator in licencing the projects.
The Department of Energy (DoE) confirmed recently that it would seek Nersa’s concurrence on a two-stage procurement evaluation process that includes qualifying criteria based on economic development requirements, as well as price.
The department also indicated that the 2009 Refit rates would be viewed as a “ceiling” price for any wind, solar, biomass, biogas, landfill and mini-hydro projects seeking to participate.
Nersa regulatory member Thembani Bukula told Engineering News Online that the regulator met on Thursday to deliberate on Peters’ determination and sent its written response to the Minister on Friday evening.
The letter “concurs” with the determination, and does not question the legality of departing from the Refit model favoured by Nersa.
However, it raised several questions about the implications for the way Nersa would be expected to exercise its mandate.
Under the previous regulations, Nersa was responsible for the development of the rules related to the criteria for the selection of renewable energy and was also responsible for the determination and publication of a tariff in respect of the Refit programme.
“Therefore, Refit was never illegal,” Bukula avers. But he also accepted that recent changes to regulations made no reference to Refit, nor to the regulator playing a role in determining the tariff.
“As the regulator, we have to accept that the rules have changed,” Bukula explained
Nevertheless, Nersa wanted clarity on the nature of the “fair, equitable and transparent” tender process to be pursued.
It also raised questions regarding alignment between the imminent tender and the integrated resources plan, as well as the multiyear price determination, which specifically set aside an amount in the tariff increases granted to Eskom for the first 1 025 MW of renewables projects, based on the 2009 Refit.
Nersa was also seeking clarity on the allocation between different technologies and what the implications were from the fact that the buyer of the power, Eskom, was not the procurer, the preserve of the National Treasury and the DoE.
“We still have to exercise our function in as far as the power purchase agreements (PPA) are concerned and we still have to approve certain sections of the PPAs, dealing with price, charges and risk allocation.”
Developers have warned that the abandonment of the Refit could result in weakening the longer-term prospects for the nascent renewables industry, and have also noted that competitive bidding processes elsewhere have tended to fail.
Financiers are also concerned that the risks could increase, as developers seek to squeeze their suppliers, and potentially elect to pursue cheaper, less reliable technology and to shorten warranty periods.
Standard Bank head of power finance Alastair Campbell said he was not opposed to competitive bidding in principle. But he warned that the abandonment of Refit and the introduction of what is now being dubbed “Rebid”, would require the bidding documentation to strike a delicate balance between price and project quality.
“It definitely introduces a new set of risks as developers seek to reduce their tariffs. Therefore, we are going to have to go into this with our eyes wide open,” Campbell argues.
The DoE did not immediately respond to enquiries regarding its response to Nersa and whether it would further delay the process. It was speculated that the request for proposals would be issued by July 15, 2011.