Crucial to get first renewables round right, bank argues


Investec Capital Markets head of project and infrastructure finance Mike Meeser
Banking group Investec, which is participating in a range of renewable energy projects in South Africa, says that while it is keen for the delayed renewable energy feed-in tariff (Refit) procurement process to begin as soon as possible, it also accepts that it is more important for South Africa that the first round is concluded successfully than hastily.
Investec Capital Markets head of project and infrastructure finance Mike Meeser says there is some anxiety about the fact that the request for proposals (RFP) for the first Refit capacity, probably involving 1 025 MW, has not been issued, as well as about the regulator’s review of the 2009 Refit rates.
But he tells Engineering News that he remains optimistic that the process will begin soon and that there will be visible progress on the first renewable projects before year-end.
The National Energy Regulator of South Africa has indicated that the results of its review of whether to materially lower the 2009 Refit rates will be released in June. However, there is less certainty about the timeframe associated with the release of the RFP documentation, which is being drafted by the National Treasury and the Department of Energy (DoE).
There is even less visibility on whether the power purchase agreement (PPA) will be set using the 2009 Refit, the 2011 revised rates, or whether government will seek to pursue a competitive bidding process. Neither the National Treasury, not the DoE have been willing to comment on the approach likely to be adopted.
Meeser, along with most other potential renewables participants, would prefer that the process be premised on “price certainty”, noting that the international experience has shown that such a model tends to be supportive of ensuring the projects actually get built. By contrast, competitive bidding processes, where the outcome is based on the lowest tariff tendered, have often resulted in under delivery, as projects could not meet return hurdles.
The bank, which has decided that it will take equity in, as well as lend to, renewable and conventional power projects, is involved as a debt arranger and adviser on seven possible renewables projects. It is also working with on an open-cycle gas turbine peaking project.
It is partnering GDF Suez and Tiso on two advanced wind farm projects in the Western Cape, both of which have received environmental impact assessment records of decision. These projects are, therefore, likely to participate in the first procurement round.
Should the RFP proceed on the basis of already-set Refit tariffs, Meeser will be particularly keen to see how the selection criteria will be weighted, owing to the fact that there are likely to be more megawatts bid that can be financed.
He expects that timely delivery will be key and that disincentives may be built into the PPA to militate against late delivery. Other criteria could include local content rules, black economic empowerment, grid connectivity and community involvement.
“Given the urgency, as well as the choice that has been made through the Integrated Resource Plan to pursue renewable solutions on a large scale, it is vital that we get the first round right. This will add momentum, which, in the longer run, will raise investor interest, increase competition and lower prices to the consumer,” Meeser concludes.