HUNDREDS of local and international independent power producers are preparing their bids and financing campaigns for future renewable energy projects, says Standard Bank head of power finance Alastair Campbell.
Among those planning renewable energy projects are construction company Group Five which said in March it intended building a R5bn solar power plant in the Northern Cape to supply power to Eskom within two years.
This is despite the National Energy Regulator of SA’s (Nersa’s) proposal to lower renewable energy feed-in tariffs, a move that Mr Campbell said could be disastrous for the renewable energy industry.
Renewable energy feed-in tariffs is a policy mechanism designed to encourage the adoption of renewable energy sources. Under this mechanism, producers of renewable power get guaranteed prices for their electricity.
Mr Campbell’s comments could be indicative of the prevailing sentiment within the industry as finance institutions are well- placed to assess the level of appetite for new renewable energy projects because the bulk of the projects will have to be financed.
Government policy makes provision for significant renewable energy contribution. The Integrated Resource Plan (IRP1), published in January last year, identified the need for at least 1025MW from private sector renewable energy suppliers in the period up to 2013.
The integrated resource plan for electricity (IRP2010), that the Cabinet approved in March, makes provision for 17800MW of additional renewable energy in the period up to 2030.
Mr Campbell said the industry expected the government to commence with the request for proposals for R30bn worth of renewable energy last month “but the process was halted following Nersa’s decision to hold public hearings on revised renewable energy tariffs”.
He said Standard Bank had already taken a number of mandates from interested renewable energy players. These were to advise, undertake due diligence “or act as lead arranger on proposed projects worth billions of rands”.
“In spite of the delays caused by the Nersa public hearing process, there is still considerable interest out there. A lot of major international players are here, and many are establishing themselves in preparation of the bidding process,” he said.
Mr Campbell said the investors’ appetite would depend on the outcome of the energy regulator’s review of the renewable energy feed-in tariffs.
The energy regulator’s decision to propose much lower tariffs compared to those the regulator came up with two years ago has heightened displeasure in the renewable energy industry, with most of the companies arguing that the move would halt renewable energy investments.
“If (the regulator) stick to the tariffs they propose and their decision to no longer index the tariffs to inflation, there will be no investment. It is going to be a complete disaster.” Mr Campbell said.
Optimism about the future of renewable energy could be salvaged if the regulator returns to index ing the tariffs to inflation “and comes up with a tariff that is somewhere between the 2009 tariff and what they propose”.
“Investors are banking on Nersa coming up with reasonable tariffs,” he said.
Mr Campbell said it was understandable that the renewable energy feed-in tariffs had to come down because of factors such as reduced capital costs and the continued strengthening of the rand since 2009.
“Tariffs had to come down, but nobody expected that they would come down so much,” he said.
