RENEWABLE ENERGY. Still in the dark?

Lise Pretorius
Financial Mail (South Africa)
January 21, 2011

Still in the dark?
The introduction of renewable energy is a vital part of SA’s future energy supply, both politically and practically. But at a time when business and industry are already asking whether the lights will be kept on this year and next, there are concerns as to whether the renewable commitments for 2013 will be met. These fears may be warranted.
The stated goal of the department of energy is to produce 10000GWh of renewable energy (4% of total energy production ) by 2013. As part of this, the Integrated Resource Plan 2010 (IRP) envisages 1025MW of energy under the renewable energy feed-in tariff (Refit) programme: to be produced by independent power producers. This will be bought by Eskom, for now – at agreed tariffs. The electricity is to be fed into the grid to supplement Eskom’s supply. That’s the plan.
Responses from power producers to a request for information at the end of last year indicate an interest in renewable energy projects that is more than sufficient for SA’s needs. In fact there was an oversubscription, with a potential 20000MW worth of projects mooted. This is encouraging.
But there are a number of concerns around the process that raise questions about its efficiency.
The first is the readiness of stakeholders. The responses indicated that while a number of projects are in the pipeline, only a handful (less than 1000MW worth) are ready to enter into a procurement process. This indicates a lack of readiness from both the private and the public sector.
From the public sector’s side, there are three pieces of regulation that need to be finalised to enable private renewable projects to go ahead.
The final IRP document is one. Stakeholder consultations were concluded at the end of last year, and the department is now collating the inputs. “We hope to have the final positions promulgated by the middle of February,” says Ompi Aphane, the department of energy’s acting deputy director-general of electricity.
But industry doesn’t seem to agree. Doug Kuni, managing director of SA’s Independent Power Producers’ Association, is under the impression that the IRP will be released by the end of March. “It’s an intention at this stage,” says Kuni, “but the local government elections may mean a delay.” Aphane is adamant this is not the case, as national and local government processes will not affect each other.
Concurrently, the new-generation procurement regulations need to be finalised – including the power purchase agreement (PPA) – without which the procurement process can’t begin.
The closing date for submissions of public comment is this Friday, after which the regulations will be promulgated, says Aphane.
But Thembani Bukula, electricity regulator of the National Energy Regulator of SA (Nersa), is not certain that the regulations will be finalised by the initial April deadline, as there are still changes within the PPA that need to be settled by national treasury. “I cannot say it will be concluded by then. In the past we have given dates and we have been wrong.”
The same goes for the third piece of legislation: the rules for implementation of the IRP.
Despite all this uncertainty, Aphane is confident the procurement process will start by the end of March. Bukula, however, says that even if the beginning of the procurement process is delayed as it waits for the necessary regulations, the 2013 renewable targets will still be met. “The procurement process itself can be shortened, and can begin as soon as the power producers, the banks and treasury have the desired level of satisfaction.”
And this is where a chicken and egg dilemma comes in.
As long as the regulatory environment is unclear, the private sector will not be ready. Not all the projects entering the bid process were advanced in terms of acquired land, impact assessments, funding and data. It is unreasonable to expect this state of readiness, given that IPPs have no certainty that their projects will be fed into the system. “IPPs will stop at a certain point and wait for policy to catch up,” says Kuni. “There is a weak policy environment and financiers don’t like it.”
In addition to the lack of certainty about investing in renewable energy there is also a miscommunication in the industry that is further muddying the waters. There is a lack of clarity about how many megawatts’ worth of projects will actually need to be procured.
The goal is for 10000GWh of renewable energy to enter the grid by 2013; this will include what is bought under the Refit programme as well as other sources like savings from solar water heaters. To generate 10000GWh of electricity, you would need to generate 1141MW of continuous power a year.
But renewable energy projects do not produce continuous power (the wind doesn’t blow all the time), so to generate the 1025MW as required for the Refit programme, assuming renewable energies run on 25%-30% capacity, you would need to install four times that capacity. And this is where clarity blurs. Kuni says the 1025MW will be installed capacity, and average output (and supply to the grid) would consequently be much less than that. Bukula says 1025MW is the average production required to achieve 10 000 GWh, in which case installed capacity would have to be four times higher. Aphane says 10000GWh is the goal, and that installation of MW capacity will be implemented flexibly in order to reach that target.
The difference in these scenarios would mean vastly different amounts of investment in renewable projects needed for the IRP.
This lack of clarity seems to be down to people in the industry genuinely not knowing what is expected. This, as well as the uncertain regulatory environment, must be addressed if the 2013 renewable electricity production targets are to be met.
Thembani Bukula Time frames uncertain
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