Last month’s column reflected on the sources and types of funding that are becoming available to promoters of businesses in the cleantech sector. This article reflects on the progress being made with the renewable-energy feed-in tariff (Refit) in South Africa.
The reason for offering further insights into this theme is that it is both topical and important – topical in that, late last month, the National Energy Regulator of South Africa (Nersa) announced the addition of six renewable-energy categories or subcategories to the list of the four existing qualifying categories of wind, small hydro, landfill gas and concentrating solar, as announced on March 31. Refit is important because its progress is a healthy indicator of a more progressive and responsible policy stance towards a low-carbon future.
The Refit progress reflects an important bifurcation point in our power generation history. It is a point at which we, as a country, have chosen to shift from sole focus on the end itself towards the importance of the means.
Renewable-energy sources are gaining momentum from both a stronger regulatory push, as a result of more progressive local legislation and global compacts, and the growing economic pull underpinned by changing market fundamentals. Even with the challenges of current price hikes and affordability, the drive from government, particularly Nersa and the Department of Energy (DoE) to ensure that South Africa is true to its local and international commitments, is admirable. But has the time truly come to harness the abundance of national renewable resources for a more integrated energy mix generated by independent power producers (IPPs)? Even the sceptics have to agree – certainly, it is looking promising. But it is not all plain sailing as yet.
Fresh off the press comes Nersa’s consultation paper for the public and interested parties on the addition of new renewable-technology categories for Refit’s second phase. The inclusion of solid biomass technologies provides a clear delineation between allowable renewable and nonallowable cogeneration feedstocks, whereby Refit qualification ensures that power generation technologies use feedstocks from 100% forest wood, disqualifying all mill waste and agricultural plants and residues. Similarly for biogas, all qualifying Refit technologies must use fuels derived from biological treatments of waste – anaerobic digestion and landfill gas.
Owing to economies of scale, Refit Phase II considers only building integrated and ground-mounted large-scale solar photovoltaic systems with a capacity greater than 1 MW. Refit Phase II also includes concentrating photovoltaics (CPV) with a capacity greater than 10 MW, mounted on a two-axis tracker on the ground, and concentrating solar power (CSP) without storage and CSP (central tower technology) with six hours of storage a day. Refit Phase II excludes wave energy, tidal energy and geothermal renewable technologies, labelling them noncommercial but for possible future consideration.
In addition to announcing the new additions to Refit, Nersa has also published, for public review and comment, the proposed draft power purchase agreement (PPA). From an investor’s perspective, the PPA terms are, quite simply, a crucial determinant. At first glance, the PPA seems to reflect an adequate starting point, having been modified from that used for the previous round of proposals requested by Eskom as part of its medium-term power purchase programme, in 2008.
Only detailed, rigorous review will reveal the intricacies of the commercial terms and the overall risk-return profiles for each renewable-energy category for developers and investors alike. In addition, in order to support the growing green electricity market, Nersa has also permitted IPPs to sell power directly to entities willing to buy renewable energy outside Refit, provided that a generation licence has been granted. No surprises here.
In summary, kudos are due to Nersa and to all those advocacy groups for the progressive, collaborative and constructive stakeholder engagements. Now all that is needed is further clarity on key variables, namely the size of each market by renewable-energy category, the Refit licensing process, fixed timelines and the bidding criteria, assuming that Refit will go the competitive bidding route. This column will keep you posted on these important developments.
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