SA far from ben­e­fit­ing from RE­FIT

Eskom’s sin­gle buyer sta­tus has raised a num­ber of con­cerns

Business Day - Business Law and Tax Review - - BUSINESS LAW & TAX REVIEW - AN­DREW GILDER & NOKUTHULA DUBE War­bur­ton Attorneys

THE gen­er­a­tion of re­new­able elec­tric­ity in SA has a num­ber of per­ceived ben­e­fits, in­clud­ing so­cioe­co­nomic and en­vi­ron­men­tal ones. How­ever, the coun­try is cur­rently some way off from tak­ing ad­van­tage of such ben­e­fits. Pro­posed im­prove­ments to the South African le­gal and pol­icy regimes for elec­tric­ity gen­er­a­tion, and how these elab­o­ra­tions might pro­mote an in­crease in re­new­able en­ergy gen­er­a­tion and a re­duc­tion in the coun­try’s green­house gas emis­sions pro­file are, cur­rently, in the head­lines. Such im­prove­ments in­clude: The pend­ing re­lease of a Cli­mate Change Green Paper, for pub­lic con­sul­ta­tion (which was due at the end of last month);

The an­tic­i­pated re­lease of the In­te­grated Re­sources Plan 2010 dur­ing the fourth quar­ter of this year, which is ex­pected to out­line the elec­tric­ity gen­er­a­tion mix out to 2030;

The fi­nal­i­sa­tion of the sec­ond it­er­a­tion of the In­dus­trial Pol­icy Ac­tion Plan;

The re­view of the Re­new­able En­ergy White Paper (2003), ex­pected to be pub­lished for com­ments by next month and fi­nalised by March 2011 (an as­pect of the re­view is the ques­tion of whether the ex­ist­ing tar­get of 10 000 gi­gawatt hours of re­new­able en­ergy con­tri­bu­tion to the na­tional en­ergy mix by 2013 is still ap­pro­pri­ate); and

The emer­gence of the South African Re­new­ables Ini­tia­tive, un­der the aus­pices of the de­part­ments of Trade and In­dus­try and Pub­lic En­ter­prises, which, among other things, seeks to un­lock fi­nanc­ing to fund the in­cre­men­tal costs of re­new­ables over coal.

The slow evo­lu­tion of the Re­new­able En­ergy Feed-In Tar­iff (RE­FIT) must be viewed against this le­gal and pol­icy back­ground. In June 2007, the Na­tional En­ergy Reg­u­la­tor of SA (Nersa) com­mis­sioned a study on a reg­u­la­tory frame­work for the pur­poses of pro­mot­ing a re­new­able en­ergy mar­ket in SA and as a means of achiev­ing the tar­get con­tained in the Re­new­able En­ergy White Paper. A con­sul­ta­tion paper was is­sued on De­cem­ber 12 2008 and pub­lic hear­ings were con­ducted by Nersa on Fe­bru­ary 5 and 6 2009. The SA RE­FIT Reg­u­la­tory Guide­lines (the guide­lines) were fi­nalised on March 26 last year.

The guide­lines are to be ap­plied in con­junc­tion with the pro­ce­dure for gen­er­a­tion li­cense ap­pli­ca­tions es­tab­lished un­der sec­tion 11 of the Elec­tric­ity Reg­u­la­tion Act and ad­dress a range of con­sid­er­a­tions, in­clud­ing es­tab­lish­ing an ini­tial set of tech­nolo­gies to which the feed-in tar­iff ap­plies and mak­ing ap­pli­ca­tions for the tar­iff.

In­de­pen­dent power pro­duc­ers ar­gue that (Eskom’s) role is likely to af­fect com­pe­ti­tion within the in­dus­try

Ac­cord­ing to the guide­lines, Eskom’s so-called Sin­gle Buyer Of­fice (SBO) is to be ap­pointed as the re­new­able en­ergy pur­chas­ing agency and will be the ex­clu­sive buyer of elec­tric­ity gen­er­ated in ac­cor­dance with RE­FIT.

Pur­chases of re­new­able elec­tric­ity will be in ac­cor­dance with a power pur­chase agree­ment to be ne­go­ti­ated and con­cluded be­tween the re­new­able en­ergy pur­chas­ing agency and the seller of re­new­able en­ergy. The Sin­gle Buyer Of­fice is cur­rently fi­nal­is­ing a strat­egy for the pro­cure­ment of 1 025 megawatts of re­new­able en­ergy ear­marked for en­try into the South African elec­tric­ity sys­tem by 2013.

Eskom’s sin­gle buyer sta­tus has raised a num­ber of con­cerns, in­clud­ing those of in­de­pen­dent power pro­duc­ers which ar­gue that its role is likely to limit their en­trance into the re­new­able en­ergy gen­er­a­tion mar­ket and af­fect com­pe­ti­tion within the in­dus­try.

A strong counter-pro­posal for the es­tab­lish­ment of a so-called in­de­pen­dent sys­tem mar­ket op­er­a­tor has arisen in re­cent months. We un­der­stand that the cur­rent con­cept for the in­de­pen­dent sys­tem mar­ket op­er­a­tor is for an en­tity, in­de­pen­dent from any govern­ment body, charged with man­ag­ing the pro­cure­ment of bulk power from in­de­pen­dent power pro­duc­ers.

Eskom re­cently an­nounced its in­ten­tion to es­tab­lish the in­de­pen­dent sys­tem mar­ket op­er­a­tor, ISMO, as a ring-fenced op­er­a­tion within its sys­tems op­er­a­tion and plan­ning di­vi­sion. Even more re­cently the Depart­ment of En­ergy in­di­cated that it plans to es- tab­lish an ISMO by April 2011 in an ef­fort to en­cour­age pri­vate in­vest­ment in power gen­er­a­tion. It is un­der­stood that once the depart­ment’s ISMO is es­tab­lished it will take over the pur­chas­ing func­tion from Eskom’s i ISMO and buy power from it and from in­de­pen­dent power pro­duc­ers for the pur­poses of dis­tri­bu­tion.

The guide­lines do not pro­vide spe­cific guid­ance on the prac­ti­cal im­ple­men­ta­tion of RE­FIT, nor do they give an in­di­ca­tion of the pro­posed terms of a RE­FIT power pur­chase agree­ment. For these rea­sons, Nersa an­nounced a sec­ond round of con­sul­ta­tions dur­ing July 2009, along with the re­lease of a doc­u­ment en­ti­tled re­new­able en­ergy feed-in tar­iff phase 2 (July 2009).

The pur­pose of RE­FIT Phase Two is to con­tinue the work of the ear­lier phase, par­tic­u­larly in re­la­tion to qual­i­fy­ing prin­ci­ples and tar­iffs for ad­di­tional re­new­able en­ergy tech­nolo­gies to which RE­FIT will ap­ply, and in defin­ing the terms of the power pur­chase agree­ment. RE­FIT phase two con­sul­ta­tions were held on Septem­ber 3 2009 and in­volved a num­ber of de­tailed sub­mis­sions, in­clud­ing some which raised con­cerns over the terms of the power pur­chase agree­ment.

A fur­ther draft of the power pur­chase agree­ment, tak­ing into ac­count is­sues raised dur­ing the con­sul­ta­tion phase, was ex­pected by the end of March 2010. This fur­ther draft has not, yet, been forth­com­ing. Rather, sets of se­lec­tion cri­te­ria rules and cost re­cov­ery rule have been re­leased, and a re­vised power pur­chase agree­ment is now ex­pected for re­lease dur­ing the fourth quar­ter of the year.

In Fe­bru­ary, Nersa pub­lished the rules on se­lec­tion cri­te­ria for re­new­able en­ergy projects which pro­vide for min­i­mum cri­te­ria for suc­cess­ful RE­FIT ap­pli­cants. The pe­riod for Nersa’s re­ceipt of writ­ten com­ments on the se­lec­tion cri­te­ria rules con­cluded in March, and a fi­nal ver­sion has yet to ap­pear. Pro­pos­als with the high­est scores will be en­ti­tled to en­ter into ne­go­ti­ates on a power pur­chase agree­ment with the buyer, pro­vided that the project ob­tains a gen­er­a­tion li­cence from Nersa.

Fur­ther clarifications to the RE­FIT regime and its op­er­a­tional doc­u­men­ta­tion will be re­quired be­fore the mech­a­nism is ef­fec­tive in un­lock­ing sig­nif­i­cant in­vest­ment in re­new­able en­ergy.

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