SA far from benefiting from REFIT
Eskom’s single buyer status has raised a number of concerns
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.