Cape Town, South Africa — ESI-AFRICA.COM — 30 June 2011 – South Africa’s leading renewable energy industry associations have again appealed to energy policy makers to engage with the renewable energy industry in order to ensure that a successful and sustainable form of procurement is able to commence in the near future.
The emerging signals that government is no longer pursuing the renewable energy feed-in tariff programme (REFIT) are a cause for deep concern, as this undermines investor confidence and signals a lack in coherent policy-making and regulatory certainty.
Under the REFIT programme announced in 2009, the National Energy Regulator of SA (NERSA) sets upfront tariffs at which independent power producers can sell electricity to a buyer (currently Eskom). The independent power producers then tender for contracts to supply electricity to the buyer. If successful, the generator applies to NERSA for a licence to sell the electricity at the pre-determined tariff.
The legality of the REFIT has not been questioned for the first two and a half years after it was announced. In fact, the REFIT has been explicitly mentioned in policy documents such as the National Climate Change Response Green Paper, the Long Term Mitigation Scenarios, and various speeches and statements by officials.
It is referenced in several energy strategy documents such as the SARI (SA Renewables Initiative) run by the DTI and DPE, and now the Green Economy programme run by the Deputy President’s Office. The REFIT programme was also clearly mentioned in the Minister of Energy’s Budget Speech in May this year.
In February, the South African Wind Energy Association (SAWEA) met with National Treasury who had been requested by the Inter-ministerial Committee on Energy to assist the Department of Energy and to identify and remove barriers for independent power producers. At the meeting, Treasury’s Karen Breytenbach assured SAWEA that the REFIT programme was on track, despite significant delays, and said that the REFIT programme would commence at the end of March 2011.
The renewable energy industry has deployed significant amounts of development capital – estimated to be in excess of R500 million – in preparing for the REFIT programme, based on Government’s continued reassurances that a REFIT was to be implemented.
The Department of Energy and National Treasury have recently stated their belief that the REFIT programme is unlawful and questioned NERSA’s authority to set upfront tariff determinations.
The industry associations for wind (SAWEA), solar PV (SAPVIA) and concentrated solar power (SASTELA) have received legal opinion from Advocate Wim Trengove SC on the legality of REFIT and the energy regulator’s mandate to set the feed-in tariffs. Opinion was further sought on the legality of an alternative, price-competitive procurement process.
During a presentation on the REFIT procurement process to the Parliamentary Portfolio Committee on Energy, the Department of Energy’s Ompi Aphane was reported to have used the assocations’ legal opinion to suggest that feed-in tariffs announced by NERSA in 2009 cannot be legally binding and to suggest that the solution is a move away from the announced REFIT.
Based on media and verbal reports of Mr Aphane’s presentation, the industry associations believe that Mr Aphane did not present the legal opinion in a balanced manner.
While the opinion did say that NERSA may not make an upfront binding determination of the tariffs it will later approve under the REFIT scheme, it is the industry associations’ understanding that Mr Aphane failed to mention that the legal opinion also stated that NERSA "may however adopt a policy to approve pre-determined tariffs as long as it bears in mind that the policy is not binding and that it may not rigidly adhere to it."
In other words, the REFIT programme is legal as long as NERSA retains some discretion for itself should circumstances at the time of issuing a licence require the tariff to be amended.
Further, the legal opinion found that the Department of Energy and NERSA need to agree on the form of the procurement process. NERSA is believed to still favour the REFIT model as this model has been "shown to provide an excellent opportunity for South Africa to increase the deployment of renewable energy in the country and contribute towards the sustained growth of the sector in the country, the region and internationally."
Chief Executive of SAWEA Johan van den Berg stresses that the procurement drive must avoid disputes and delays at all costs.
"Industry will consider its position once the final shape of the procurement drive is known," said van den Berg. "I am deeply concerned that it only takes a single stakeholder legally challenging the process to cause extremely long delays and a general loss of momentum."
“If the government plans to change its method of procurement from what has been indicated up to now, we would expect an urgent and formal engagement with industry over the proposed altered procurement mechanism,” says Dr Chris Haw, Chairperson of SAPVIA.
The industry associations have made numerous attempts to engage constructively with policy makers on this and other matters, with very limited success. This is in stark contrast to the initial REFIT process run by NERSA that was inclusive and consultative.
The Associations have once again called for the collaboration of NERSA, the DOE, Treasury, civil society and the renewable energy industry to find a solution that will enable a strong and functional renewable energy industry with all the advantages of job creation, local content, BBBEE and skills transfer, rather than cause delays through legal wrangles that will prevent South Africa from showcasing renewable energy deployment as a means to meet its climate change mitigation commitments when Durban hosts the United Nations Climate Change conference at the end of this year.