27 September 2010 – Discussions were at an "extremely advanced" stage for the National Treasury to provide guarantees for electricity bought from independent power producers (IPPs), a senior Energy Department official said last week.
Ompi Aphane, the deputy director-general for electricity, nuclear and clean energy, said on Thursday the Treasury had "come to a realisation" that some form of credit enhancement to boost the rating of the electricity buyer was necessary to facilitate lending for renewable energy projects.
The buyer may be electricity utility Eskom, its ring-fenced systems operator or eventually an independent systems operator.
Unresolved questions over credit enhancement have hindered the drafting of standardised power purchase agreements (PPAs) between producers of renewable energy and Eskom.
However, Eskom was able to start signing PPAs with some industrial companies that cogenerate electricity this year.
At the weekend, the department kicked off its procurement programme for renewable energy under the delayed renewable energy feed-in tariff (Refit) by calling for transaction advisors for the Refit.
"It’s about time we started," conceded Aphane.
He also expected the standardised PPA between the electricity buyer and sellers of renewable energy to be released publicly "within a month or so".
It would be accompanied by a revised regulatory framework for IPPs, which would address outstanding concerns about grid connection and the cost recovery mechanism.
"We’ve had an engagement with the lending community about the bankability of the proposed PPA," Aphane said. "There are drafts around."
The Treasury and Energy Department form part of an intergovernmental task team assessing PPAs and the apportionment of risk between the electricity buyer, the seller and the government.
Aphane said it was the government’s responsibility to facilitate risks that neither buyer nor seller were prepared to take on. Kannan Lakmeeharan, the executive for systems operation and planning at Eskom, said the PPA was one of two outstanding matters holding back renewable energy projects in South Africa.
The other was selection criteria for renewable energy projects. These criteria will be essential as a flood of applications for renewable energy projects is expected.
The department said last week it would publish a request for information aimed at private developers of renewable energy projects (specifically wind, solar, biomass, small hydropower and landfill gas), cogeneration projects and small project developers (between 1 megawatt and 5MW).
It was seeking input from developers that had completed comprehensive feasibility studies to assess their readiness to enter an accelerated procurement and negotiation process.
Aphane said this information would feed into the 2010 integrated resource plan under development by the state, which would lay the basis for South Africa’s energy mix over the next two decades.
The National Energy Regulator of SA has approved Eskom’s spend on the Refit, the medium-term power purchase programme and short-term purchases over the next three years at about R12 billion.