A senior Energy Department official confirmed yesterday that the government intended to pursue a competitive bidding process for South Africa’s first wave of renewable energy projects, due to be licensed this year.
Ompi Aphane, the deputy director-general for electricity, nuclear and clean energy, said: “We’re definitely going to have price competition on the different technologies.”
His comments raise questions about the future of the renewable energy feed-in tariffs (Refit) adopted by the National Energy Regulator of SA (Nersa) two years ago, in terms of which licensed developers with procurement agreements would be paid designated prices for electricity supplied to the national grid.
Many renewable energy project developers prefer price certainty over bidding processes, pointing to under-delivery of projects associated with lowest-price bidding and lost opportunities such as localisation and skills development.
One renewable energy project developer yesterday described a bidding process as “nothing short of trying to pull Refit apart”.
Nersa is due to take a decision next Wednesday on a review of Refit prices adopted in 2009. The proposed changes, published in March ahead of a 2011 Refit licensing round, has raised alarm in the renewable energy industry, while the magnitude of tariff drops worried some technology segments. Nersa’s proposals would have reduced the price of three solar technologies in the order of 40 percent compared with the old rates, and whipped 25 percent off the price of wind power.
Now, the misaligned processes of Nersa and the government have spilled into the open, with the government proposing that Refit prices, instead of applying across the board according to levels determined by Nersa, will serve as an upper guide in a competitive bidding process.
Aphane said the Refit rates would act as a “ceiling” beyond which bids would not be considered. To meet other objectives, such as localisation, bidders would first be required to pass a set of minimum requirements. “Those that make the thresholds then go into the next comparison, which is price.”
Thembani Bukula, a Nersa regulator member for electricity, said yesterday that the Electricity Regulation Act gave Energy Minister Dipuo Peters the prerogative to determine whether bids should be competitive. “Competitiveness does not necessarily mean price competitiveness,” he said.
Aphane said the decision to opt for a bidding process was taken on legal advice so as to comply with the provisions of the Preferential Procurement Policy Framework Act, which gives price a dominant weighting in public procurement.
“Not aligning with the requirements is a risk we’re not prepared to take,” he said, adding the issue was influenced by energy affordability.
SA Wind Energy Association chief executive Johan van den Berg said the industry was aware of “concern about the legalities around Refit. Our considered view is these can be overcome and we’re continuing to engage with government.”
Aphane said a competitive bidding system would apply to the first 1 000 megawatts due to be licensed under the first round of renewable energy procurement this year. Peters said in her budget vote last month she hoped to conclude the deals by December for showcasing at UN climate talks in Durban.
Aphane said it was possible the government would release outstanding procurement documentation for renewable energy projects by next week, including a request for proposals and a generic power purchase agreement after negotiations with local commercial banks.
Bukula confirmed that Nersa would be in a position to grant licences under the first Refit round by year-end, saying it had the capacity to process even bulk licences within 60 days. - Ingi Salgado