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JOHANNESBURG - Government's plans to renegotiate a tariff cap of 77c per kilowatt hour with preferred bidders in bid windows 3.5 and 4 of the government-driven renewable energy programme could signal the death knell of some of the renewable energy projects, Siyabonga Mbanjwa, regional managing director SENER Southern Africa said yesterday. 

The move to cap the tariff comes amid concerns about the cost of renewable energy, which is one of the reasons that Eskom has put forth for its refusal to sign power purchase agreements with 37 independent power producers (IPPs) which are part of the Renewable Energy Independent Power Producer Procurement Programme. 

According to renewable energy players, the delay on signing the power purchase agreements put investments worth billions of rands on ice.

“We sympathise with the fact that the government needs assistance from the industry to reduce costs associated with the programme,” said Mbanjwa. He said, while some projects would be able to accommodate the tariff cap and remain economically viable, others, particularly those that use technologies such as biomass and concentrated solar power (CSP), would be affected negatively, as the proposed cap was too low and commercially unworkable for these technologies,” he said. 

He said the proposed cap was tantamount to changing the rules towards the end of a game. He said the changes would have been palatable if they had been introduced prior the declaration of preferred bidders. 

“This cap is significantly out of touch with tariffs that are currently being achieved all over the world for some technologies. The one-size-fits-all approach to the tariff cap needs to be handled with care, as it may cause more harm than good and slow down the pace of innovation, research and development in the renewable energy sector, which is at a nascent stage of development in South Africa,” said Mbanjwa. 

The South African Renewable Energy Council (Sarec) said its legal opinion had confirmed that there was no scope for the procurer to cancel the procurement process or amend the tariff prices that bidders bid in the procurement process - such conduct would be unlawful.

“Specifically, Section 217 of the Constitution which provides that when an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with system which is fair, equitable, transparent, competitive and cost-effective,” Sarec said. 

Meanwhile, Sarec was hopeful that new Energy Minister, David Mahlobo would, like his predecessors, prioritise access to affordable energy access and long-term security of supply. 

The body has described its relations with former Minister of Energy Mmamoloko Kubayi as amicable.  “We have been working alongside the (Independent Power Producer) Office and the (Department of Energy) to confirm a date for the power purchase agreement,” it said. 

Sarec and Eskom have been at loggerheads over the power utility’s refusal to sign the power purchase agreements with the 37 IPPs. Kubayi last month said Eskom should sign the power purchase agreements by the end of this month. “We hope that the new Minister of Energy will be guided by the conclusions of his two predecessors and support the Department of Energy to fulfil their duty as procurer of independent power and conclude the power purchase agreements by the end of October as planned,” Sarec said.

- BUSINESS REPORT