Strong Reactions as South African Regulator Cuts Back on Renewable Energy Feed-In Tariffs

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Written by Richard Finlayson, Senior International Editor for Industrial Info--As national power utility regulators review their plans with a degree of apprehension and uncertainty while Japan's radiation saga unfolds, members of South Africa's power sector are surprised that the country's National Energy Regulator (NERSA) has chosen this time to release a consultation paper that indicates a decrease in renewable grid feed-in tariffs when compared with those issued in 2009, which were well-received.

This comes about a week after the government approved the country's energy master plan through 2030, which targeted increased investments in the power sector; a reduction in coal-fired projects; and nuclear power and renewables having a 66% stake in any new-build program. The plan indicated that new power installations being commissioned through 2030 would be 42% renewable, 23% nuclear and 15% coal. These stakes, after adjustments made in the face of industry criticism, are 17,800 MW of renewable and 9,600 MW of additional nuclear power.

The timing was not of NERSA's choice, and some industry members say that the 2009 renewable grid feed-in tariffs were issued when the SA Rand was at 10:$1; the new rate is based on R7.4:$1. (Current Rand levels are about 6.9:$1.) But the timing is bad for the independent project developers who have not concluded any power purchase agreements for renewable grid feed-in tariffs in the 2009-11 period, when a Department of Energy request for proposals on 1,025 MW of renewable grid feed-in tariffs projects is forthcoming.

Some of the exchanges among the regulator, government and developers are bureaucratically opaque, as the whole energy policy process is a moving target. Members of the wind power lobby are miffed that the new proposals cut their tariff benefit by 25%, and thus damage the ability to attract investors with attractive margins.

Major cuts of 41.5% and 41.3% are targeted for concentrating solar power troughs with six hours of storage and ground-mounted photovoltaic (PV) projects; CSP towers with six hours of storage would have 39.4% cut. Other renewable sources, such as landfill gas and biomass, would be cut by less than 20%.

The regulator will host public hearings on May 5, with a deadline for written public comments by April 22. In the face of the country's tight, and sometimes threatened, power supply, it is hoped that the government and regulator will both take a pragmatic look at investment prospects. This type of situation also exists for independent power producers looking for a confirmation of power-sale terms, which will make conventional power projects viable.

The government has an elephant in the room with Eskom (Johannesburg), the dominant, state-owned power utility, which has amassed funding for major base power projects to secure the national power reserve margins and transmission network during the next five years. A tariff regimen with a project-based thrust would harmonize the country's ability to move forward with plans both in the state and private sectors. There is no real alternative, as independent investment is a necessity.

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