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Change in policy on renewable energy a risk
The energy department's proposed policy shift on renewable energy could put the sector at risk, an expert said on Wednesday.
"It's the policy shift being proposed by the department from a pre-determined tariff structure to a competitive bidding process that could put the entire industry at risk," said Happy Masondo, director at Werksmans Attorneys, in a statement.
The department of energy had issued a document outlining how Independent Power Producers (IPPs) would have to compete on price, rather than being paid a guaranteed purchase price by Eskom for the electricity they generate.
IPPs -- which would generate power from renewable sources like wind or solar and sell this to the state via Eskom -- form an important part of government's Integrated Resource Plan 2010 which sets out that 42 percent of all new electricity generation will come from renewable sources over the next 20 years.
Masondo said a lack of pricing security could severely limit the number of IPPs entering the market.
"IPPs need certainty around how they will be regulated and compensated for their supply of power to Eskom."
The SA Wind Energy Association said South Africa needs an investment of about R350 billion over the next two decades in renewables if it is to meet the Integrated Resource Plan's target, said Masondo.
The Renewable Energy Feed-in Tariffs (Refit) programme was set up by the National Energy Regulator of SA (Nersa) in 2007 to encourage investment in renewable energy by guaranteeing IPPs a purchase price for selling their power to Eskom.
Nersa approved guidelines on feed-in tariffs in 2009 that allowed for IPPs to be paid pre-determined and standard rates to supply electricity to the state. Later in the year, the amount to be paid was reduced.
However, the energy department this year raised concerns that the feed-in tariffs programme did not comply with legislation on the competitive procurement of goods and services under the Public Finance Management Act.
Masondo said IPPs already faced risks in investing in South Africa, including the difficulty in new entrants competing with the dominance of Eskom.
"Apart from the issue of pricing, IPP applicants must get through regulatory red tape and meet the requirements of a raft of legislation with no real co-ordination or co-operation amongst the different authorities and regulators."
Changing the payment policy could result in disinvestment from the renewable energy sector which would negatively impact the country's plans to make its energy mix more sustainable, she said.
"In order for renewable energy to be able to compete with traditional sources of energy such as coal, economies of scale need to be built up.
"This requires deep investment in capital-intensive projects such as wind and solar energy farms as well as infrastructure," she said.
"It remains to be seen if IPPs are prepared to bid with the competitive price bidding process as an additional criteria they must meet to produce alternative energy to supply to the national grid."
Source: businesslive.co.za , SAPA 17 August, 2011
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