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South Africa

South Africa

Policy drops FIT for competitive tender

SOUTH AFRICA: South Africa's renewable-energy policy finally became clear at the end of July with the launch of a competitive tender process for 3.7GW of green generation under the government's independent power producers procurement programme.

To the dismay of many potential investors, however, the programme confirms the end of the previously announced renewable-energy feed-in tariff, which promised to pay wind-power producers a fixed rate of ZAR 1.25/kWh (€0.13/kWh).

The government has instead opted for price competition and imposed a ceiling of ZAR 1.15/kWh in order to contain costs. While some fear this could lead to untenably low bids, Kilian Hagemann, director of local developer G7 Renewable Energies, said that most projects were still viable at the new level. Given the vast oversupply, some kind of price competition is the only way forward, he argued. "Investors don't like it, but the Department of Energy is justified. South Africa as a whole will benefit because more renewables can be bought at a lower price," he added.

Unfair risk burden

On the other hand Davin Chown, director of Ireland-based Mainstream Renewable Power's South Africa operation, argued that the South African government had introduced more uncertainty into the process and shifted the burden of risk onto developers and the private sector in an unfair and unbalanced manner.

This will increase the cost of financing and make it harder for projects to get going. Bids will also be judged on socio-economic criteria such as black empowerment, job creation and localisation. With this in mind, the government called for a greater capacity than the 1.03GW originally expected in the first procurement round.

Wind takes the lion's share of the 3.7GW, with 1.85GW, followed by 1.45GW for solar photovoltaic projects.

But whether 1.85GW of wind energy is enough to attract manufacturers is open to question. With development slowing elsewhere, South Africa is an interesting potential market and could provide a base for the rest of sub-Saharan Africa, noted Chanda Kapande, general manager at service provider Wind Prospect.

Chown, however, had his doubts. As things stand, there is only really room for one or two players, he said. Developers now have five windows in which to submit bids between 4 November this year and 13 August 2013. For the first of these, preferred bidders will be announced on 25 November and projects must be on line by July 2014. All projects must be completed by 2017.

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