By Aedan Kernan, Greenwell Consulting
This is a time of great change in South Africa's electricity sector. The pressing demand for new electricity generation capacity and over-demand on the existing network prompted the government to throw its support behind developing renewable energy sources.
Spurred by a major energy crisis in 2008, South Africa has since tried a series of initiatives designed to kick-start large-scale renewable energy development. In 2009, South Africa's energy regulator (NERSA) announced renewable energy feed-in tariffs (REFIT) for a range of technologies. It was the first country in the world to propose a feed-in tariff for wind energy.
Despite the pressing demand for electricity, there was little interest in the original REFIT rates. After consultation with many energy stakeholders, NERSA raised all REFIT rates, doubling the REFIT for wind and trebling it for concentrated solar power. The payment period for REFITs would be extended from 15 to 20 years.
But the new REFIT rates proved something of a false start. In early 2011, two years after REFITs were first announced, no power purchase agreements had been made available to developers by Eskom, South Africa's leading electricity provider and the official purchaser of all REFIT electricity.
However, South Africa's latest initiative, renewable energy bids (REBID), is being hailed as a successful replacement for REFIT. REBID auctions have already awarded PPAs for 1,415 MW of renewable energy capacity.
The REBID auctions drew considerable competition from international developers for every MW of capacity and every technology offered, even though the ceiling price for bids was lower than the tariff rates proposed under the abandoned REFIT feed-in tariff.
The REBID formulation was the result of several revisions to the REFIT program. In July 2011, the Energy Minister announced that there would be a competitive element to the award of power purchase agreements. Instead of a guaranteed floor price for each kWh of electricity, as under REFIT, the new REBID process set a ceiling tariff rate for each technology.
REBID would not be managed by NERSA. Instead, it would be run by the National Treasury and potential bidders needed to pay around US$2,000 to receive the bidding documentation.
Electricity as a Public Good
In developing its policy, the government dealt with the constant tension between funding network development and keeping energy prices low. Further planned price rises are on hold while the Ministry for Energy reviews the potential effect on the economy and jobs.
Unemployment in South Africa is 27%, and renewable energy development is seen as a key driver of job growth. Renewable energy expansion also promises to deliver electricity to more consumers who lack this service.
"Eskom was primarily designed to serve a very small part of the South African population. It was driven by a model that served the mining industry and other big operators,” says Gary Pienaar, former coordinator of Electricity Governance Initiative of South Africa (EGI-SA), a cluster of non-governmental organizations seeking to promote more active citizenship and greater equality of opportunity. "You have a very large population that was completely unserved with electricity for a very long time. We need to shift aspects of our economy quite dramatically in order to promote equity, a sense of participation and belonging in society as well as the economy.”
As part of the REBID process, bidders had to first show how their project would deliver social and economic development for South Africans. Only those with acceptable social and economic plans could advance to have their projects judged on feasibility and price.
This was welcome news to EGI-SA. "REBID turned out to be more balanced and more nuanced than we expected,” says Pienaar.
Electricity – Redesigning Governance
A series of bills were placed before the South African Parliament in recent months that may change the regulation of future power procurement processes, create a single energy regulator for South Africa, and possibly centralize more decision-making power in the hands of the Minister for Energy.
At the same time, lessons from the electricity crisis of 2008 and the REFIT and REBIT policy efforts are being applied to improve the government's ability to stimulate renewable energy development. For example, there is recognition that retail electricity prices had been kept so low that there was no funding available for proper generation and infrastructure development. As a result, retail electricity prices rose by 25% a year for the past two years, and further price rises are planned.
"Everybody is learning,” says Pienaar. "There are opportunities for discussion before the second REBID round. As much information as possible about the process and its criteria should be put into the public domain.”
Author's Note: Gary Pienaar recently left his role as coordinator of EGI-SA. EGI-SA is now coordinated by Brenda Martins.