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Solar industry stands firm that REFIT is best way forward

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Solar industry stands firm that REFIT is best way forward

June 15, 2011 – Amidst rumours that the hotly contested price-based competitive bid procurement process is about to be implemented, the South African Photovoltaic Industry Association (SAPVIA) stands firm in its view that a REFIT process is the better option for South Africa’s renewable energy industry.

While all of industry is eager for the procurement process to kick off, the critical question is which mechanism will be used to set the power purchase agreement (PPA) – a competitive bidding process or a REFIT process, and if REFIT is used, will the 2009 rates or the revised 2011 rates apply?

Dr. Chris Haw, Chairperson of SAPVIA, firmly believes that a REFIT process, if properly implemented, is the best way to create a platform for a long-term and sustainable industry that is cost-competitive.

“Feed-in-tariffs have an excellent track record for initiating rapid growth in a market for renewable energy but they need to be regulated closely to ensure that the growth does not over-burden the public or government that foots the bill for the subsidies,” states Haw.

SAPVIA encourages periodic reviews of the tariffs to ensure that they follow the trends in cost reductions for various technologies.

“We strongly encourage interaction between industry and government during this process and we have offered to share with government the results of our industry survey on costs and a financial modelling tool to help meet this objective.”

On the other hand, international experience has shown that competitive bidding processes, where the outcome is based on the lowest tariff tendered, have often resulted in under delivery, as projects could not meet returns.

“In a competitive bid, fewer companies are awarded licences and there is less opportunity for diverting revenue into local economic development and job creation activities.”

Up to now the industry has followed the only guidelines available to it, which describes a fixed price tender process where projects are evaluated on a range of criteria such as network integration ability and local economic development prospects. SAPVIA believes within its members more than R100 million has been spent by developers and investors preparing projects for the government’s program.

“If the government plans to change its method of procurement from what has been indicated up to now, we would expect an urgent and formal engagement with industry over the proposed altered procurement mechanism,” says Haw

-Ends

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  1. Para. 1 add the words “while the local industry is still in its infancy”

    Para. 4 replace excellent track record with “the best track record”

    Add a paragraph which makes the point that the higher the uncertainty, the higher the risk. Since profit is the reward for risk, high uncertainty increases the return investors expect and impacts the attractiveness of the opportunity.

    For South Africa the cost of too little energy is significantly greater than a temporary subsidization of RE expecially that there are negligible external costs associated with it compared to its alternatives.

    Texforce agrees with the SAPVIA position as expressed in the press release

  2. We agree with Geoff’s suggested amendments and fully support SAPVIA’s stated position on this issue.

  3. Maybe you can add all or part of the following somewhere after Haw’s first statement, to complement it:
    “Being a late adopter of renewable energy incentive policies, South Africa stands to gain tremendously from other countries’ past experiences in REFIT implementation and reap the benefits of how to minimize any of its perceived short-comings, thereby making South Africa’s own REFIT framework as or more robust and cost-effective than all of those that preceded it. Discarding REFIT therefore, would be tantamount to turning our backs on the world’s cumulative experience of what has proven to be an essentially successful stimulus for getting renewable energy going while instead opting for a system (that of competitive based tenders) that is known to have delivered notable failures.”

  4. Well worded guys. You have the full support of the Romano Group. Kind regards from Alexi Romano.

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