Solar industry stands firm that REFIT is best way forward
June 15, 2011 – Based on reports 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 the REFIT scheme based on fixed feed-in tariffs for electricity generated by renewables is the most suited option to kick start South Africa’s renewable energy industry which is still in its infancy.
While the renewable energy industry is eager for the procurement process to kick off, the critical question is which mechanism will be used to procure energy and give effect to the significant investments already made by the industry – a bidding process based on an open price bid or a REFIT system based on a fixed tariff. Further if REFIT is used, will the 2009 rates or the revised 2011 rates apply?
Investors require a clear, consistent regulatory environment and require fixed price signals, or price certainty, in order to make the large scale investments that are needed to address South Africa’s infrastructure and energy development goals. Increasing the uncertainty in the process increases the risk to investors and subsequently the expected returns. This is a view echoed by other representative industry bodies such as SAWEA and SASTELA, as contained in a joint press release issued on the 11th of April this year in response to the meetings the associations had held with government.
For South Africa, the cost of too little energy is significantly greater than the cost of temporarily subsidizing renewable energy, especially as there are negligible external costs associated with it compared to its alternatives.
Dr. Chris Haw, Chairperson of SAPVIA, stated that 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 the best 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,” says 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,” notes Haw.
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 its perceived short-comings, thereby making South Africa’s own REFIT framework as, or even more robust and cost-effective than those that preceded it.
Overwhelming international experience has shown that a bidding process, where the outcome is based on the lowest tariff tendered, results in under delivery, as project developers underestimate the real costs of development and construction.
“Evidence suggests that once these projects have been awarded the license based on the low tariff, they are unable to raise the required financing, and ultimately are unable to build – while at the same time locking up valuable permits thus blocking the industry from being realised,” says Davin Chown, SAPVIA’s recently elected Spokesperson.
“Price-competitive bidding, could lead to fewer companies with large projects being awarded licences and there is less opportunity for diverting revenue into local economic development and job creation activities,” adds Chown.
Up to now the industry has followed the only guidelines available to it, which describe 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 that within its members more than R100 million has been spent by developers and investors preparing projects for the government’s program with the prospect of creating thousands of jobs. The emerging signals that Government is no longer pursuing the REFIT is a cause for deep concern as this undermines investor confidence and signals a lack in coherent policy-making and regulatory certainty. Industry has deployed significant amounts of development capital in preparing for the REFIT process based on Government’s continued re-assurances that a REFIT was to be implemented.
“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
SAPVIA also believes the government’s view that the current legislation contains legal obstacles to a REFIT scheme is incorrect.
“Jointly with SAWEA and SASTELLA we have instructed senior legal counsel to prepare a detailed opinion on the issues. According to the opinion there are no legal obstacles blocking the implementation of a fixed tariff system, provided there are other criteria ensuring competition in the bidding process. The current REFIT scheme provides such criteria” says Haw.
SAPVIA – The South African Photovoltaic Industry Association (SAPVIA) is a not-for-profit association representing members largely made up of developers, manufacturers and professional service providers operating within the PV industry. SAPVIA currently has 26 registered member companies. The association is devoted to promoting the growth of the country’s solar photovoltaic (PV) electricity market, and aims to represent the PV industry before government at provincial and national level, as well as inform decision makers as to the current state of the industry, both in South Africa and abroad. SAPVIA continues to work with government to ensure a successful and sustainable implementation of solar renewable energy into the country’s supply mix, and provide a conduit through which communication between industry and government can be channelled.