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entails a public transfer to the private developer, in the form of payments in kind or tax relief, to keep the off-take tariff affordable for the utility. South Africa has revised its framework twice since 2009, first lowering the FiT initially announced; then migrating to a new procurement system altogether, whereby developers bid on a technical basis first before bidding on price (Box 4.1). Box 4.1: Feed-in-Tariffs and competitive bidding in South Africa In 2006, the South African government introduced regulation for a “licensee to recover the full cost of its licensed activities, including a reasonable margin or return” (art. 16, Electricity Regulation Act 2006). As a follow-up move, the South-African Renewable Energy Feed-In Tariff (REFIT) was introduced in 2009, guaranteeing electricity purchase prices from independent power producers (IPP). Yet the program never really became active as two years later, no power- purchase agreements were negotiated with IPPs: stringent licensing conditions and difficulties in negotiating purchasing power agreements were at the heart of the problem (Edkins 2012). In 2011, in an effort to stimulate IPPs, tariff reductions of up to 40% were proposed though this did not turn out to have any positive effects: the tariffs set were only guidelines and were not framed in the Department of Energy’s regulation. This implied that the department was not obliged to comply with them creating difficulties in purchase power agreement negotiations (Bloomberg, 2011). As a consequence, the REFIT program was abandoned mid-2011 to give way to a competitive bidding process, referred to as “REBID”. This move is intended to invite investors to submit bids for new capacity generation totaling 3,725 MW, of which 1,850 MW are from wind and 1,450 MW from solar. New projects will benefit from power purchase agreements as determined by the national utility’s Multi-year Price Determination plan at prices capped for each technology. For wind projects, the price ceiling was set at USD 115c/Kwh. The main change from REFIT is that power producers will be required to tender on the pricing for the off-take agreement. In other words, their bids will, not only be evaluated based on the technical proposals, but also in terms of the power purchase agreement to be concluded. In addition to pricing, other items included in the bidding process comprise localization, black economic empowerment, community development, and job creation amongst others. This move introduces an important competitiveness element into the pricing for renewable energy, ensuring that the South African government gets a fair deal. Yet, all the above-mentioned changes and the lack of investments in that period highlight the importance of a stable and well calibrated policy. In light of the insecurity in the renewable energy policy illustrated by the changes which occurred in the past years, project developers took on a “wait and see” approach which affected their planned investments as well as their ability to secure new financing (Edkins 2012, and Pegel 2011). To date, it is difficult to assess the new policy in place: reports claim that the first bidding round was a success and that many firms applied for licenses. However, concerns have been raised that such a system will incentivize firms to cut costs to make projects work, raising the risks that projects never materialize. Sources: Bloomberg 2011, van Dyke and Pollastrini 2011, Edkins 2012, Electricity regulation act 2006, Pegels 2011 25PDF Image | Development of Wind Energy in Africa
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