Iberdrola Renewables´report about the feed-in tariff system
This report is intended to show the opinion of the private investor about the supporting measures for renewable energy, specifically a feed-in tariff system. This is because South Africa is in the process of creating a new regulation concerning renewable energy, which will include a feed-in tariff system as a part ofit.
The feed-in tariff system is the preferred and most attractive system for an investor in renewable energy, because it is subject to a much lesser degree of uncertainty compared to other incentive systems, such as green certificates (see attached presentation). From this point of view, this is the way to go in South Africa.
But for being attractive to the investor, having a good system isnot enough, it has to be properly applied.
This report will focus in wind and solar energy.
Key points for the private investor
We are aware that South Africa is trying to enter the renewable energies and therefore has already started some actions:
* The White Paper on Renewable Energies outlines the country´s philosophy and objectives in a general way. It states the intention of havingaround 1,667MW of installed capacity by year 2013.
* The Department of Minerals and Energy (DME) is preparing the new regulation on renewable energies, to be released on 2009. According to conversations with them, coordination with NERSA (the national regulator for energy prices) is needed to produce the feed-in tariff scheme (which would have to be prepared first). In addition, they areproducing a business plan to be submitted to the Treasury in order to get financial help.
* NERSA is preparing the draft for the feed-in tariff scheme, to be presented to their Board of Directors on November 2008.
* Western Cape Province is leading the way in the implementation of this plan. It seems that they will try the new scheme first. In addition, they have their own objectives inrenewable energies and the Provincial Government wants to ease the process for the project development. They also have the Darling wind farm in their territory.
After a business trip to South Africa, we have learned all of this. We had the opportunity to exchange views with many stakeholders.
The three main points that a private investor needs in any regulation about renewable energies are:* Sustainability and stability: the revenues need to be assured for a long enough period of time.
* Currency stability: the payments for the sale of the energy need to be in a stable currency.
* Good tariff system: with a competitive price that allows the investment to be profitable.
These are the key, essential points. Other measures, such as government support in the administrativeprocess or subsidies to the investment, are welcomed and certainly make things easier, but these three points need to be addressed first. Therefore, I shall explain them in more detail.
Sustainability and stability
Investments are studied for a period of at least 20 years, so the tariff system must be guaranteed for this period of time. In a feed-in tariff system this is easy to implement,being the price of the energy fixed in nature.
But what it is also equally important is to guarantee that if there is a change in the regulation, the tariff system will remain for plants erected before the change. This is a vital point.
The rand is not a very stable currency, so it would be necessary to be paid in a more stable one. The best options are Euros or Americandollars.
This may seem a bit strange to some people, but it is a common practice in countries with a not-so-stable currency. For example, in South America it is widely done. We have projects in Mexico and República Dominicana and we are paid in dollars. Foreign investors would not dare to deal with the local currency in that area.
In our opinion, the tariff should allow for payment in two...
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