The Renewable Energy Feed in Tariff and Incentives Bill

THE RENEWABLE ENERGY FEED-IN TARIFF AND INCENTIVES BILL

1. BACKGROUND

The Department of Minerals and Energy is mandated to oversee the minerals and energy portfolio. To this end, the Department released the White Paper on Energy Policy in 1998, the White Paper on Renewable Energy in 2003. Both policy documents profile renewable energies and provide for a diversity of energy sources usage in the production of electricity.

In respect of the legislation, the Department has released the National Electricity Regulation Act to establish the National Energy Regulator of South Africa, Electricity Regulation Act, 04 of 2006 regulated the electricity industry and mandate the Regulator, and recently the National Energy Act 34 of 2008.

Over the last year, a number of regulations flowing from the Electricity Regulation Act have been drafted, together with numerous policies, including the Electricity Pricing Policy, which has been recently approved, and addressed in greater detail, the policy positions on electricity pricing.

The proposed Renewable Energy Feed In Tariff and Incentives (REFITI) Bill seeks to provide feed in tariffs for renewable energy sources in the national grid and also provide for necessary incentives, since renewable energy sources are inherently more expensive than conventional fuel sources.

2. ANALYSIS OF THE REFITI BILL

2.1. Purpose and Objectives of the Proposed REFITI Bill

In general, the purpose and objectives of this proposed Bill have been covered under the Objects section of the National Energy Act (NEA) 34 of 2008. Section 2 (b) refers to the promotion of diversity of supply of energy and its sources as one of its objects.

The critical difference between the proposed Bill and the existing NEA is that the latter is broad as it should be. The specifics that are addressed in the proposed Bill could easily be addressed through regulations.

Section 2 (2)- (4) (a)-(g) of the proposed Bill refers to the utilisation of feed in tariffs (FIT) and introduction of financial incentives. The introduction of FIT is possible under the existing legislative framework provided by the National Energy. Further, the Electricity Pricing Policy (EPP), which was recently approved by Cabinet, also provides for the feed in tariffs.

Section 19(1) (c) of the NEA does not prescribe incentives, however, it provides for any support mechanisms or incentives-it states that:

“the Minister may, after consultation with those Cabinet Ministers whose areas of responsibility will be affected by proposed regulations, without derogating from his or her general regulatory powers, by notice in the Gazette make regulations regarding - measures and incentives designed to promote the production, consumption, investment, research and development of renewable energy”.

At this stage, the DME already provides financial support, in the form of once off capital subsidies to Renewable Energy project developers under the Renewable Energy Finance and Subsidy Scheme (REFSO).

The Electricity Regulations Act (ERA), 4 of 2006 also does not limit the technologies or energy sources that could be used for producing electricity. In fact, it empowers the Minister to set the targets for renewable energy.

It is not clear how the proposed Bill seeks to reduce the long term price volatility of fossil fuels as stated in Section 2 (f). The department therefore cannot comment on this.

2.3. Scope of Application of the proposed Bill

Section 3 Scope of Application of the proposed Bill, is about regulation of transmission grid or distribution grid system for general electricity supply, etc.

DME Comment

Section 22 Powers and Duties of Licensees under the ERA addresses the matters that the proposed Bill seeks to address under this section.

Section 22 has the following paragraphs:

(2) A licensee may not discriminate between customers or classes of customers

regarding access, tariffs, prices and conditions of service, except for objectively

justifiable and identifiable differences approved by the Regulator.

(3) A transmission or distribution licensee must, to the extent provided for in the

licence, provide non-discriminatory access to the transmission and distribution power systems to third parties.

(4) Access in terms of subsection (3) must be provided on the conditions set out in the licence of such transmitter or distributor, that may relate to-

(a) the circumstances under which access must be allowed;

(b) the circumstances under which access may be refused;

(c) the strengthening or upgrading of the transmission or distribution power system in order to provide for access, including contributions towards such upgrading by the potential users of such systems, if applicable.

2.3. Feed in from Renewable Energy Generators to Electricity Networks

DME Comment

The intention of this section is covered under the ERA Licensing and non discriminatory access to the national networks (in compliance with the Grid Code). In addition, since the ERA regulates anything that generates electricity particularly if this electricity goes into the grid, or is commercial, then the ERA can facilitate the regulation of net metering which is proposed under paragraphs 3 (a and b) of the REFIRI Bill.

2.4. Feed in Tariffs

DME Comment

Everything that is proposed under the section Feed in Tariffs of the proposed Bill can be done through the existing ERA (and the Electricity Pricing Policy).

Section 4(a) (ii) empowers the Regulator to regulate prices and tariffs.

Section (b) (iv) further empowers the regulator to perform any other act incidental to its functions.

2.5. Eligible Renewable Energy Source

This section of the proposed Bill specifies RE sources that should be eligible for the REFIT and other incentives, as well as those that should be excluded.

DME Comment

The ERA does not prescribe energy sources; instead it is promotes access a broad range of renewable sources without being prescriptive. It thus provides enough flexible enough to enable Government to promote the utilisation of electricity conversion technologies as they become available.

Generally the policy and legal framework exists for specific regulations to be developed around the concerns that this section of the proposed Bill seeks to address. Section 46 of the ERA which deals with new generation capacity, empowers the Minister of Minerals and Energy to,

(b)determine the types of energy sources from which electricity must be generated and the percentages of electricity that must be generated from such sources;

the manner set out in such notice;

(d) determine that electricity thus produced must be purchased by the persons set out in such notice;

(e) require that new generation capacity must-

(i) be established through a tendering procedure which is fair, equitable,

(ii) provide for private sector participation.

Section 47 of the ERA of 2006 provides for regulations, rules, guidelines, directives and codes of practice. It empowers the Regulator to make guidelines and publish codes of conduct and practice or make rules by notice in the Gazette (after consultation with licensees or such other parties as may be necessary).

These guidelines and codes of conduct may relate to S47 (2) (d) codes of practice relating to the operation, use, and maintenance of transmission and distribution systems. Rules under S47 (3) (b) may relate to standards of quality of supply and service; and (e) technical and safety standards.

2.6. Grid connection, Reinforcement and Costs

This section of the proposed Bill relate to the provision of grid access to renewable energy generators as well as priority purchase.

DME Comment

Section 22 of the ERA already covers the intentions of this section of the proposed Bill. S22 (3) states that a transmission or distribution licensee must, to the extent provided for in the licence, provide non-discriminatory access to the transmission and distribution power systems to third parties.

S22 (4) states that “access in terms of subsection (3) must be provided on the conditions set out in the license of such transmitter or distributor, that may relate to-

(a) the circumstances under which access must be allowed;

(b) the circumstances under which access may be refused;

system in order to provide for access, including contributions towards such

upgrading by the potential users of such systems, if applicable;

(d) the rights and obligations of other existing or new users regarding the use of

such power systems;

(e) compliance with any rule, code or practice made by the Regulator; or

If) the fees that may be charged by a licensee for the use of such power system.

2.7. Priority Purchase Obligation

In this section, the proposed Bill seeks to facilitate priority purchase of energy generated from renewable energy sources, by providing for a power purchase agreement, feed in tariff, and grid access.

DME Comment

Section 46 of the ERA as described earlier is relevant and can be applied to address the objectives of this section of the proposed Bill.

Section 15 (1) Conditions of License, empowers the Regulator to make any license subject to conditions relating to:

(d) the setting and approval of prices, charges, rates and tariffs charged by licensees; and

(m) the duty or obligation to trade, or to generate, transmit or distribute electricity and conditions attached to such duties.

(r) the types of energy sources from which electricity must or may be generated, bought or sold

2.8. Targets

This section of the proposed Bill stipulates that the Minister will set targets of solar water heaters and for electricity to be produced and purchased from renewable energy sources in South Africa by 2010, 2015 and 2020.

DME Comment

Setting targets under any Act limits the flexibility to change the targets as new technologies are made available. Targets are set in policy and for RE these are already specified under the 2003 White Paper on Renewable Energy. Again the ERA empowers the Minister to set the targets for various sources of energy.

Since a legal and regulatory framework already exists for implementation of targets, through regulations appropriate and realistic targets can be set to promote renewable energy contribution into the energy supply mix while also taking due consideration of the impact of such targets on the South African economy.

Through the NEDLAC process it was agreed between government, labour and business that Renewable Energy must also sustainable and therefore to legislate targets would not be a wise thing to do.

2.9. Incentives

Incentives are also covered in the Energy Act. In particular s19 (1) (f) of NEA allows for regulations to deal with incentives and other support mechanisms.

2.10. Progress Report

Both the ERA and the NEA require data to be captured and reporting to be done.

2.11. Regulations

Energy Act s19, s46 and s47 of ERA provide for regulations that could cover all RE issues.

3. CONLUSION

The purpose, objectives of the REFITI Bill are adequately covered by the existing legislation, and there is no need for a separate legislation to amplify the contents of another legislation.

Amplified /Specifics contemplated in the REFITI Bill can be addressed through the regulations in the existing legislation.

While it is noted that the uptake of renewable energy has not reached the levels anticipated in the policies, a lot of work has been done by the DME since the White Paper on Renewable Energy of 2003, to promote the .

The DME does not support the REFITI Bill