Wind farm developers face new risk under ‘Rebid' model

Government recently chose to abandon the renewable-energy feed-in tariff (Refit) model, favouring competitive bidding, or ‘Rebid', and this is set to rock the renewable-energy industry, particularly wind farm developers.

Wind farm developer G7 Renewable Energies director Dr Kilian Hagemann says the wind, solar photovoltaic and solar thermal industries tried to persuade, to no avail, the Department of Energy and the National Treasury that a Refit was needed and competitive price bidding would destroy the industry. He was a speaker at the recent Renewable Energy Africa 2011 conference, held in Sandton.

"It has a profound impact on all the [wind energy] projects, particularly those with low wind resources - and there are quite a few," he says. He predicts that sites with average wind speeds of less than 7 m/s will probably fall by the wayside and either have to write off their investment or find an innovative way of gaining political credit.

Business plans are being reshuffled and companies are renegotiating with suppliers and banks, and the latter are uncertain because they do not know what tariffs will be bid. He explains that this presents a catch-22 situation as a financial model cannot be worked out without the interest rate from debt funding, but banks will not give the interest rate until companies have a tariff to show for their financial models and prove they can cover their debt payments.

Ultimately, the Integrated Resource Plan (IRP) criteria will be all decisive and determine which projects have a chance of succeeding, as well as the criteria needed, such as broad-based black economic empowerment, localisation and how the price is weighted, he says.

The National Energy Regulator of South Africa's original Refit, published in March 2009, announced a tariff of R1.35 for every kilowatt hour, substantially higher than international benchmarks, which he says jump-started a lot of activity in the renewable-energy sector.

Dozens of local and international wind developers are now vying for projects in South Africa and all the biggest wind developers in the world now have local offices, he says. There are over 100 planned wind farms and about 15 GW of wind capacity currently in the planned stages, with most developers having already started their environmental-impact assessments.

He estimates that there is demand for 1.5 GW, in terms of what the Department of Energy and the National Treasury will procure, basing his estimate on the sum of the allocations that need to be procured between 2012 and 2015, as stated in the implementation section of IRP 2010.

He predicts the wind energy industry will consolidate on a large scale next year, with perhaps some mergers and acquisitions and other companies ceasing to exist, while the fortunate companies will start construction of the first projects next year.

The wind industry faces other challenges in South Africa, including fierce aesthetics-related complaints against wind farms by the public in certain regions, particularly those close to tourist destinations on the West Coast, and private nature reserves and game farms that are concerned about negative effects on tourism.

The draft IRP last year provided for 800 MW of wind a year, which was cut in half. He says localisation is really challenging, given such a low allocation. Manufacturers have reportedly stated they cannot build parts locally unless they receive volumes of at least 500 MW a year.

State-owned power utility Eskom, the Civil Aviation Authority and the Department of Envi- ronmental Affairs are swamped with applications, which results in long lead times, although, he notes, the Department of Environmental Affairs has "beefed up" its team and is handling applications fairly quickly.

Bountiful Wind Resource

There is, however, a positive aspect - South Africa has vast wind resources.

Hagemann says, over the past 16 years, a number of studies have been conducted on how many terawatt hours can be generated from South Africa's wind resources and every subsequent study has found a higher wind resource.

He undertook a study estimating how much electricity can be realistically generated from total local wind resources, resulting in 80 TWh of yearly electricity from wind farms, equivalent to 35% of current electricity demand, or 26 GW of installed capacity.

Local wind resources can compete with those of the top five wind markets in the world, he says. The ‘World Wind Energy Report 2010' found the top five wind markets were, in descending order, China at 44.7 GW, the US at 40.2 GW, Germany at 27.2 GW, Spain at 20.7 GW and India at 13.1 GW.

He also conducted a mesoscale study in 2008, producing a map with an 18 km resolution of the whole country's wind resources. He found wind resources tend to be centralised in the Northern Cape, the Eastern Cape, the Western Cape and, to a lesser extent, KwaZulu-Natal and Lesotho.

He says 2012 should see a new and better wind map of the country with a mesoscale simulation at 5 km resolution, developed by the Wind Atlas for South Africa project. The multi-institutional project is run by the University of Cape Town, the Council for Scientific and Industrial Research, the South African Weather Service and other institutions.

G7 Renewable Energies has five wind farm projects in the pipeline, with a total capacity of about 1 000 MW, at different stages of development. It will be submitting projects to Rebid. If successful, construction will start between midyear and the end of next year.