Aurora Power Solutions

A product is "bankable" when large debt-lending institutions are prepared to lend the majority of the money required to finance it. These institutions require a sound financial forecast for the recovery of the money and that requires information that is well tested. Added to the risks associated with renewable energy plants is the risk that the plant is being built in Africa. We at APS strongly believe that the technology most likely to survive these risks is one that has extensive credibility and track record in commercial operation. For CSP, only one such technology exists: parabolic trough.

Many companies are advertising mini-CSP or "low-cost" CSP technologies that come in at an extremely affordable cost per installed watt. Let us not forget that the size of a mini-CSP plant of 5-10 MW is still likely to require about R100m upfront capital. For this to be raised at a reasonable interest rate they will need a period of testing, and for this reason we believe these technologies are likely to be built in South Africa initially as government or other grant-funded research projects.

Successful renewable energy generation projects require feasibility studies of high detail and technology with a good track record because errors in the expected performance will have effects over the full 20-25 year project lifespan. Investors, land owners and project developers must be aware that flashy technologies with fantastic specs will increase project risks, and risk is expensive.

A minimum of 12 months worth of data, acquired with high precision instrumentation and monitoring is required. For a CSP plant, Direct Normal Irradiance needs to be measured since a concentrating technology only utilizes the light travelling directly from the sun. PV panels convert both diffuse and direct light into electricity and therefore the global irradiation must be measured.

If accurately maintained and corrected, ground measurements provide data of high accuracy (in some cases up to 0.5% root mean squared error). However annual fluctuations in weather mean that the acquired data may not represent a “typical” year. In this case the entire cash flow of the plant may be calculated for a year that happens to have excellent solar radiation and will form a false impression of the business case. The long term temporal accuracy of the data can only be determined by satellite derived estimates of the radiation for that location. These must be corrected by comparing them to a period when they overlap with ground derived measurements. A number of complications and corrections need to be considered, for instance, the origin of the satellite data and the time when it was acquired.

By the end of 2006 the global cumulative installed capacity of solar PV systems around the world was 6.5 GWp, by the end of 2009 this number is project to rise to 13 GWp, with the long term projection for 2030 of more than 180 GWp. The majority of this initial growth was seen in first world developed countries. However, as the volume of solar panels sold to the world market increases, the cost of the technology will drop allowing for wide spread adoption particularly in energy hungry developing countries. Recent forecasts now estimate that 30 % of the 180 GW installed in 2030 will be in developing countries.

Of these developing countries, South Africa is fortunate in that it not only has one of the best solar resources globally, but also a well developed power distribution system. With a 95 % dependence on coal as the primary energy resource the government has long understood the importance to diversify this portfolio to include alternate power generation.

The installation of large scale grid connected solar PV systems in South Africa provides an efficient way to quickly diversify this power generation portfolio. With the potential adoption of the new NERSA feed in tariff we now finally stand on the verge of an entire new industry in South Africa. One that will have positive influences on job creation and our quality of living, and best of all do so with what we have most of – the African sun shine.

A tariff of R2.10 per kWh (± US$0.26 or €0.18) was approved for CSP, which is comparable to Californian and Spanish rates. The Renewable Energy Purchasing Agency (REPA), housed within Eskom’s Single Buyer Office, will be obliged to purchase the energy delivered by the renewable energy projects.

More recently NERSA released a consultation paper for REFIT Phase 2, which extends the REFIT to include other solar technologies, such as ground or roof-mounted photovoltaics (PV), concentrated photovoltaics (CPV) without storage, CSP trough without storage and CSP central tower with 6 hours storage. The proposed tariffs are R4.49, R5.48, R3.13 and R2.31 respectively.

Appended to the consultation paper is a draft Power Purchase Agreement (PPA) between Independent Power Producers (IPP) and REPA. According to the Government Notice No. R.721 Electricity Regulations on New Generation Capacity released on 5th August 2009, IPPs will have to fulfil an number of criteria in order to be eligible for the PPA, and hence the REFIT. These criteria are:

• compliance with the integrated resource plan and the preferred technologies;
• acceptance by the IPP of a standardised power purchase agreement;
• preference for a plant location that contributes to grid stabilisation and mitigates against transmission losses;
• preference for a plant technology and location that contributes to local economic development;
• compliance with legislation in respect of the advancement of historically disadvantaged individuals;
• preference for projects with viable network integration requirements;
• preference for projects with advanced environmental approvals;
• preference for projects demonstrating the ability to raise finance;
• preference for small distributed generators over centralized generators; and
• preference for generators that can be commissioned in the shortest time.

Interested and affected parties have until 20 August 2009 to comment on the REFIT consultation paper and the draft PPA.

As a mechanism, Feed-In-Tariff’s have shown globally that it can almost single-handedly develop the market for renewable energy in the relevant province, state or country. Without the REFIT and the resultant Purchase Power Agreement (PPA), raising capital to finance the project is impossible. However, the announcement of South Africa’s REFIT does not guarantee project finance; there are still several hurdles to negotiate!

Firstly, there needs to be clarity from the local debt financing community on the requirements for financial closure. As renewable energy Independent Power Producers (IPP) are still in their infancy in South Africa, these debt providers need to look internationally for guidance on best practice on these criteria.

Secondly, there needs to be the local capacity and capability to provide services (solar resource assessment, grid connection studies etc.) for project developers to enable them to qualify for financing. In turn, there also needs to be capacity to service the lender/investor with third party verification reports.

Thirdly, there needs to be clear communication from the National Energy Regulator of South Africa (NERSA) and the Single Buyer Office (SBO) that resides in the Renewable Energy Purchasing Agency (REPA) which is currently housed in Eskom, on how to qualify for the REFIT and the PPA. Without transparent and accessible guidelines, the market is unable to assess the qualification process.

Fourthly, we need to foster a culture of venture capitalism that can be used to finance projects that are in their early stages and hence higher up the risk curve. The greater the number of projects that get supported at an early stage, the greater the penetration of clean technology into the South African market place.

South Africa has taken the bold step in introducing the REFIT. It is now the turn of the all the players in the industry to help reduce the risk profile of renewable energy projects. Until this risk is mitigated to an acceptable degree, projects will be too expensive to finance and renewable energy will remain a policy and not an adequate contributor to the energy mix in South Africa.