NERSA REFIT Review. Indexation is Crucial

Transcription

1 RES Southern Africa Duncan Ayling Development Manager May 2011 NERSA REFIT Review Indexation is Crucial 1

2 Key Messages Today % of the REFIT must be indexed with inflation. 2. The REFIT tariff must remain at R 1.25/kWh (fully indexed) for wind projects in The next (fully indexed) level of REFIT tariffs for must be announced before end of Maintaining a minimum 3 year forward certainty. 2

3 RES Group Van die wêreld se voorste hernubare energie-ontwikkelaars vir 25 + jaar One of the world's leading renewable energy developers for 25+ years Ontwikkeling, konstruksie oor 5000MW Development, construction over 5000MW 'N onafhanklike krag produsent - ons eie en bedryf ongeveer 600MW An independent power producer we own and operate approx 600MW Son, biomassa, wind, en die bou-geïntegreerde volhoubare energie Solar, biomass, wind, and building-integrated renewables 3

4 RES Southern Africa MW in development in South Africa Equating to R 10 bn investment Active SAWEA board member 4

5 100% Indexation is Crucial We strongly oppose NERSA s proposal to index link only the operation and maintenance costs of wind projects. When combined with the 24.9% reduction in REFIT level it means wind projects become uneconomic. Such a dramatic change in the structure of the REFIT at this crucial stage in the industry s development undermines investor confidence in the South Africa s commitment to the growth of the sector and could have lasting consequences. 5

6 100% Indexation is Crucial The 2009 tariffs have stimulated international companies such as RES to make significant financial and intellectual investment in South Africa. We are concerned there is a fundamental flaw in the logic used. An investor will be unable to achieve the returns intended by NERSA. 6

7 100% Indexation is Crucial NERSA: With regard to the capital investment portion it is assumed that the project owners will enter into foreign exchange forward and interest cover The rationale suggests the wind farm investor adopts one of two policies; either: 1. The investor finances the capital expenditure in a foreign currency such as US dollars or UK pounds; or 2. The investors converts their capital costs to ZAR and borrows in ZAR to finance the project 7

8 FX Rate ZAR:GBP 100% Indexation is Crucial 1. The investor finances the capital expenditure in a foreign currency such as US dollars or UK pounds over the longer term, the premium on the forward exchange rate would be prohibitive Practical Tading Limit FX Swap Rates Increased liquidity concerns, where individual trades may impact the price

9 100% Indexation is Crucial 2. The investors converts their capital costs to ZAR and borrows in ZAR to finance the project borrowing in ZAR requires paying ZAR rates of interest. To only inflate the tariff each year by the equivalent of 0.7% when annual inflation (which has a direct impact on the ZAR interest rate) is running at (a target of) 6% decimates the returns available to a project We urge NERSA to look again at the indexation of the tariffs and to inflate the entire tariff by CPI 9

10 3 Year Forward Tariff Certainty Needed Wind farm development lead times of three and six years The tariff needs to be set now (in 2011) and must be fully CPI index linked 10

11 3 Year Forward Tariff Certainty Needed Less than 3 years foresight of tariff levels would deter investment and probably halt the wind industry Losing the benefits of job creation, economic growth, technology advancement as well as carbon reduction. Losing the benefits to South Africa s dual challenges of electricity and water shortage. Provided wind energy receives adequate initial support it can be delivered quickly and becomes the least cost option in the medium to long term. 11

12 Summary Key Messages % of the REFIT must be indexed with inflation. 2. The REFIT tariff must remain at R 1.25/kWh (fully indexed) for wind projects in The next (fully indexed) level of REFIT tariffs for must be announced before end of Maintaining a minimum 3 year forward certainty. 12

13 Duncan Ayling RES Southern Africa Development Manger 13