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Feed-In Tariffs or Auctions - Graduate School of Business

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									NOTE NUMBER 338




                                                                                                                        viewpoint                                 PUBLIC POLICY FOR THE PRIVATE SECTOR
FINANCIAL AND PRIVATE SECTOR DEVELOPMENT VICE PRESIDENCY APRIL 2013




                                                                                                      Feed-In Tariffs or Auctions?
                                                                      Anton Eberhard                  Procuring Renewable Energy Supply in South Africa
                                                                      Anton Eberhard                  Fe e d - in tarif f s h a v e b e e n t he m o s t wid e ly us e d s up p o r t m e c h a n i s m
                                                                      (eberhard@gsb.uct.ac.za) is
                                                                      a professor at the University
                                                                                                      to e ncourage the g r o wt h o f g r id - c o nne c t e d r e ne wa b le e ne r g y . B u t
                                                                      of Cape Town’s Graduate         could comp e titiv e t e nd e r s o r a uc t io ns o f f e r lo we r p r ic e s wh i l e s t i l l
                                                                      School of Business.
                                                                                                      p rovid ing ad e q ua t e inc e nt iv e s f o r m a r k e t e nt r y b y r e ne wa b l e e n e r g y
                                                                                                      sup p liers? This No t e lo o k s a t r e c e nt d e v e lo p m e nt s in S o ut h A f r i c a ,
                                                                                                      which initially ex p lo r e d f e e d - in t a r if f s f o r r e ne wa b le e ne r g y b u t
                                                                                                      then turne d inst e a d t o c o m p e t it iv e t e nd e r s . I nit ia l o ut c o m e s a r e
                                                                                                      encouraging: the r e ha s b e e n m uc h m a r k e t int e r e s t , a nd s ub se q u e n t
                                                                                                      b id d ing round s ha v e s e e n p r ic e s f a ll. C o uld t he r e b e le s s o ns f o r o t h e r
                                                                                                      countrie s?
                                                                                                      South Africa relies more on coal for electricity      Tariffs were designed to cover generation costs
                                                                                                      production than any other country. But in the         plus a real return on equity of 17 percent and
                                                                                                      face of climate change concerns it has embarked       would be fully indexed for inflation (NERSA
                                                                                                      on a transition to lower-carbon-emitting technol-     2009). Initial published feed-in tariffs—15.6
                                                                                                      ogies. Its most recent electricity plan included,     cents per kilowatt-hour for wind, 26 cents per
                                                                                                      for the first time, ambitious targets for renewable   kilowatt-hour for concentrated solar (troughs,
                                                                                                      energy: 18,800 megawatts of wind and solar, out       with 6 hours’ storage), and 49 cents per kilowatt-
                                                                                                      of a total projected system capacity of around        hour for photovoltaics—were generally regarded
THE WORLD BANK GROUP




                                                                                                      90,000 megawatts, by 2030. To expand renew-           as generous by developers.1 But considerable
                                                                                                      able energy supply, South Africa first explored       uncertainty remained, including the legality of
                                                                                                      the option of renewable energy feed-in tariffs        feed-in tariffs within South Africa’s public pro-
                                                                                                      (REFITs) before choosing instead to pursue            curement framework and delays in finalizing
                                                                                                      competitive tenders. Its experience may offer les-    power purchase agreements and interconnec-
                                                                                                      sons for other developing and emerging market         tion agreements with the national utility, Eskom.
                                                                                                      economies.                                               In March 2011 NERSA unexpectedly released
                                                                                                                                                            a consultation paper with lower feed-in tariffs,
                                                                                                      The birth and death of the REFIT program              arguing that a number of parameters—such
                                                                                                      The National Energy Regulator of South Africa         as exchange rates and the cost of debt—had
                                                                                                      (NERSA) approved a REFIT policy in 2009.              changed. The new tariffs were 25 percent lower
FEED-IN TARIFFS OR AUCTIONS? PROCURING RENEWABLE ENERGY SUPPLY IN SOUTH AFRICA




                         for wind, 13 percent lower for concentrated           and an upper limit was set for different tech-
                         solar, and 41 percent lower for photovoltaics         nologies—for example, 50 megawatts for con-
                         (in nominal rand terms). Moreover, the capital        centrated solar and 140 megawatts for a wind
                         component of the tariffs would no longer be fully     project. Another 100 megawatts was reserved for
                         indexed for inflation. Importantly, in its revised    small projects below 5 megawatts. Price caps were
                         financial assumptions NERSA did not change the        specified for each of these technologies at levels
                         required real return for equity investors of 17       not dissimilar to NERSA’s 2009 REFITs, all of
                         percent (NERSA 2011).                                 them much higher than Eskom’s average genera-
                            More policy and regulatory uncertainty was         tion tariff of around 5 cents per kilowatt-hour
2
                         to come. After receiving legal advice that feed-      at the time. Standard 20-year, local-currency-
                         in tariffs were inconsistent with public finance      denominated power purchase agreements were
                         and procurement laws, the Department of Energy        offered for the different technologies, with the
                         announced that a competitive bidding process          off-taker being Eskom. Up to five discrete bid-
                         for renewable energy would be launched, known         ding rounds were envisaged, at more or less six-
                         as the Renewable Energy Independent Power             month intervals, with the first round of bids due
                         Producer Procurement (REIPPP) program.                in November 2011.
                         Subsequently, the regulator abandoned feed-in
                         tariffs: not a single megawatt of power had been      Qualification criteria
                         signed in the two years since the launch of the       The bid evaluation involved a two-step pro-
                         REFIT program (although it is probably fair to        cess. In the first, bidders had to satisfy certain
                         admit that a practical procurement process was        minimum threshold requirements in six areas:
                         never implemented). These developments were           environment, land, commercial and legal, eco-
                         met with dismay by many renewable energy proj-        nomic development, financial, and technical. For
                         ect developers that had secured sites and had         example, wind developers were required to pro-
                         initiated resource measurements and environ-          vide 12 months of wind data for the designated
                         mental impact assessments. But it was these early     site and an independently verified generation
                         developers that were later ready to benefit from      forecast. Project developers were responsible for
                         the first round of competitive bidding.               identifying appropriate sites and for paying for
                                                                               measurement and early development costs at
                         The birth and early life of the                       their own risk. Wind turbines had to be certified
                         REIPPP program                                        for compliance with the international technical
                         The Department of Energy, with the assis-             standard IEC 61400-1.
                         tance of the National Treasury’s Public-Private           The economic development requirements in
                         Partnership Unit and a phalanx of international       particular were complex, incorporating 17 sets of
                         transaction advisers, commenced work on bid           minimum thresholds and targets (table 1). For
                         documents. A request for qualification and pro-       wind projects, for example, at least 12 percent
                         posals was issued in August 2011. A compulsory        of the project company shares had to be held by
                         bidders’ conference was held in September of          black South Africans and another 3 percent by
                         that year and attracted more than a thousand          local communities. At least 1 percent of project
                         participants, many from abroad. A total of 3,625      revenues had to go to socioeconomic contribu-
                         megawatts of new power capacity was offered,          tions. The minimum threshold for local content
                         with overall procurement caps for specified tech-     was set at 25 percent, with a target of 45 percent
                         nologies, mainly wind and photovoltaics, but also     being encouraged.
                         smaller amounts available for concentrated solar,         Bid bonds or guarantees had to be posted,
                         biomass, biogas, landfill gas, and small hydro (see   equivalent to US$12,500 per megawatt of name-
                         table 2 below).                                       plate capacity of the proposed facilities, and the
                            The tenders for different technologies were        amount was doubled once preferred bidder status
                         held simultaneously. Bidders could bid for more       had been announced.
                         than one project and also for different technolo-         Bidders that satisfied the threshold require-
                         gies. Projects had to be larger than 1 megawatt,      ments then proceeded to the second step of
 Table    Economic development thresholds and targets for wind projects in South Africa’s REIPPP program



1
           Factor and criteria                                                                                         Threshold (%)      Target (%)
           Job creation
           South Africa–based employees who are citizens                                                                        50           80
           South Africa–based employees who are black citizens                                                                  30           50
           Skilled employees who are black citizens                                                                             18           30
           South Africa–based employees who are citizens from local communities                                                 12           20
           Local content
           Value of local content spending                                                                                      25           45
           Ownership                                                                                                                                   3
           Shareholding by black people in the project company                                                                  12           30
           Shareholding by black people in the contractor responsible for construction                                           8           20
           Shareholding by black people in the operations contractor                                                             8           20
           Shareholding by local communities in the project company                                                              3            5
           Management control
           Black top management                                                                                               n.a.           40
           Preferential procurement
           Broad-based black economic empowerment (BBBEE) procurement spending                                                n.a.           60
           Procurement from small enterprises                                                                                 n.a.           10
           Procurement from women-owned vendors                                                                               n.a.            5
           Enterprise development
           Enterprise development contributions                                                                               n.a.           0.6
           Adjusted enterprise development contributions                                                                      n.a.           0.6
           Socioeconomic development
           Socioeconomic development contributions                                                                             1.0           1.5
           Adjusted socioeconomic development contributions                                                                    1.0           1.5


         Note: n.a. = not applicable (no threshold set).
         Source: South African Department of Energy, REIPPP program bid documents and press releases (http://www.ipp-renewables.co.za).



evaluation, where bid prices counted 70 per-                                              reviews). The evaluation resulted in 28 quali-
cent with the remaining 30 percent weighting                                              fying bids, amounting to 1,416 megawatts of
given to composite scores on job creation, local                                          new capacity (table 2). For the first round, a
content, preferential procurement, enterprise                                             deadline of July 2012 was set for financial close
development, and socioeconomic development.                                               (the date was later extended), and a deadline
Bidders were asked to provide two prices: one                                             of the end of 2014 for the commercial operat-
fully indexed for inflation and the other partially                                       ing date.
indexed, with the bidder allowed to determine                                                 Although bidders could not know for certain
the proportion that would be indexed.                                                     the total capacity that would be bid, they prob-
                                                                                          ably assumed that the tight deadlines and chal-
Round one outcomes                                                                        lenging threshold qualification criteria would
A total of 53 bids were received initially, amount-                                       result in less capacity being bid than was made
ing to 2,128 megawatts. A large legal, technical,                                         available in round one. Accordingly, the prices
financial, and governance evaluation team was                                             bid were mostly uncompetitive and only margin-
assembled in a high-security environment with                                             ally below the caps specified in the request for
24-hour voice and CCTV monitoring. The team                                               proposals. Implementation, direct, and power
included local legal firms (Bowman Gilfillan,                                             purchase agreements were signed in November
Edward Nathan Sonnenberg, Ledwaba Mazwai,                                                 2012 between the government, Eskom, and
Webber Wentzel, and BKS) as well as inter-                                                each of the 28 successful bidders, resulting in
national firms (Linklaters for legal, Mott                                                a total investment of close to US$6 billion. Much
Macdonald for technical, and Ernst & Young                                                of the debt component was provided by local
and PwC for the financial and governance                                                  South African commercial banks.
FEED-IN TARIFFS OR AUCTIONS? PROCURING RENEWABLE ENERGY SUPPLY IN SOUTH AFRICA




         Renewable energy capacity made available for bids and allocated to preferred bidders in South Africa’s REIPPP program
Table    (megawatts)



2
          Technology                        Available in round 1                  Allocated in round 1                    Available in round 2   Allocated in round 2    Remaining in round 3
          Wind                                     1,850                                   634                                     650                  562.5                  653.5
          Photovoltaics                            1,450                                 631.5                                     450                  417.1                  401.4
          Concentrated solar                         200                                   150                                      50                   50.0                       0
          Small hydro                                 75                                      0                                     75                   14.3                   60.7
          Landfill gas                                25                                      0                                     25                       0                    25
          Biomass                                   12.5                                      0                                   12.5                       0                  12.5
          Biogas                                    12.5                                      0                                   12.5                       0                  12.5
          Total                                    3,625                               1,415.5                                 1,275.0                1,043.9                1,165.6

        Source: South African Department of Energy, REIPPP program bid documents and press releases (http://www.ipp-renewables.co.za).



                                                       Round two outcomes                                                                  wind power fell from 9.8 cents per kilowatt-hour
                                                       The design of the second bidding round incor-                                       in 2009 to 8.5 cents in 2010 to 6 cents in 2011.
                                                       porated lessons from the first, with less capac-                                    The same source cites 6.9 cents per kilowatt-
                                                       ity (1,275 megawatts) being offered in order to                                     hour for wind and 12 cents per kilowatt-hour
                                                       stimulate more competition. The second round                                        for photovoltaics in Peru. South African prices
                                                       closed in March 2012. This round brought 79 bids,                                   might be higher because of local content and
                                                       totaling 3,255 megawatts. Of these bids, 51 met the                                 economic development criteria. In addition,
                                                       qualifying criteria, and 19 of them were granted                                    interviews suggest that the initial bidding round
                                                       preferred bidder status (doing so for the next-best                                 involved high transaction costs in terms of advis-
                                                       bids would have resulted in more than the full                                      ers and financing. These costs fell in round two
                                                       window being allocated). Wind and photovoltaics                                     (along with equipment prices) and are likely to
                                                       prices in the second round were much more com-                                      fall further in subsequent rounds.
                                                       petitive, falling on average by 20 percent for wind
                                                       and 40 percent for photovoltaics (table 3). The                                     What are the lessons?
                                                       range of prices bid was also wider, with prices vary-                               The South African REIPPP program is not only
                                                       ing from 10 to 12 cents per kilowatt-hour for wind                                  the largest renewable energy program in Africa;
                                                       and from 17.5 to 22 cents per kilowatt-hour for                                     it is also the largest IPP program of any African
                                                       photovoltaics. The price for concentrated solar                                     country and probably the most complex public-
                                                       fell by 7 percent, with one preferred bidder taking                                 private procurement ever run on the continent.
                                                       up the remaining available capacity. There was                                      According to Bloomberg New Energy Finance,
                                                       little competition in small hydro, with only two                                    South Africa ranked among the top 10 countries
                                                       qualifying bids, both at the capped price.                                          on clean energy investment in 2012, ahead of
                                                           The round two preferred bidders also offered                                    Canada, Brazil, Spain, and France. This is all the
                                                       better local content terms, with average local con-                                 more remarkable given South Africa’s previously
                                                       tent for photovoltaics rising from 28.5 percent to                                  dismal record in IPPs and the dominance of its
                                                       47.5 percent, for wind from 21.7 percent to 36.7                                    national utility. Eskom, on the government’s
                                                       percent, and for concentrated solar from 21 per-                                    instruction, had attempted to run a number of
                                                       cent to 36.5 percent. The deadline for financial                                    IPP procurements before, all of which failed.
                                                       close for round two was extended from the end                                       Ultimately, the Department of Energy and the
                                                       of 2012 to May 2013.                                                                National Treasury had to wrest control of the
                                                           The remaining 1,166 megawatts are being                                         REIPPP program from Eskom.
                                                       made available in the third bidding round, which                                        Although projects still have to achieve com-
                                                       will close in August 2013.                                                          mercial operation, the South African REIPPP
                                                           While prices have fallen in South Africa, they                                  program can be considered a success in terms
                                                       are not necessarily as attractive as those achieved                                 of attracting a multitude of private project
                                                       in other countries. For example, Maurer (2012)                                      developers and investors. In its second round
                                                       reports that in Brazil average auction prices for                                   the program has also fostered competition with
          Renewable energy prices in South Africa’s REFIT and REIPPP programs
 Table    (South African rand per kilowatt-hour)



3
                                                                      REFIT program                                                        REIPPP program
                                                                                                                                             Round 1          Round 2
           Technology                                  2009 tariff                         2011 tariff                           Bid cap    average bid     average bida
           Wind                                           1.25                                0.94                                 1.15         1.14          0.90 (11)
           Photovoltaics                                  3.94                                2.31                                 2.85         2.76          1.65 (21)
           Concentrated solar                             2.10                                1.84                                  —           2.69          2.51 (31)
           Small hydro                                    0.94                                0.67                                 1.03          —            1.03 (13)
                                                                                                                                                                           5
         Note: Prices assume full inflation indexing over a 20-year contract. — = not available.
         a. Numbers in parentheses are prices in U.S. cents.
         Source: South African Department of Energy, REIPPP program bid documents and press releases (http://www.ipp-renewables.co.za).



consequent, and impressive, falls in prices, which                                              However, the announcement of the REFIT
would in all likelihood not have happened in a                                                  program two years before the launch of the
REFIT program. And it has achieved results in                                                   REIPPP program contributed to early market
record time: bidding in the first round closed                                                  interest, and a number of bidders had already
three months after the request for proposals was                                                identified sites and begun resource measure-
issued, preferred bidders were announced within                                                 ments. Before issuing the request for propos-
a month, and contract signing and financial close                                               als, the Department of Energy had also issued
were achieved 10 months later, even though as                                                   an earlier request for information from pro-
many as 28 projects, employing different tech-                                                  spective project developers, which confirmed
nologies of different sizes at different sites, had                                             significant market readiness.
to be processed in parallel.                                                                    Flexibility in the design of subsequent bidding
                                                                                                rounds meant that lessons could be incorpo-
Factors in the REIPPP program’s success                                                         rated to improve the competitiveness of bids
Several elements have contributed to the success                                                and prices. For example, it became apparent
of the REIPPP program.                                                                          that the capacity made available in round one
   The procurement process was well designed.                                                   exceeded the capacity of the market to deliver,
   Recognizing that there was little institutional                                              and the capacity tendered in round two was
   capacity to run a sophisticated, multiproject,                                               reduced to induce more competition.
   multibillion-dollar international competitive                                                The renewable energy sector is potentially
   bidding process for renewable energy, South                                                  highly competitive, given the diversity of
   Africa’s Department of Energy sought the                                                     energy sources, the modular nature of most
   assistance of the National Treasury’s Public-                                                of the technologies, and the number of project
   Private Partnership Unit, which in turn relied                                               developers. When South Africa ran its first
   extensively on local and international transac-                                              competitive tender for IPPs—two large gas
   tion advisers.                                                                               turbine peaking plants—it received only two
   High standards were set for the bidding pro-                                                 bids, one of which was later withdrawn. It is
   cess, and apart from necessary clarifications,                                               perhaps no accident that the first successful
   the government stuck to the announced                                                        international competitive tender for power in
   schedule and core bid requirements (although                                                 South Africa has been in renewable energy.
   the deadline for financial close slipped a few                                               Subsequent bidding rounds have incorpo-
   months as the government finalized financial                                                 rated more stringent threshold as well as target
   security arrangements). Despite a tight time                                                 criteria for local content objectives, which will
   schedule and tough qualification criteria, the                                               result in employment creation.
   REIPPP program attracted 53 bids in round                                                    The local capital market has responded posi-
   one and 79 in round two. A large number of                                                   tively to the opportunity presented by the
   these met the minimum qualification thresh-                                                  REIPPP program, which will involve total
   olds: 28 in round one and 51 in round two.                                                   investment approaching US$15 billion in
FEED-IN TARIFFS OR AUCTIONS? PROCURING RENEWABLE ENERGY SUPPLY IN SOUTH AFRICA




                            its 3,725 megawatts of renewable energy.            All the successful bidders in round one have
                            Commercial banks have been willing to               reached financial close and have begun con-
                            finance construction, and some are on-selling       struction. It remains to be seen what propor-
                            debt to insurance companies. Given compet-          tion of preferred bidders in round two will
                            ing demands in other infrastructure sectors         achieve financial close. The aim of the REIPPP
                            in South Africa, however, funding further           program is lower prices, but projects must still
                            REIPPP programs would stretch local banks,          be bankable. A successful bidding process
                            and other sources of funding, such as pension       should have a low attrition rate among pre-
                            funds, will need to be mobilized.                   ferred bidders. Bid prices need to be realistic.
6
                            Real returns to equity in round one were close      Specifications on what constitutes local con-
                            to the 17 percent (in local currency) that was      tent could be improved, including more focus
                            envisaged in determining the original feed-in       on those parts of the value chain that maximize
                            tariffs. Equity returns dipped slightly in round    local employment.
                            two for wind and probably more substantially        A balance needs to be struck between the pro-
                            for photovoltaics. Dollar returns in the range      motion of economic development and prices.
                            of 12–13 percent have been reported.                Economic development threshold and target
                            Project bidders are required to incorporate a       criteria are more stringent than in most other
                            tax of 1 percent of project revenues that will go   countries (and, indeed, more stringent than in
                            into a government renewable energy fund to          previous public-private partnerships in South
                            support subsequent procurement programs.            Africa). The South African renewable energy
                                                                                market is small by international standards, and
                         Potential areas for improvement                        investment in local manufacturing capability
                         While much has gone well in the REIPPP pro-            is not necessarily competitive. International
                         gram, hindsight suggests that some areas could         benchmarks indicate that South African
                         have been better designed and managed.                 renewable energy prices are high.
                            The size and readiness of the local renewable       In some areas there is inadequate transmission
                            energy market were initially overestimated,         grid capacity and otherwise viable and attrac-
                            resulting in less capacity being bid than was       tive projects have to compete for access. There
                            made available. There was thus limited com-         have also been complaints about the lack of
                            petition in round one, and bid prices were          responsiveness of Eskom transmission plan-
                            close to the price cap. Use of the single-price     ners. Integration of planning, procurement, and
                            offer (rather than a dynamic reverse auction        contracting functions in the proposed indepen-
                            as employed, for example, in Brazil) also           dent transmission, system, and market operator
                            restricted competition.                             would make it easier to resolve these constraints.
                            The size and complexity of the REIPPP pro-          The transaction costs for the REIPPP program
                            gram stretched available legal and financial        were high for both the government and the
                            advisory services to the limit. Some firms          bidders (certainly higher than for a REFIT
                            were permitted to offer advisory services to        program). The government has had to rely
                            both the government and private bidders             on external transaction advisers. But there
                            and funders as long as they created adequate        is potential to transfer skills and experience
                            “Chinese walls” within the firm. Some bid-          in future procurement rounds and to build
                            ders complained that legal and financial            capacity in the proposed independent system
                            firms were offering a “one size fits all” ser-      and market operator.
                            vice, which was not always appropriate for          The levelized energy costs that were calcu-
                            specific projects.                                  lated for the initial feed-in tariffs served as
                            The above two points suggest that it might          the departure point for the REIPPP program.
                            have been more prudent to start smaller and         Some other countries, such as Tanzania, have
                            then gradually ramp up the program, with            used avoided costs as their starting point.
                            larger blocks of capacity being offered in sub-     In October 2012 the minister of energy
                            sequent rounds.                                     announced that another 3,200 megawatts of
  renewable energy projects would be tendered,     good design and evaluation should not be under-
  with a target for the commercial operating       estimated. Development assistance programs,
  date between 2017 and 2020. South Africa’s       including those from development finance insti-
  power market continues to be shaped by cen-      tutions, should carefully consider the costs and
  trally managed power planning and procure-       benefits of competitive tenders relative to those of
  ment processes. However, there are growing       feed-in tariff regimes. Funding the higher initial
  political and stakeholder concerns around        transaction costs will ultimately be more cost-
  rising electricity prices. And demand growth     effective if lower power prices are likely.
  is lower than predicted. The sustainability of      These lessons also apply in the main to auc-
                                                                                                            7
  the REIPPP program depends on volumes            tions for renewable energy. Competitive tenders
  and predictable procurement processes. But       generally incorporate a weighting of price and
  its sustainability will depend also on how       nonprice factors while auctions are awarded
  quickly renewable energy prices fall and how     solely on the basis of lowest price (sometimes
  competitive they become with prices for other    after a number of rounds) among qualified bid-
  energy sources.                                  ders. Running effective auctions might require
                                                   even greater time, expenditure, transaction costs,
Conclusion                                         expertise, and capabilities than running tenders.
South Africa’s REIPPP program provides a valu-     Auctions might also encourage underbidding,
able opportunity in learning how to procure        with the risk of subsequent contract failures. But
renewable energy projects effectively in devel-    the experience with dynamic reverse auctions—
oping countries. What are the lessons for other    for example, for wind energy in Brazil—has been
developing and emerging market economies?          positive: competition has driven prices down dra-
   The South African experience suggests           matically. It would be interesting to explore the
that competitive tenders are a viable alterna-     possibility of a hybrid design in which winning
tive to feed-in tariff programs for renewable      prices from a dynamic reverse auction are subse-
energy and potentially offer better price out-     quently weighted with nonprice factors.
comes with fewer risks of excessive rents being
appropriated by renewable energy suppliers.
In developed countries the core rationale
for introducing REFITs was to create market        Notes
certainty and simplify procurement processes       The author would like to acknowledge the valuable
in order to stimulate production and innova-       comments of Katharina Gassner, Luiz Maurer, Mark
tion in climate-change-mitigating renewable        Pickering, and Sean Whittaker on earlier versions of
energy technologies and markets, thus bringing     this Note.
prices down over time. But in many developing      1. Unless otherwise specified, values in cents are in
countries, especially in Africa, the market for    U.S. cents. Rand values have been converted using an
renewable energy technologies is much smaller      exchange rate of 8 rand per U.S. dollar.
and this rationale does not apply. Indeed, for
many smaller developing countries with low         References
carbon footprints, the argument for greater        Maurer, Luiz T. A. 2012. “Renewable Portfolio Stan-
use of more expensive renewable energy tech-          dards and Competitive Procurement.” Presentation
nologies needs to be balanced against other           at Energy Sector Management Assistance Program
development priorities.                               and International Finance Corporation Training
   While competitive tenders for renewable            Course, Washington, DC, July 8.
energy are potentially an attractive alternative   NERSA (National Energy Regulator of South Africa).
to REFITs, transaction costs are high and many        2009. “Renewable Energy Feed-In Tariff Guidelines.”
small developing countries may lack the capacity      Media release. http://www.sessa.org.za.
or resources to run such complex and expen-        ———. 2011. “Review of Renewable Energy Feed-In
sive procurement processes. REFIT programs are        Tariffs.” Consultation paper. http://www.remt
generally simpler, although the requirements for      project.org/FileDownload.aspx?FileID=56.
                                 viewpoint

                                 is an open forum to
                                 encourage dissemination of
                                 public policy innovations
                                 for private sector–led and
                                 market-based solutions for
                                 development. The views
                                 published are those of the
                                 authors and should not be
                                 attributed to the World
                                 Bank or any other affiliated
                                 organizations. Nor do any
                                 of the conclusions represent
                                 official policy of the World
                                 Bank or of its Executive
                                 Directors or the countries
                                 they represent.


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