The Indian government has proposed amendments to the Electricity Act to focus on the development of renewable energy through the formulation of a National Renewable Energy Policy in consultation with state governments for the development of a power system based on optimal utilization of renewable sources of energy. It also requires coal and lignite based thermal generators to establish renewable energy capacity equal to at least 10% of their installed thermal power capacity.
In general, the tariff applicable to solar power plants is determined either through a “cost plus” method under which the appropriate regulatory commission determines the tariff based on the actual capital cost of the power plants, normative debt to equity ratios and other parameters prescribed under the multi-year tariff regulations adopted by the commissions; or through a competitive bidding process.
In the case of wind power plants, feed-in tariffs are determined taking into account capital cost submissions by various stakeholders and certain operation and maintenance costs and have been announced by the SERCs in certain states, such as the States of Andhra Pradesh, Gujarat and Tamil Nadu, pursuant to the applicable policy in the respective states. Until last year, procurement of wind energy was not done on competitive basis in India. However, encouraged by the growth of solar energy sector, in 2017 the Indian government conducted its first ever tariff based auction for long term wind power contracts and is also in the process of finalizing detailed guidelines for procurement of wind power through competitive bidding.
South Africa has a framework of legislation and regulations governing its energy sector. The Renewable Energy Independent Power Producer Procurement (“REIPPP”) program is a governmental procurement program that effectively requires solar and wind facilities in South Africa to comply with this framework, including the various acts and policies regulating the governmental procurement process generally, the most important of these being the Public Finance Management Act, the Broad-Based Black Economic Empowerment Act, and the Codes of Good Practice on Broad-Based Black Economic Empowerment, and the various acts and policies regulating South African businesses generally and therefore also independent power producers, such as environmental, health and safety laws.
The National Energy Regulator of South Africa (“NERSA”) is the primary regulator of South Africa’s energy sector and is responsible for regulating electricity, piped-gas and petroleum pipeline industries. Solar and wind facilities are governed by the Electricity Regulation Act, which is the primary enabling legislation for the REIPPP program, and by other legislation applicable to water affairs, environmental affairs, agriculture, forestry and fisheries and mineral resources. Under the REIPPP program, a solar or wind facility is regulated as an independent power producer and is authorized to produce and sell electricity to Eskom, the country’s largest state-owned power utility, pursuant to a license issued by NERSA. A solar or wind facility is not generally subject to regulation as a public utility in the traditional sense and, thus, is exempt from complying with South Africa’s complex system of power producer and procurement rules and regulations that are applicable to Eskom.
Each of the markets where we operate has established various incentives and financial mechanisms to support the cost and to accelerate the adoption of renewable energy. These incentives include tax credits, cash grants, tax abatements, rebates and RECs or green certificates and net energy metering programs that are offered by some of the foreign governments where we operate. These incentives help catalyze private sector investments in renewable energy and efficiency measures. Set forth below is a summary of the various programs and incentives in markets in which a significant portion of our power plants are located.
In recent years, the NDRC has initiated feed-in tariff programs for both solar and wind energy. Under these feed-in tariff programs, eligible solar and wind facilities are entitled to receive a special tariff, the amount of which is set by NDRC policy and which may vary based on the type of power plant (in the case of solar, for example, utility-scale versus distributed generation facilities; in the case of wind, onshore versus offshore developments), geographical location of the power plant and the date on which it commenced construction. Once a solar power plant qualifies for a particular tariff, the facility is entitled under NDRC policy to continue to receive the tariff for a period of 20 years from its commercial operation date. The special tariff remains constant, but consists of two components which may themselves change. One component is set to equal the prevailing rate that grid companies pay for base-load, desulfurized coal power (thus it is subject to change, though this base rate is currently determined by policy rather than market pricing and in recent history has not been subject to substantial fluctuations). This base load component is paid directly by the grid companies to the solar or wind power plant. The other component, called the green component, makes up the difference between the total special tariff and the prevailing base-load rate.