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renewable energy finance and subsidy office

What accuracy is expected from pre-feasibility studies?

The level of accuracy at the pre-feasibility study stage does not have to be high. As a minimum the pre-feasibility should be accurate in terms of technology, approximate size, location approximate capital project costs. However, it must be noted that contract awards will be based on feasibility studies, whose level of accuracy must be high due to the implications on financial commitments. Feasibility studies should be at a level to satisfy a financial institution.

What happens when the total project cost is at the borderline (i.e. R100-million)?

A final loan agreement (contract) and a feasibility study will be required for a subsidy contract application, and will as such be used to verify that the total project cost is within limits. The DoE will require as much information as possible to ascertain the veracity of assertions made in respect of project costs in such cases. It should also be borne in mind that the R100-million threshold is subject to review as the subsidy scheme evolves.

What is meant by financial closure?

That last step when the lead financial arranger for the project commits to release funds to the project. It represents the time when all shareholder, debt and other lending arrangements have been signed. The release of funds is normally linked to the achievement of certain milestones in the implementation of the project.

The subsidy rate for electricity is based on capacity (i.e. R/kW). Why is the rate for bio-fuels based on consumption (i.e. R/kilo-litre a year)?

All the subsidy rates are based on installed capacity.

Will the DoE consider different levels of support for different technologies?

A macro-economic study that was done as part of the Capacity-building in Energy Efficiency and Renewable Energy (CaBEERE) project provided an indication of the different costs of grid-based renewable energy and thus different requirements for financial support. This option may be considered in future.

Where electricity is concerned, are the figures under "contribution to target" on a per annum basis?

Like the production figures for bio-diesel and bio-ethanol, the figures indicating the contribution to the renewable energy target are on a per annum basis (i.e. MWh per year).

Does the evaluation for jobs created distinguish between those created during construction and once the plant is operational?

The focus is on the sustainability of the jobs created as a result of a project. Therefore focus is on the jobs to be created for the operation of the power plant.

Can one company apply for more than one project?

The subsidy is applied at the level of the project and not the company. This means it is possible for one company to apply for more than one project.

Can more than one application be made for the same project?

No. Application for a subsidy for the same project by more than one company (e.g. each party in a joint venture) is not allowed.

Is the subsidy milestone-driven?

Yes. Financial close, construction and commissioning are the key milestones. It must be noted, however, that the grant is 'once-off', i.e. single disbursement linked to the construction milestone.

What happens if milestones are not met?

In terms of the contract, the subsidy amount may be requested to be paid back to the DoE.

The requirement to commission within 18 months from contract signing is too restrictive for some projects (e.g. hydropower) due to delays in getting equipment to site, for instance. How will this be handled in terms of the subsidy contract?

It is important for the developer to provide information to the DME in advance where delays are anticipated. This may result in reasonable extensions being granted, taking into account any limitations imposed by the budgetary process that the DME has to follow.

How is the issue of confidentiality managed, considering the requirement to submit supporting documentation when applying?

Confidentiality is built into the procedures for the evaluation of applications. Staff members are also contractually bound to respect the confidentiality of the information submitted as part of the applications.

Can a subsidy be granted post-commissioning?

No. The project must not have reached commercial operation.

Will projects that have already begun be considered eligible?

Additional project phases will be considered, but these have to be stand-alone projects with a substantive impact (e.g. in respect of capacity expansion).

Can a manufacturer that sells equipment to a developer qualify for the subsidy?

In terms if the current "once-off" subsidy scheme, only project developers are eligible to be granted subsidies.

Why risk subsidising projects that are already viable?

To avoid supporting "white elephants", noting that the current subsidy is not designed to make "unviable" projects "viable". The intention of the current subsidy is to help project developers buy-down the capital costs of implementing renewable energy projects.

If a project produces electricity and bio-fuels how would it be evaluated?

The project will be evaluated based on its merits through the procedures that have been developed. It is, however, advisable to ring-fence projects in a logical manner, which improves the effectiveness of project management.

For electricity, a power purchase agreement (PPA) is a reliable indication of arrangements for the uptake of energy produced. Where the PPA does apply, for example bio-diesel, how will the up-take of production be proven?

Where off-take agreements are not feasible, reliance will be on business plans, feasibility studies, and other documentation submitted to, say, the financiers of the project. These will be used to obtain an indication of the market that exists for the plant's production. The Subsidy Governance Committee (SGC) will assess such cases on merit. However, it must be noted that the contract imposes certain obligations on the project developer in terms of contractual milestones.

What happens when a plant's production (e.g. bio-diesel) is meant for the export market? Will the project be eligible for a subsidy?

The SGC will make an assessment based on other pertinent factors, for instance the number of sustainable jobs created. But typically the focus is production of energy in South Africa.

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