The White Paper on Renewable Energy Policy (November 2003) proposed that Tradable Renewable Energy Certificates be investigated to find out whether these could be one of the funding streams to support the implementation of the renewable energy programme in South Africa. This would be in addition to other funding options i.e. sale of physical electrical power through a Power Purchase Agreement (PPA) into the electrical grid at prevailing electricity (energy) market prices and Certified Emission Reductions (CERs) trading through the Clean Development Mechanism (CDM).
A Tradable Renewable Energy Certificate (TREC) is an electronic record that verifies the origin of energy by a registered renewable energy entity. It is also referred to as a green certificate or green tag. TREC is based on separating the various attributes of renewable resource based energy provision from the physical energy carrier, electric or otherwise. It is another revenue stream for renewable energy Independent Power Producers (IPPs) and its major advantage is that, apart from potential extra income, certificates can be traded worldwide and separately from the electricity grid infrastructure.
Since TRECs are traded on the open market, their price depends on supply and demand and also on the type of renewable energy source that is represented by the certificate. The outcomes of an “Investigation into the development of a business plan and the domain protocol, indicated that at this stage it will be too costly for the Government to pursue this programme as a result the TRECs initiative has been suspended until further notice.
Development of the Business Plan and Domain Protocol In 2009 the Department developed a comprehensive Business Plan, including a marketing strategy to raise awareness. The aim of the business plan was to get a detailed understanding of the costs of establishing the TRECs system. In addition it sought to determine the value for money and feasibility of TRECs as a funding option alongside REFIT.
Further, the Department commissioned a study to develop a domain protocol in 2010 through South African Wind Energy Programme (SAWEP). The aims of the study were to:
Both studies came to a similar conclusion that given access to REFIT, and the fact that REFIT and TRECs are mutually exclusive, it is expected that most of the renewable energy IPPs would opt for REFIT as it provides guaranteed funding.
The Business Plan suggests that, whilst South Africa is implementing the REFIT programme, not all renewable energy projects may qualify for the REFIT scheme. Therefore the non-qualifying projects can participate in TRECs, but the cost of establishing TRECs system for these few IPPs will be very high.
The Domain Protocol
Based on the outcomes of the two studies, the Department convened a meeting on 12 May 2010 with South African National TREC Team. At this meeting, the following was resolved:
1. That Government participation be put on hold but allow the industry to continue trading green certificates on a voluntary basis because: • The uptake is low to justify the TREC investment (currently the renewable energy volume is estimated at around 100 GWh per annum) yet for issuing certificates at least a minimum of 1 TWh would be necessary and • REFIT programme provides sufficient incentives to the renewable energy projects (those that will qualify to participate in the REFIT programme).
2. Government participation could be brought forward in future when the market has grown to an extent that registration/accreditation with the AIB is necessary;
3. Government should offer the industry/voluntary market support including provision of the Domain Protocol, Business plan and Constitution so that the voluntary market could operate within the ambit of the domain protocol;
4. Government should consider attending the voluntary TRECSA meetings and events so as to gain insight on the voluntary Market with a view of establishing a National Body to ensure that South Africa’s Green Certificates do not loose credibility;
5. Government should take note that not all RE projects will qualify to participate in the REFIT programme, hence there may be a substantial quantity of renewable energy projects that may be established outside the REFIT programme and hence green certificates could be an option;
6. Government may consider developing legislation to enforce purchase of green certificates by the suppliers and set up mandatory green certificates target; and
7. Look at TREC for SWH with legislation enforcing suppliers to purchase a certain number of certificates, for example, through following the Australian model.