Title of paper

4. Procurement mechanisms

Effective governance is of vital importance in the electricity sector. This entails implementation of appropriate legal, regulatory and institutional frameworks, combined with increased efforts in building capacity at government level through development of appropriate governance structures (GRN, 1998: 21). At present, renewable energies compete on an unequal footing with conventional forms of energy.
There are no explicit support mechanisms in force yet.

This means:

• 
  Off-grid household electrification is not subsidised
  
• 
  No incentive for private producers to produce renewable energy and feed electricity into the grid
  
• 
  No favourable investment framework
  
• 
  No tariffs for renewable energies for independent power producers
  

In fact, currently, there are virtually no legal incentives for private producers to produce renewable energies and feed electricity into the grid.

There is recognition that market forces alone cannot permit renewable energy technologies to gain ground and contribute significantly, without deliberate support mechanisms in one form or another (Ndhlukula, 2009: 12).
It might be worthwhile for Namibia to look at the lessons learnt from other countries with regard to the political and regulatory frameworks most conducive to development of renewable energies. It is an undisputed fact that many countries that have experienced growth in these technologies, have done so after a massive energy policy shift.
These are the main instruments used throughout the world:

4.1 Feed-in tariffs

The most common form of tariff-based incentives used around the world (e.g. South Africa, Kenya and Germany) is the type of feed-in tariff that states an obligation for utilities to buy energy at fixed purchase prices for a fixed term. Any customer or entity is eligible to sell energy under the terms of the tariff. Among economists, it is often argued that a properly set feed-in tariff is generally the most efficient and effective support scheme for promoting renewable energies (COM, 2008: 57).

4.2 Tendering

In the tendering process, potential investors or producers of renewable energies participate via a competitive bidding system. Generally, the target amount of generated capacity is laid out and the particular type of renewable energy that is bid for is specified. The bidding is accompanied by an obligation on the part of electricity providers to purchase a certain amount of electricity from renewable sources at a premium price (Bjork, 2011: 41, 42). Once a producer has a long-term contract, he has to pay a penalty in case of a later withdrawal.

The model of the bidding process for the cheapest kW unit on offer is presently, besides net metering, the preferred option by the Namibian government for accommodating photo-voltaics into the grid and for projects exceeding 5 MW.

Because of numerous problems involved with tendering, many countries have used tendering only to jumpstart renewable energy developments.

4.3 Power purchase agreements

Guaranteed long-term PPAs at fixed prices also assist in financing new technologies. PPAs are agreements between an independent power producer and the regulatory entity or the government. In Namibia, after a licence is issued to a producer of renewable energies, a PPA has to be negotiated with NamPower, which acts as the single buyer and Namibian grid operator.

4.4 Quota systems and green certificates

A quota system is one where the government sets the percentage or amount of energy, usually annually, that comes from renewable sources and then allows the marketplace to determine the cost. The idea is that a certain amount of energy from renewable energies is mandated, but how this is done and at what cost is left to the market to decide. The underlying theory is that competition will drive down the costs of supplying renewable electricity and thus, minimise the costs to the consumer (Bjork, 2011: 40).

Such a quota system involves the issuance of a certificate for each MWh of electricity produced to a producer of renewable energy. In turn, certificates provide a vehicle for measuring whether the quota has been met, and for trading to meet the quota or to trade when renewable energies rise above quota requirements (Bjork, 2011: 40).

4.5 Net metering

Net metering is a consumer based incentive for those consumers connected to the grid who own renewable energy facilities. In its typical form, the mechanism allows for the flow of electricity both to and from the customer. With net metering, during times when a customer’s generation exceeds the customer’s use, excess electricity flows back into the grid, offsetting electricity consumed at a different time. In such a way, when the consumer produces more electricity than he/she can use, the utility company has to purchase the excess energy that is then fed into the grid. This means that a unit of electricity can go forward or backward at the same rate. By using net metering, a consumer can utilise renewable energy to offset the total energy provided by the utility company as long as he produces enough to satisfy personal requirements.

The purpose of net metering is to allow electricity users with roof located photo-voltaic and wind energy systems, to primarily offset part of their conventional electricity requirements. Many homes, farms and business owners are currently considering the installation of alternative forms of electricity generating facilities.