No end in sight to Eskom delays in signing renewable energy PPAs

August 7th, 2017, Published in Articles: EE Publishers, Articles: Energize


There appears to be no end in sight for resolution of the impasse caused by Eskom’s refusal to sign any new power purchase agreements (PPAs) with renewable energy independent power producers (IPPs) in terms of the Department of Energy’s (DoE’s) internationally acclaimed Renewable Energy IPP Procurement (REIPPP) programme.

Chris Yelland

In an interview with EE Publishers’ investigative editor Chris Yelland on 4 August 2017, Energy Minister Mmamoloko Kubayi would not give any specific timeline for the signing of 37 duly procured renewable energy supply contracts from IPPs, which have now been delayed for over two years.

“We have recently expanded the DoE, DPE and Eskom task team investigating the matter to include the DG of the National Treasury. So there’s been a lot of work done. But a big issue is Eskom’s balance sheet”, said Minister Kubayi.

“Treasury issues guarantees to Eskom, and Eskom is concerned that if they are required to sign PPAs for REIPPP bid window 3.5, 4 and 5 projects, it will further impact negatively on their balance sheet. This is why we had to include Treasury to have a look at the impact to ensure we do not get another downgrade. We are waiting for the task team to come back to us.”

Following President Zuma’s instruction in his state-of-the-nation address on 9 February 2017 for Eskom to sign the outstanding PPAs with IPPs, Minister Kubayi’s predecessor, Tina Joemat-Pettersson set a date of 11 April 2017 to sign the PPAs.

However, following her appointment on 31 March 2017, new Energy Minster Kubayi postponed the signing in order to enable further consultation with Department of Public Enterprises (DPE) Minister Lynne Brown and Eskom, and a DoE, DPE and Eskom task team was established to chart the way forward and report back by the first week of June 2017.

The subsequent further addition of the National Treasury to the task team has now delayed resolution of the matter still further, with no end in sight.

Meanwhile, in October 2016 the South African Wind Energy Association (SAWEA) lodged a formal complaint with the National Energy Regulator of South Africa (NERSA) in respect the refusal by its licensee, Eskom, to sign 37 PPAs for duly procured renewable energy supply contracts from IPPs.

However NERSA appears to be dragging its feet in addressing SAWEA’s complaint indefinitely. On 11 May 2017, seven months after receipt of the complaint, the NERSA board finally acknowledged that there was indeed a prima facie case for Eskom to answer, and NERSA established a tribunal to hear and investigate the complaint.

But despite initially indicating the tribunal investigation would be done on an expedited basis for resolution by end May 2017, NERSA’s only response on progress to date – some ten months later – is that “the timelines and process will be communicated once all regulatory processes have been completed”.

In further action against Eskom, the Organisation Undoing Tax Abuse (OUTA) filed a submission with the Competition Commission on 17 February 2017, alleging anti-competitive behaviour and abuse of dominant market position by Eskom, including its refusal to sign the outstanding PPAs with IPPs.

While the Competition Commission is apparently still investigating the complaint against Eskom some six months later, no timeline toward an outcome has been provided yet.

Minister Kubayi indicated that with the decline in electricity demand in South Africa, and Eskom’s current surplus capacity, the impact of signing further PPAs with IPPs now would be further upward pressure on the price of electricity.

“The impact would be that the electricity tariffs would become unsustainable, that IPP energy costs will not be recoverable, and that we may end up having to ask NERSA for higher tariffs. I’m very concerned about that”, she said.

“We are looking at what methods we can put in place to avoid consumers paying more for electricity. The current prices are already quite sharp.”

Minister Kubayi is also concerned that the REIPPP programme is not delivering the necessary transformation of ownership expected by government in the energy sector, with majority ownership of most REIPPP projects being in the hands of multi-national energy players.

“We need to make sure we are transforming ownership of the sector. We need to use the IPPs for transformation, and we should have ensured this as a department. We also need to ensure significant localisation of the supply chain”, she said.

“I want to make sure that when I sign as minister, we are creating a sustainable, transformed sector. I have a duty to protect the energy sector investments.”

Minister Kubayi added that there are lessons that need to be learnt from the whole IPP procurement process to date, and that these mistakes shouldn’t be made again in future.

“Agreements should be in place before we issue tenders. We must mitigate risks upfront. The risk of Eskom uptake should have been mitigated in the beginning. We should have made sure Eskom was fully on board upfront.”

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  • Alan M

    Comment by Alan M on EE Publishers article:
    No end in sight to Eskom delays in signing renewable energy PPAs
    ©Alan M. All rights reserved.

    Well, at last sanity is beginning to prevail and Eskom is clarifying the horrendous costs to the grid operator of making an almost marketable product out of the technically inferior electricity from wind and solar farm IPPs and grid-connected ‘prosumers’, legal or otherwise.
    The PPAs the government wants Eskom to sign will add only costs. The IPP wind and solar farms will certainly add no value to grid electricity production, as any such raw ‘renewable’ electricity allowed access to the grid simply displaces revenue that should be earned by Eskom’s far more available, far less variable, and far more controllable, economical and technically adequate power stations.
    Surely, even if South African’s are chronically unable to learn from the adverse experiences with wind and solar farms of so many other national grid operators, we can learn the lessons that our own load-shedding and ‘renewable’ electricity have brought us so far?
    Even if the wind and solar electricity producers were to offer their ghastly product to the grid free of charge, the tariff increases Eskom would have to be granted to keep the grid sustainable (as well as its dependable, plentiful and more economical power station generators) would price our SA products out of global markets, by making electricity unaffordable to small business, to NGOs, to domestic enterprises, and to the poorer people generally.
    A national grid with its electricity production predominantly from wind and solar sources is a really bad proposition, which is in fact shown by the CSIR study presented in their comments on the 2017 draft proposals for revising IRP 2010. The study identifies all the technical problems, as well as the problematic economic fundamentals inherent in the misguided model of a decarbonisation scenario, yet has been regarded by many as a serious proposal for future grid expansion.
    The niche that wind and solar energy rightfully has a claim to, is all off-grid, and really only affordable by big business and wealthy individuals.
    Wind and solar farm electricity should not be allowed to feed into national grids, and become a parasitic business, effectively subsidised through unnecessarily high tariffs imposed on smaller paying customers who have no choice in the matter. Most customers need electricity 24/7 and are willing to pay reasonable prices for it, but not to be fleeced to support big business.
    All this century, Eskom has been battling ignorant interference from all sides, and by more serious interference from vested interests, whether domestic or ‘colonial’.
    Somehow, South Africans seem to have lost the incredibly effective drive, enterprise and initiative that brought the country to the brink of self sufficiency by the 1980s, when our currency reached foreign exchange values not experienced since.
    Then, the country was in the early stages of a world-beating industrial revolution, which must have been a wake-up call for the US bankers profiting from rolling over the loan capital South Africa depended on. Whatever the reason, the roll-overs stopped, and the rest is history.
    The ESCom formula of last century was a world-leading success. Free of government taxes and dividends, given the authority and responsibilty to provide cheap and abundant electricity to all, and report annually on their performance to parliament, ESCom had risen to the challenge and gained world respect.
    The ANC and Mr Gigaba have a huge task. Whether the present dispensation can radically restore the SA Rand to 10 times its current value, is a moot point. Keeping the grid and generator raw energy mix as effective as ESCom did is an essential component of that. As the old coalers reach retirement, we ought to keep their turbo-generators on as long as possible. They will not be procured as cheaply as when ESCom was in the market last century. Ideally, Eskom should re-power them, in combined cycle plant with gas turbines, or pebble bed reactors, re-located to major coastal urban metros so as to enable use of the exhaust steam for district heating. The grid must be kept sustainable and adapted to survive extreme weather (hot and cold), and vandalism as well as theft of infrastructure.
    If we fail to counter the wave of nihilistic and criminal idiocy that destroys infrastructure, either to gain political recognition, or kills people and burns their homes and assets to eliminate competitors, SA will revert to just another source of raw materials needed by more developed countries in the world.
    We will be unable to create the added value and job creation opportunities needed to improve the lot of those living here who are in need of meaningful work.
    Ironically, in only a quarter of a century, the ANC and the less than honest majority of their MPs will have exceeded the damage done by apartheid.
    Ironically, the post-1994 mismanagement of education boosted Hendrik Verwoerd’s vision of raising hewers of wood and drawers of water in rural South Africa. Will poor government policy on electricity be allowed to do similar harm to the future of SA’s economy?
    Why should unqualified ‘activists’,impractical academic researchers, and vested interest lobbyists (legal and otherwise) be allowed to sway gullible politicians to indulge in vote-seeking behaviour of the worst kind, by grid capture by legislating daft primary energy and raw electricity choices for electricity production plant on our national electrical grid and power plant?
    What is still arguably one of the most vital legacies of South Africa’s colonial heritage, vastly expanded and improved by capable local and overseas employees in ESCom and Eskom since the start of the twentieth century, must be kept sustainable, and radically restored to provide cheap and abundant electricity to all living in South Africa.
    ©Alan M. All rights reserved.

    • I think you are living in another world, Alan. You have not got to understand the new world of flexible power sweeping the world, and you appear to be trapped in the old paradigm of “baseloadism”.

      New wind and solar PV PPAs will reduce Eskom’s costs, and the price of electricity in the years ahead, and not increase them, because the LCOE of NEW wind and solar is lower than Eskom’s costs of running its old amortised coal power stations, and half the LCOE of new coal or new nuclear energy.

      Continuing to operate old, inefficient, unreliable, dirty, thirsty, non-compliant, coal power stations, where one has to transport expensive coal by road from numerous sources never intended to supply the grade of coal required by the old power stations, is more expensive than the LCOE of a blend of wind, solar PV, gas and pumped storage.

      So best is to retire the old coal stations and buy as much wind and solar energy as can be coped with in SA. We have more than adequate legacy baseload power, and 8000 MW of new baseload power from Medupi and Kusile still to come.

      I do not think you are reading the studies done by the International Energy Agency (IEA) on how significant levels of low cost wind and solar PV is penetration are being achieve in many countries of the world with now problems. And where there are problems they can be easily addressed, as detailed by the IEA.

      If you are interested I can send you these studies.

    • Dear Alan

      The end for “baseloadism” in SA, and the need for “flexible” power generation:

    • Ben Franklin

      Even nuclear power needs backup. Thus the 1 78 GW Dinorwig pumped hydro plant was specifically built to support the variable demand which nuclear cannot handle economically.

    • Ben Franklin

      Alan, you refer to “adverse experiences” with wind & solar farms of other grid operators. Actually wind & solar powered Denmark and Germany have but a tenth of the power outages of nuclear powered France and USA.

      See and many other sources

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