Eskom cuts off private power


THE future of the government’s independent power producers’ programme, which has been lauded as a global success, is uncertain following an Eskom board decision that it will not sign any power purchase agreements with private producers after the current round is finalised.

By introducing private sector companies into energy generation, the Renewable Independent Power Producers Programme (REIPPP) has mobilised R195bn in direct investment and brought 2,145MW into the grid.

But, while Eskom welcomed the programme at first, because it provided a quick route to building more generation capacity, concerns are increasing within the utility that private producers — from whom Eskom is compelled by the government to buy at prices it does not negotiate — will undermine Eskom’s future revenue streams.

In a letter to Energy Minister Tina Joemat-Pettersson from Eskom chairman Ben Ngubane, the utility states that it will not sign further power purchase agreements without engagement over the matter.

Contacted for comment, Ngubane said on Wednesday the board had concerns about the independent power producers’ programme, and there was a need for the government to look at all the implications for Eskom and its future.

He had written to Public Enterprises Minister Lynne Brown, Eskom’s shareholder minister, and not to Joemat-Pettersson, he said. However, the letter sent to the latter bears his signature.

Eskom spokesman Khulu Phasiwe said on Wednesday that while Eskom remained committed to bringing independent power producers into the grid, the company had indicated to the government that after the current round of power purchase agreements were signed, it would like to enter discussions with the Department of Energy.

“From our side, we are not going to reject independent power producers because we now have stability in the system. We have communicated that we will be signing all projects to the end of bid window 4.5. Subsequent bids will form part of our discussions,” he said.

The REIPPP has been through four bid windows, as well as an additional bid window dubbed 4.5 that is nearing financial close. Joemat-Pettersson said in 2015 that following 4.5, another round called “an expedited round”, as well as a fifth bid window, would be held.

In addition to these wind and solar projects, the Department of Energy has also called for bids for coal IPPs to deliver 2,500MW of energy. The bids have been submitted, but not adjudicated.

Phasiwe said only IPPs that had been signed off would receive signed purchase agreements. The coal IPPs, for instance, have not been signed.

The IPP programme falls under the Department of Energy. In order for a procurement process to proceed, the energy minister must first make a determination under the Electricity Regulation Act of how many megawatts should be procured.

From there, private energy producers submit to the department bids that are evaluated on a competitive basis. The methodology has been internationally acclaimed for the manner in which it has brought in new entrants and driven down prices.

Since 2013, prices for renewable energy have dropped from R2.37/kWh to R.77/kWh in 2015. It is expected that in the next round, prices for renewable energy will be as low as R0.60/kWh.

The government commits to a power purchase agreement with the successful bidders and Eskom is designated the buyer of the electricity.

But, as an indication that enthusiasm for the REIPPP is cooling, in a speech on Tuesday at the Power-Gen conference in Johannesburg, Brown indicated the programme was reaching its limit, saying that for further renewable energy to be connected to the grid, “major investments” in the increasingly constrained grid were required.

A critical and missing piece of the energy-planning puzzle remains the Integrated Resource Plan, a long-term energy plan for the economy that projects demand and analyses costs of competing technologies. The plan, which was supposed to be updated every two years, was last adopted in 2010, and is now six years out of date.

Efforts to update — in 2013 and again in 2016 — have been snarled up in politics. The 2013 update was never adopted by the Cabinet and the 2016 version has been postponed from March to December.

SA has also delayed critical questions on the future state of the electricity sector. An Independent System and Market Operator Bill, tabled in Parliament, has been shelved indefinitely.