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What experts say about Eskom’s excuses for renewable delays

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Eskom’s reasons for continuing to stall on signing long-overdue purchase agreements with independent producers of renewable power are more complex than its plea of poverty in Parliament last week, energy watchers say.

SA’s Renewable Energy Independent Power Producer Programme, once internationally acclaimed for its efficiency, has become a shambles as Eskom failed to sign offtake agreements with the winning bidders of rounds 4 and 4.5 announced in April 2015. Those bidders committed R58bn in investment to 37 projects.

Some of the companies that won bids are weeks away from collapse, after paying hefty prepayments amounting to millions of rand to Eskom.

Department of Energy director-general Ompi Aphane told Parliament that Eskom needed support from the Treasury to strengthen its balance sheet before it could sign the agreements. It wants R44bn over two years to meet these commitments and a 19.9% tariff increase in 2018-19 — almost three times SA’s inflation rate.

These processes could delay signing of the agreements to August or even early 2018.

In February, President Jacob Zuma said Eskom would sign the agreements. In April, Energy Minister Mmamoloko Kubayi postponed a signing ceremony because she said she first had to meet Public Enterprises Minister Lynne Brown.

Asked why it was not signing the contracts, Eskom said: "We are awaiting clarity from government (namely [the] departments of energy and public enterprises) on how we should proceed."

Eskom said the government had asked it to wait for the evaluation it was doing on the independent power producers (IPPs), "and we’re in compliance with that directive.

"It is important to note that the pace and scale of signing the IPPs are determined by the Department of Energy as the energy policy maker," it said.

The departments of energy and public enterprises did not respond to questions.

South African Renewable Energy Council chairwoman Brenda Martin says Eskom applied to the National Energy Regulator of SA for funding to buy the additional renewable energy a year in advance of the expected signing date — in other words, in its 2016  pricing determination.

Even after these agreements are signed, it will take another 18 months to two years before the IPPs start delivering power. So the cost of IPPs cannot be cited as the reason for needing more short-term funding.

Martin says when a renewable project developer’s bid is approved, it has to submit a budget quotation and pay a connection fee to link the planned installation to the grid based on a per-megawatt cost.

For 30 of the 37 bidders, this sum amounts to R81m paid to Eskom in 2015, on which Eskom earns interest. If a bidder pulled out, it would relinquish this prepayment.

As time passes, Eskom can increase its cost estimate and ask for a top-up from the bidder, she says. Martin says none of the successful bidders has withdrawn yet.

Some larger companies assisted smaller consortiums, but some of the smaller consortiums are weeks away from collapse.

All the bidders had to have at least 51% black ownership and about eight of the bidders are 100% black-owned.

But the delays have also affected other players in the sector. Earlier in June,  DCD Group sold its stake in the DCD Wind Tower joint venture at Coega to its partner, the Industrial Development Corporation, for R1, citing Eskom’s refusal to sign any more offtake agreements.

In August, SMA Solar, a manufacturer of solar  inverters, closed its Cape Town factory, citing the government’s lack of commitment to renewable energy.

Martin says another company in Atlantis, Cape Town, that employs people from a very poor area is in difficulties.

DA energy spokesman Gordon Mackay says a funding squeeze is not Eskom’s real reason for refusing to sign the offtake agreements, since under the regulatory clearing account it could pass through the cost of renewable energy purchases to its customers anyway. He  says there are more likely reasons. One is that renewable energy provided by the private sector introduces new competition, which threatens Eskom’s existence.

Under the "unconstrained scenario" in the draft Integrated Resource Plan, Eskom’s contribution to SA’s energy mix by 2050 would be in single digits.

Eskom wants to maintain its monopoly on power generation and needs to undermine renewables to press ahead with new nuclear build, Mackay says.

"It seems Eskom is trying to pressure the Treasury to carry the full liability for purchases from IPPs, which would strengthen Eskom’s balance sheet and enable it to procure new nuclear," he adds.

"Eskom is playing a dangerous game. They are waging a propaganda war against renewables, but none of their reasons can be substantiated," he says.


 

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