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Amid worries over IPP-programme credibility, Eskom says issues being resolved

Amid worries over IPP-programme credibility, Eskom says issues being resolved
Photo by Duane Daws

31st August 2016

By: Terence Creamer
Creamer Media Editor

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A South African solar industry body has warned that the credibility of the country’s much-vaunted Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is being threatened by ongoing delays to the programme, as well as uncertainty over Eskom’s willingness to conclude power purchase agreements (PPAs) for projects already adjudicated by the Department of Energy (DoE).

The South African Photovoltaic Industry Association (Sapvia) says in a statement that there are currently 49 projects, collectively representing 2 254 MW of capacity, at preferred-bidder stage.

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The projects affected include bid window 4 and 4.5 projects, where 26 preferred projects were identified in April and June 2015, as well as the small-scale renewable-energy projects awaiting financial close. In addition, the so-called “expedited round projects”, representing some 1 800 MW of capacity, have been adjudicated by government’s Independent Power Producer (IPP) Office, but the preferred bidder announcement have been delayed for months.

No reference was made, however, to the concentrated solar power (CSP) projects selected during the third REIPPPP bid window, which are also being held up.

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It has emerged that Eskom has refrained from signing a PPA for the 100 MW Redstone CSP, being developed by ACWA Power, of Saudi Arabia, and SolarReserve, of the US. The solar thermal plant incorporates molten-salt energy storage, which will enable it to deliver both 100 MW of power, as well as 1.2 GWh of energy storage that enables it to produce even after sunset.

Eskom, which was initially poised to sign the PPA in late July, decided in late August that it could not conclude the 20-year deal in light of the PPA’s cost increase from R50-billion to over R60-billion. The utility said it needed clarity from the DoE and the Department of Public Enterprises prior to signing, arguing that it could be accused of “wasteful expenditure” in light of the fact that it was buying electricity that was not needed.

Neither ACWA Power nor SolarReserve were willing to comment, but the Industrial Development Corporation, which is funding the participation of Pele Green Energy, a black-owned IPP, indicated that it was confident the investment would proceed, as Eskom did not set policy.

TECHNICAL COMMITTEE

Speaking to lawmakers, Eskom CEO Brian Molefe said he was not trying to change policy, but that he needed to understand any deal that was set to cost “R5 000/MWh”. Eskom has argued previously that, over the coming 20 years, R1.2-trillion is set to be spent on the 7 300 MW from IPPs up to the conclusion of bid window 4.5.

Molefe indicated that Energy Minister Tina Joemat-Pettersson had set up a technical committee to look in the matter and expressed confidence that the issues would be resolved. “It is just that we have to explain what we are signing at some point . . . maybe it’s that we’re a bit slow, but you have to be patient with us.”

Sapvia warns, though, that the ongoing delays and uncertainty are already causing foreign investor nervousness and have also resulted in disinvestments by two leading international inverter manufacturers, SMA and AEG.

“The delays make planning very difficult for our members and we are concerned that this may result in projects being abandoned. Projects in preferred bidder status have spent up to R15-million on securing land, legal fees, bidding and design. Abandoning a project means this money is wasted and thousands of jobs may never materialise.”

Sapvia notes, too, that Eskom is not financially burdened by executing the PPAs, as the National Energy Regulator of South Africa (Nersa) sees all expenses as pass-through costs. “On the contrary, estimations are that in 2015/16 Eskom is collecting R1.6-billion more from consumers than it is paying for renewable IPP power.”

Nersa approval, it adds, has been granted for the projects selected during the first three bid windows, with the projects arising from bid window 4 onwards to be covered by the next multiyear price determination. “Money from energy sales continues to be collected by Eskom, meaning delays in executing PPAs leaves more revenue in Eskom hands.”

The body also argues that the delays are undermining the creation of jobs, suggesting that the 49 delayed projects had the potential to support the creation of over 26 000 jobs.

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