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Task team deliberating on renewables impasse to report ‘first week in June’

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Task team deliberating on renewables impasse to report ‘first week in June’

Energy Minister Mmamoloko Kubay

19th May 2017

By: Terence Creamer
Creamer Media Editor

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A joint task team set up to find solutions to the current impasse holding back the signing of power purchase agreements (PPAs) for 37 renewable-energy projects procured in 2015 will report back in the first week of June, Energy Minister Mmamoloko Kubayi reported on Friday.

The task team is made up of officials from the Department of Energy (DoE), supported by the Independent Power Producer (IPP) Office, as well as those from the Department of Public Enterprises (DPE), supported by executives from State-owned electricity utility Eskom.

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Since mid-2016, the State-owned utility has openly defied government policy regarding the procurement of the projects, citing a lack of visibility over the cost-recovery mechanism. The PPAs have also not been signed despite a commitment by President Jacob Zuma in his February State of the Nation address that all the contracts would be signed.

Prior to Zuma’s March 31 Cabinet reshuffle, former Energy Minister Tina Joemat-Pettersson set an April 11 deadline for the signing of the PPAs. However, following her appointment to the position, Kubayi postponed the signing to allow her time to consult with Public Enterprises Minister Lynne Brown.

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Delivering her inaugural Budget Vote on Friday, Kubayi stressed that renewables remained key to achieving the DoE’s mandate of energy security, while acknowledging that there was currently uncertainty about the IPP programme as a result of the stand-off.

The DoE-DPE task team, she revealed at a subsequent media briefing would seek to resolve the current “disagreement” with Eskom over the projects.

The utility indicated previously that it would sign the PPAs only once it had been given certainty on the cost-recovery mechanism, in light of legal uncertainty surrounding the application of the Regulatory Clearing Account (RCA). The use of the RCA has been thrown into question by a Gauteng High Court ruling, which determined the most recent RCA adjustment to be “irrational, unfair and unlawful”. The National Energy Regulator of South Africa is appealing the judgment, but will not process further RCA applications until legal certainty had been established. Therefore, it has only granted Eskom a 2.2% tariff increase for 2017/18.

The Supreme Court of Appeal is deliberating on the matter and is expected to return its judgment by the end of May.

In the absence of the RCA, Eskom argues that it does not have a clear mechanism to secure the revenue required to pay for the electricity arising from the renewables power stations. The utility has written to the National Treasury regarding the possible use of the Government Support Framework Agreement (GFSA), which guarantees support for the State-owned utility in meeting its obligation to buy electricity from renewable-energy IPPs. However, there has been no triggering of the GSFA.

Kubayi said the National Treasury had not been included in the task team, but that the DoE was in constant communication with it on the matter. The intention was for a resolution to be found and taken to the National Treasury for its “concurrence” should such be required.

The South African Renewable Energy Council expressed ongoing concern about the postponements, noting recently that financial closure of the duly procured renewable power has already been delayed for almost two years. The impasse had endured despite Zuma’s confirmation that all outstanding PPAs would be signed and a 16-page legal opinion stating that the IPPs were entitled to approach a court to enforce the signature of the PPAs.

Kubayi said the task team had been set up after her and Public Enterprises Minister Lynne Brown agreed that the issues being raised by Eskom should be addressed. “We have asked them to verify the facts. Is what Eskom is raising valid?”

The task team had been asked to find a solution that balances the ongoing success of the renewables programme with Eskom’s financial sustainability. “We are one government and we must be able to speak with one voice and not confusion in the public space.”

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