In need of decisive leadership

9th September 2016 By: Terence Creamer - Creamer Media Editor

In need of decisive leadership

Given the fast-moving nature of developments surrounding State-owned electricity producer Eskom, it is quite possible that there may well have been new developments in the ongoing saga between the utility and independent power producers (IPPs) since the time of writing. Nevertheless, Eskom’s hostility towards this nascent sector can no longer be disputed, or ignored. The antagonism has also brought to the fore the oft-repeated warning of there being a genuine risk, given the current structure of the industry, that IPPs could find themselves side-lined by a dominant competitor, to which they are beholden for both grid access and payment.

The hostility is also unlikely to ease entirely, even if the utility is forced to abide – which it surely must – by stated policy, which sees IPPs playing a larger role in the future electricity mix.

The policy, over which Eskom has no say, designates the Department of Energy (DoE) as the procurer of IPP capacity, with Eskom as the buyer. The utility, in turn, recovers the revenue needed to pay for IPPs through the tariff and the National Energy Regulator of South Africa has, to date, never questioned this pass-through.

Eskom’s pushback has, nevertheless, intensified, despite Energy Minister Tina Joemat-Pettersson’s insistence that the IPP programme is going ahead and notwithstanding Cabinet’s recent confirmation that South Africa has no intention of “changing course midstream”.

The utility’s argument is that the IPP programme is too expensive and will cost the country R1.2-trillion over the next 20 years for only 7 300 MW of capacity. Chairperson Ben Ngubane has, therefore, written to Joemat-Pettersson to indicate that Eskom is unwilling, in the absence of further consultations, to sign power purchase agreements (PPAs) beyond the preferred projects selected under bid window 4.5 of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

This immediately raised serious question marks over the ‘expedited round’ for a further 1 800 MW of renewables capacity, as well as the two projects that participated in the first bid window coal baseload IPP programme. In the event, however, it has been even more dramatic, with Eskom withholding its signature on a 20-year PPA for the 100 MW Redstone concentrated solar plant, adjudicated during the third bid window of the REIPPPP. The solar thermal plant – being developed by ACWA Power, of Saudi Arabia, and SolarReserve, of the US – incorporates 1.2 GWh of energy storage, which enables it to produce during peak periods. The utility claims to need clarity from the DoE and the Department of Public Enterprises prior to signing, arguing that it could be accused of “wasteful expenditure” if it proceeds.

Such actions have placed a pall over the IPP programme, which is not going unnoticed by potential investors. Besides conflicting with energy policy, the utility’s actions are also at odds with the country’s stated industrial policy, which aims to use the security of demand created by a consistent procurement programme to stimulate investment by solar and wind component manufacturers.

While it is somewhat comforting to learn that a process has been initiated to resolve the immediate impasse, there is still no sign that policymakers are truly willing to tackle the deeper structural issues that currently bedevil the sector. Surely, the more stable supply environment offers the ideal opportunity for the initiation of an evidence-based debate on how South Africa can fulfil the objective of ensuring afford- able and reliable electricity to support economic growth and human development.