Legal challenge a hurdle, but 'not end of the road' for renewables

13th March 2018 By: Terence Creamer - Creamer Media Editor

Legal challenge a hurdle, but 'not end of the road' for renewables

Energy Minister Jeff Radebe

The excitement associated with Energy Minister Jeff Radebe’s move to end two years of confidence-sapping uncertainty in South Africa’s independent power producer (IPP) market, turned to frustration on Tuesday when the signing of agreements for 27 renewable-energy projects was voluntarily delayed by government following a legal challenge.

The legal objection arose from an unlikely partnership between National Union of Metalworkers of South Africa (Numsa) and Transform RSA, which approached the court to prevent power utility Eskom from concluding power purchase agreements (PPAs) with the IPPs on March 13 as planned. Hitherto, Numsa and Transform RSA have been on opposing ends of the political spectrum, with Numsa participating in calls for the removal of President Jacob Zuma and Transform RSA stongly supporting the former President.

While Numsa and Transform SA said the signing had been interdicted, Radebe insisted that there had been no interdict, but that government had decided voluntarily to hold back with the signing ceremony until the matter was fully ventilated in court on March 27.

“In the absence of an interdict, and with the court having expressly informed the parties that it would not grant such an order, nothing prevented Eskom and IPPs from signing the agreements as scheduled by me for Tuesday March 13. However, counsel for the Minister, informed the court that, whilst there is no interdict granted, the signing will however be postponed until the March 27 when the matter is finally disposed of in court,” Radebe said.

Signing would proceed on a date to be announced “immediately after” March 27.

Radebe also underlined the benefits of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and the 27 stalled projects, which have a combined investment value of R56-billion.

This message was reinforced during a briefing in Centurion, at which IPP Office head Karen Breytenbach stressed that the latest delay in no way represented the "end of the road" for the 27 projects.

In fact, she highlighted that the projects, which were first bid in 2014 and selected as preferred projects in 2015, had faced, and had already overcome, far more serious hurdles in the past.

Breytenbach highlighted, in particular, the strong support that the programme enjoyed not only from Radebe, but also President Cyril Ramaphosa, who reportedly referenced the REIPPPP several times during the 2018 World Economic Forum in Davos, Switzerland, as evidence of government's willingness to work with the private sector to stimulate economic growth.

Government was also supportive of the IPP Office's insistence that the procurement framework be kept intact, abandoning a previous suggestion that all projects meet a 77c/kWh price cap, regardless of technology type.

In addition, all authorisations, including the necessary endorsement of the National Energy Regulator of South Africa, had been secured for the projects. The implication is that any IPP costs will be treated as a full “pass through” for Eskom, so as not to place any further stress on the utility’s finances.

In addition, the projects would only enter into commercial operation in 2020, which implied that there would also be no immediate impact on the Eskom tariff.

The 20-year PPAs for the wind projects would have associated tariffs ranging from 56c/kWh to 76c/kWh, while the solar photovoltaic tariffs range from 77c/kWh to 87c/kWh. The tariff for the concentrated solar power project selected during Bid Window 3.5 was not immediately disclosed.

While the procurement framework remained intact, the IPP Office had succeeded, however, in securing improved transformation commitments from the IPPs over the past few months. This will not only raise the level of black ownership in projects, but will also ensure that emerging black businesses are included in the construction, operations and maintenance of the projects.

The 27 projects will add 2 305 MW to the grid and are expected to create 61 000 jobs, mostly during the construction phase.

However, Numsa argued that the signing of the PPAs would be “detrimental for the working class of Mpumalanga and the country as a whole”.

“The signing of the [agreements with] IPPs means that Eskom will require less coal-fired electricity," the union said in a statement. “This is likely to lead to the closure of the coal fired power plants and the impact will be that at least 30 thousand working class families will suffer because of job losses.”

The solar photovoltaic, onshore wind and concentrated solar power projects were initially procured in 2015 under bid windows 3.5 and 4 of South Africa’s REIPPPP. However, in early 2016, Eskom indicated that it was not willing to sign further PPAs for renewables projects, owing to its return to a surplus generation position.

Reaction to the dramatic halting of the projects was mixed; highlighting ongoing division in South African over the approach South Africa should take to its future electricity mix.

Some stakeholders – including those sceptical of the performance of renewable energy, as well as those opposed to an increased role for the private sector in energy generation – applauded Numsa and Transform RSA.

However, Numsa stressed that its opposition should not be equated to hostility to renewable energy as a technology. Instead, the union was calling for a “just transition”, during which jobs were protected. Nevertheless, the union also described the IPP contracts as evidence of ongoing corruption and “crony capitalism”, which it said it would continue to oppose.

The reaction from renewable-energy proponents, on the other hand, was of deep frustration.

South African Wind Energy Association (SAWEA) CEO Brenda Martin said March 13 was meant to mark the reawakening of South Africa’s REIPPPP, but instead had been delayed by a coal lobby that continued to use already-debunked arguments relating to job losses, coal power station closures and rising electricity prices.

SAWEA noted that renewables already cost over 50% less than new coal-fired power, while government policy had, for years, included the closure of coal-fired power stations, the associated job losses from which were being planned for through numerous processes already under way.

“South Africa’s renewable programme can contribute directly to the benefits associated with the necessary energy transition in South Africa and must be allowed to continue,” Martin added.

South African Renewable Energy Council (SAREC) chairperson Terence Govender described the move as “unfortunate” and  “counterproductive”.

He noted that the investments would not only create jobs, but would also support small business development and localisation. Govender also warned that opposition to the role of the private sector in electricity generation could have negative knock-on consequences for public-private partnerships in other infrastructure sectors.

However, SAREC did not view the development as raising new policy uncertainty, owing to the fact that government and Radebe had come out strongly in support of IPPs and building a partnership with the private sector in addressing the country’s energy transition.