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Eskom's IPP snub shows need for sector shake-up

Aug 30 2016 07:00
Matthew le Cordeur

Cape Town – Eskom’s possible anti-competitive actions against independent power producers (IPPs) highlights the need to restructure the power sector so that Eskom is not both player and referee, energy policy expert Professor Anton Eberhard explained on Monday.

This follows a report that Eskom last Wednesday for the second time refused to sign a government-approved agreement with Acwa/Redstone in the Northern Cape for a concentrated solar project.

The agreement forms part of the Department of Energy's renewable energy IPP programme, which has attracted over R200bn in private investment over the past five years.

READ: Eskom backtracks, wants review of green energy project

“Eskom’s actions are not only against government policy, they are also anti-competitive,” Eberhard told Fin24. “I would imagine there is a good case for IPPs to mount a legal challenge against Eskom.”

This comes as Eskom asked the Department of Energy for clarity or a dialogue regarding the next contracting phase of IPPs beyond bid window 4.5.

IPPs will cost SA R1.2trn over next 20 years - Eskom

Eskom’s head of generation, Matshele Koko, said in an opinion piece that he is concerned the country will spend R1.2trn over the next 20 years on about 7 300 MW from co-generation, Department of Energy peaker plants, renewables, the small renewable programme and bid windows 1 to 4.5.

Koko said the introduction of IPPs was partly based on the assumption that Eskom would only be able to build enough generating capacity by 2022.

“But through disciplined implementation of the plant maintenance programme, Eskom has been able to stabilise the power system, resulting in no load shedding in more than one year,” he explained.

“This turnaround is a game-changer. It will have a significant impact on the expedited IPP Bid Windows which are based on Eskom not being able to turn around its operations by 2022. It significantly improves the medium-term capacity outlook. Most importantly, it has a positive impact on the price that the consumer will pay for electricity going forward.”

READ THE FULL OPINION STORY: IPPs to cost over R1.2trn if energy plan not revised - Eskom exec

IPP prices are now lower than Eskom’s average selling price - Eberhard

However, Eberhard said the IPP programme is delivering incredibly low prices, much lower than Eskom’s average selling price.

“I can understand Eskom’s perspective on IPPs in the short term,” he said. “Eskom has improved the performance and availability of its existing power stations and, coupled with flat electricity demand, they have spare capacity and bigger cushion between supply and demand.

“For now, they don’t always need IPPs (although reserve margins are still not quite where they should be). And the first generation of IPPs were expensive.

“However, we need to be conscious of the medium- and long-term needs and opportunities in the power sector. At some stage, when our economy starts growing again, we need to make sure we have sufficient capacity. It takes time to procure, finance and build new power generation capacity.

“The Department of Energy’s IPP programme is now delivering incredibly low prices, much lower than Eskom’s average selling price. And prices for renewable energy continue to fall, while the costs of coal and nuclear are rising.  

“The latest solar auction in Chile achieved an equivalent rand price as low as 40c/kWh! South Africa has been ranked by Bloomberg New Energy Finance as among the top ten investment destinations globally. We should not destroy that reputation through narrow, short-term thinking and actions," he said.

Clear rationale for restructuring our power sector - Eberhard

Ebehard pointed to Minister in the Presidency Jeff Radebe's post-cabinet lekgotla statement last week, in which he affirmed that the Department of Energy’s IPP programme should continue, including procuring gas power to complement the variability of solar and wind energy.   

“The current refusal by Eskom to sign power purchase agreements with IPPs is a direct challenge to government policy," he said. "It is a clear example of the way in which Eskom is conflicted and favours its own generation options before those of its competitors.

“Eskom’s actions provide a clear rationale for restructuring our power sector so that Eskom is not both a player and referee.

“We need to follow best international practice by separating state-owned power generation from transmission and system operations, so that the latter can procure and dispatch both state and private power in a fair and transparent manner.

“That is the way to obtain a least-cost and environmentally sustainable energy mix for the future," said Eberhard.

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