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Johannesburg - Energy Minister Mmamoloko Kubayi believed that despite capping renewable tariffs at 77 cents per KWh, renewable producers should not have difficulty signing on the dotted line.
Kubayi announced on Friday that Eskom will have to sign outstanding power purchase agreement with renewable power producers by the end of October, but that the tariffs in the agreement would have to be renegotiated and can't be more than 77 cents per KWh.
This was because the current prices are unaffordable for a cash-strapped Eskom.
She said reports were abundant of how fast the price of renewables were falling. “We actually expected we could do better than 77c by now,” she said. “We are not looking at it retrospectively.”
Only the outstanding agreement in Bid Window 3.5 and Bid Window 4 will be signed. All future programmes have been put on hold until a proper energy review is done for South Africa.
At first glance it seems that the last round's bidders should not experience too many restless nights over the cap.
Wind power’s average tariff was R1.36 per kWh in the first round, but had fallen to 68 cents in the fifth round. Photovoltaic power’s tariff amounted to R3.29 in the beginning but dropped to 82 cents in the last round.
The technology that will struggle with the cap is concentrated solar power. In the first round, its tariff came to R3.20 per kWh. In the last round it had fallen to R1.62 during the day, rising to R4.37 for power produced at peak periods.
Kubayi agreed that concentrated solar power was an expensive technology. “We have to look at the sustainability of the pricing. We are committing to paying tariffs for 20 years, not only two years.”
It is understood that Eskom pressured for a R0.61/kWh tariff cap, but ultimately had to settle for the 77 cents.
The first round bidders, who had already signed power purchase agreements with Eskom, will not be affected. It is the earlier' rounds more expensive tariffs that had angered Eskom, leading to the impasse.
Excess capacity
Eskom currently has excess generation capacity, due to Kusile and Medupi coming online. Based on the current demand patterns, the situation is projected to remain this way until 2021, said Kubayi.
Both the energy and public enterprises departments agreed that the majority of the projects in Bid Window 3.5 and 4 should be commissioned closer to 2021 and should then have a minimal contribution to the overcapacity up to 2021.
Kubayo also said South Africa’s National Integrated Energy Plan (IEP) and Integrated Resource Plan (IRP) should be concluded first, to give an indication of the capacity South Africa will need, before any additional bidding rounds can take place.
Compromised deal
Kubayi said the deal that forces Eskom to sign the power purchase agreements, is essentially a compromise.
“It was a difficult decision,” she said. “The matter remains complex and there are no easy solutions to it.”
She said in May this year her department established a technical team to help resolve the impasse. The technical team met and provided a report of its work this past Wednesday to Kubayi and Public Enterprises Minister Lynne Brown, along with officials from the department.
“We hope that all parties will understand that it was not easy to arrive at this position as a lot of compromise had to be made,” Kubayi emphasised.
Eskom's goverment guarantees
She defended her department’s decision to meet Eskom halfway. “We are not protecting Eskom. My job is to protect the government.”
She said that if Eskom defaulted, it was the state that would have to pay because of Eskom’s government guarantees.
“This decision assists us in reducing the requirements for additional government guarantees that would impact negatively in the current economic climate and constraints in the fiscus.”
“If Eskom defaults Treasury will have to find money somewhere to honours its debts, and what will have to suffer. Service delivery?” she asked.
Nuclear looming
With Eskom’s excess power, and the power that the renewable projects in the new bid window will provide, it appears that South Africa’s nuclear deal has also temporarily been halted.
But DA energy spokesperson Gordon Mackay said the delay in signing the contracts has been disturbing. He believed that the delay and renegotiation could be a smokescreen initiated by the energy department and Kubayi in a bid to buy time to ensure the implementation of nuclear energy.
“This is made abundantly clear by the freeze of all new renewable projects from October, until such time as they have thoroughly scrutinised and aligned it to the IRP and IEP,” he said
Affected stakeholders should approach the court if necessary to ensure that their IPP contracts and prices are upheld, he said. “The IPP renewable energy programme is an established and internationally recognised economic model, which should be defended.”
“The renegotiation process also sends the wrong signals to the energy industry and appears to be an attempt to stifle growth in the renewable energy sector in favour of nuclear power.”
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