https://www.engineeringnews.co.za
Africa|Business|Coal|Construction|Energy|Eskom|Financial|generation|Industrial|Nuclear|Paper|Power|PROJECT|Projects|Renewable Energy|Renewable-Energy|Solar|System|Power Generation
Africa|Business|Coal|Construction|Energy|Eskom|Financial|generation|Industrial|Nuclear|Paper|Power|PROJECT|Projects|Renewable Energy|Renewable-Energy|Solar|System|Power Generation
africa|business|coal|construction|energy|eskom|financial|generation|industrial|nuclear|paper|power|project|projects|renewable-energy|renewable-energy-company|solar|system|power-generation

Eskom’s IPP pushback continues despite Cabinet endorsement

Eskom’s IPP pushback continues despite Cabinet endorsement

Photo by Duane Daws

30th August 2016

By: Terence Creamer

Creamer Media Editor

  

Font size: - +

To download a copy of Matshela Koko's opinion piece, click here.  (0.08 MB)

Despite Cabinet having insisted at its recent lekgotla that South Africa has no intention of “changing course midstream” in its support of the independent power producer (IPP) programme and notwithstanding that all determinations are in terms of official Ministerial determinations, State-owned utility Eskom appears to be intensifying its pushback.

Besides news of Eskom refusing to sign a power purchase agreement (PPA) that has already been adjudicated, for a new concentrated solar power (CSP) plant in the Northern Cape, Eskom group executive for generation Matshela Koko has written an opinion piece criticising the IPP programme in its current form, saying it will cost the country R1.2-trillion over the next 20 years for 7 300 MW of IPP generation.

Koko uses the indisputable position that the 2010 Integrated Resource Plan (IRP) is out of date to argue that it would be “ill advised” to continue to implement the current IPP plan, when it will, he claims, “result in surplus capacity with higher prices to consumers than would otherwise have been possible” – as an aside, it is an argument that would also apply to the nuclear programme, which Eskom supports.

He, therefore, questions the motives of those seeking to silence Eskom chairperson Ben Ngubane, who recently wrote to Energy Minister Tina Joemat-Pettersson indicating that Eskom was unwilling, in the absence of further consultations, to sign PPAs with IPPs beyond the preferred projects selected under bid widow 4.5 of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

“Why is he being told to shut up? It is in the national interest to have this debate. Who stands to benefit when this debate is swept under the carpet? After all, the current expansion plan will bring unnecessary higher cost to consumers and will ultimately increase the cost of doing business in this country, impacting country competitiveness,” Koko writes.

He also suggests that the introduction of IPPs was “partly based on the assumption that Eskom would only be able to build enough generating capacity by 2022”, and that, therefore, the turnaround in the utility’s energy availability factor (EAF) “is a game changer”.

However, this argument appears to disregard the fact that the introduction of IPPs is a deliberate government policy choice, pursued in a bid to change the energy mix, introduce some competition and reduce carbon emissions. This position is evident not only in the 1998 Energy White Paper, but also in the National Development Plan, the IRP 2010 itself and in the various Ministerial determinations by different Energy Ministers that have enabled the IPP procurement programmes.

On the matter of the EAF, there has been a recovery, with Koko noting that the performance improved from 70% in October 2015 to 79% in August 2016. “The improved plant availability has unlocked over 3 700 MW of additional capacity from the existing fleet. The new build programme has delivered 666 MW from Ingula’s two commercially operational units and 730 MW from Medupi unit 6.”

However, while indications are that Eskom may have arrested the decline in the EAF, there are still questions about whether the performance will be sustained, with memories still fresh of the recovery in the EAF prior to and during the 2010 FIFA World Cup, which later turned out to be unsustainable.

That said, the recent arrest in decline of plant availability has contributed, in part, to the fact that there has been no load-shedding for over a year and cannot, therefore, be dismissed, notwithstanding lower-than-expected demand.

Although Eskom has tended to dismiss the contribution of renewables to this stabilisation, research by the Council for Scientific and Industrial Research (CSIR) Energy Centre shows that solar and wind generation have indeed helped improve system stability and enabled South Africa to avoid load-shedding. Between January and December 2015, there were 103 load-shedding days, or 858 hours of disruption. In the absence of solar and wind, the system would have exceeded 30 000 MW for 1 470 hours in 2015. In the event, the number of hours of running above 30 000 MW was reduced to 680 hours, which helped to materially reduce the load-shedding threat. This trend is likely to have continued into 2016, with even higher levels of production as new renewables plants have come into operation.

Koko notes that Eskom’s corporate plan is based on an electricity growth rate of 0.8% compound annual growth. Under such a scenario, supply is adequate to meet demand until 2021 with IPPs up to bid window 3 of the REIPPPP. “This is based on Medupi and Kusile delivering on their revised schedule and the energy availability factor of 80% being achieved by 2021”.

There is little question that Eskom intends meeting, or even beating, its revised schedules. However, this could prove optimistic, given that it has hitherto over-promised and under-delivered on Medupi, Kusile and Ingula.

An analysis titled ‘An economy-wide evaluation of new power generation in South Africa: The case of Medupi and Kusile’, which has been produced by Jessika Bohlmann, Heinrich Bohlmann, Roula Inglesi-Lotz and Jan van Heerden, of the University of Pretoria, shows that a two-year construction delay at Medupi and Kusile, in the absence of new IPP generation capacity, will lower gross domestic product (GDP). “Without new electricity generation, GDP is 3.15% lower by 2019, relative to the base,” the authors state.

However, Koko’s key point is that “the impact on the average electricity price due to purchases from IPPs is not fully appreciated”. He argues that, excluding short-term IPP contracts, Eskom will buy 7 210 GWh at a cost of R15.5-billion for the 2016/17 financial year from renewable IPPs at a resultant average unit cost of 214c/kWh. “Compare this to Eskom’s average selling price of 83c/kWh,” he adds.

However, successive bid windows of the REIPPPP have seen significant reductions in contracted tariffs, making them competitive to the cost of new coal-fired generation. A CSIR study, based on Eskom data, shows the net value add from renewables between January and June 2015 was R4-billion, with renewables adding at most 3.6c/kWh to the electricity tariff, despite that fact that most of the energy bought to date was related to the expensive projects associated with REIPPPP bid windows 1 and 2.

The contracted tariffs for wind have fallen from 151c/kWh to 62c/kWh, while those for solar photovoltaic plants have fallen from 365c/kWh to 62 c/kWh. Crucially, Eskom has in all cases been awarded, by the National Energy Regulator of South Africa, the full revenue to cover the PPAs with IPP plants.

Despite this, the utility has withheld its signature from a PPA document relating to the 100 MW Redstone CSP project, being developed by ACWA Power and Solar Reserve. The utility argued that the contracted cost, which, it says, will equate to around R5 000/MWh, could open it to claims of “wasteful expenditure”.

Eskom is, thus, insisting on a meeting with Joemat-Pettersson and Public Enterprises Minister Lynne Brown before it concludes the PPA, which it was previously prepared to sign on July 28. The move is in direct conflict with its own indication that it will sign deals up until bid widow 4.5 of the REIPPPP, as well as the recent statement by Joemat-Pettersson that there “will shortly be announcements on the expedited round for renewable-energy projects”.

There is sure to be strong agreement with Koko’s opinion piece that it is in the national interest to have a debate. There will also, no doubt, be support for his argument that it is “imperative that [the IRP] be revised timeously so that the necessary decisions can be taken to ensure the optimal expansion of the system, post 2021”.

However, more disaggregated and arguably less one-sided information is also required from Eskom in order to lay the foundation for a constructive engagement and for eventual consensus on the best way to proceed.

Edited by Creamer Media Reporter

Comments

Array

Showroom

Weir Minerals Africa and Middle East
Weir Minerals Africa and Middle East

Weir Minerals Europe, Middle East and Africa is a global supplier of excellent minerals solutions, including pumps, valves, hydrocyclones,...

VISIT SHOWROOM 
Yale Lifting Solutions
Yale Lifting Solutions

Yale Lifting Solutions is a leading supplier of lifting and material handling equipment in Southern Africa. Yale offers a wide range of quality...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.22 0.282s - 168pq - 8rq
Subscribe Now