Enel Green Power South Africa country manager William Price says he is “surprised” by Eskom’s current resistance to signing power purchase agreements (PPAs) for new renewable-energy projects in light of the undeniable success of the competitive-bidding model pursued by the Department of Energy (DoE), which has stimulated R194-billion-worth of investment and facilitated a dramatic fall in solar and wind prices.

Enel Green Power is the renewable-energy unit of Italian energy group Enel, which has conventional and renewables operations in more than 30 countries and across four continents. In South Africa, the company has successfully bid 12 onshore wind and solar photovoltaic (PV) projects into the country’s much-vaunted Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). The projects have a collective capacity of 1.2 GW.

Seven of Enel Green Power’s wind and solar PV projects, with a combined investment value of R18-billion, are either operational, or in the final stages of execution. A further five wind projects, with a combined capacity of 705 MW, have been named as preferred projects following the fourth bid window of the REIPPPP and are expected to reach financial close either later this year, or in early 2017.

Under the competitive-auction model, the DoE has procured a total of 6.4 GW from 102 projects since 2011, with solar PV prices declining 75% from round one to four and wind prices falling by 50%. New research by the Council for Scientific and Industrial Research Energy Centre shows that solar PV and wind prices bid as part of the yet-to-be-announced ‘expedited’ REIPPPP round fell to 62c/kWh, making it cheaper that new coal-fired production from both Eskom and the newly announced independent power producer (IPP) baseload coal projects.

Therefore, Price says he is “struggling” to understand the current negative view of renewables being expressed by Eskom, the buyer of all IPP-generated electricity, which is aware of the fall in costs. “This is problem, as Eskom is our customer and we need to make our customers happy.”

A nuclear engineer by training, Price acknowledges the need for a “mix” of generation sources. However, he says the fall in solar and wind costs has further strengthened the case for these sources to play a prominent role in the mix and in any updated Integrated Resource Plan. 

The current hostility being expressed by Eskom, he adds, is leading to uncertainty among IPP investors, as well as companies that have been established to manufacture components for renewables projects.

“Given the success of the programme, it is a little bit surprising that the REIPPPP is now stumbling. But that is also the reason I think it will continue, because it is a good programme,” Prices says, highlighting the skills, technology-transfer, community and rural spin-offs that have also been derived as a result of the investments made.

The State-owned utility sent a letter to Energy Minister Tina Joemat-Pettersson earlier in the year indicating that it would not sign further PPAs until it received guidance on how it should proceed in the context of a supply/demand balance that had returned to surplus, following years of deficit.

In a recent opinion piece, Eskom executive for generation Matshela Koko reiterated the utility’s opposition to signing new PPAs, reporting that Eskom is forecasting adequate electricity supply until 2021, inclusive of a 19% reserve required by the National Energy Regulator of South Africa (Nersa). “There is no need to sign up additional IPPs. The next capacity challenge is projected to be in 2026 to 2028. At this time, the peak load is expected to reach 40 GW, compared to 35 GW in 2016.”

Koko also describes the tariffs associated with bid window one through to 3.5 as “unaffordable”. “For the first six months of 2016, R6.64-billion has been spent to purchase 3 048 GWh of renewable power at an average cost of 218c/KWh. The entire 218c/kWh is passed through to the consumer and is blended into the Eskom selling price of 83c/kWh,” Koko wrote.

A strong proponent of nuclear, Koko adds that, if Eskom agrees to sign up to bid window 4.5, in 2021/22 there will be 21 TWh bought from renewable IPPs at an average cost of 207c/kWh. “According to the current funding structure, these costs will be passed through to the already overburdened consumer,” Koko writes, arguing that Eskom should not sign the remaining expedited renewable IPPs including bid window 4.5.

The South African Wind Energy Association has lodged an official complaint with Nersa over Eskom’s refusal to enter into PPAs with IPPs, arguing that the utility actions amount to a failure to comply with licence conditions, the Electricity Regulation Act, stated government policy, as well as with the Ministerial determinations that provide the framework for the procurement of generation capacity from IPPs. Nersa has indicated that it is investigating the complaint.

Price insists that Enel’s appetite for South African renewable and conventional power-generation programmes, particularly the proposed Liquefied Natural Gas Independent Power Producer Procurement Programme, remains. However, he says the mixed signals regarding the country’s commitment to the REIPPPP are “concerning”.

“Based on the advantage of renewables . . . and the falling costs, I think, in the end, renewables will prevail, because it makes sense,” Price concludes.