The South African Renewable Energy Council (Sarec) has slammed as a “blatant distortion of facts” Eskom’s claim that the country suffered a net economic loss of R9-billion in 2016 as a result of the State-owned utility’s purchases of power from the country’s renewable-energy plants.

It has also appealed to Eskom to sign outstanding renewables power purchase agreements (PPAs), arguing that doing so would ensure South Africa realised the benefits of the falling tariffs that have been achieved as a result of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Over the course of successive REIPPPP bidding rounds, the average solar photovoltaic tariff fell from 356c/kWh achieved during the first bid window in 2011 to 62c/kWh in 2015, while onshore wind fell from 151c/kWh to 62c/kWh over the same period.

However, PPAs have only been signed with those independent power producer (IPPs) that prevailed during the first three, more expensive, bid windows and, since July last year, Eskom has refused to conclude any further contracts, citing affordability concerns. As a result 26 projects, already adjudicated by government’s highly regarded IPP Office, remain in limbo, along with some R50-billion worth of potential investment in the sector.

Eskom insists it requires guidance from both the Department of Energy (DoE) and the Department of Public Enterprises before signing any further contracts, arguing that the trend of net losses is set to persist for as long as the country continues to have surplus capacity – it believes the surplus will remain until 2021. However, there has, to date, been no indication as to whether the process has started, or how long it could take to reach resolution.

A review of the matter being undertaken by the National Energy Regulator of South Africa following a complaint lodged in October by the South African Wind Energy Association has not been finalised and it is understood that some IPPs may now be considering legal action against the DoE, which is responsible for the procurement in line with published determinations.

Eskom used a Council for Scientific and Industrial Research (CSIR) methodology to calculate the loss. But the science council subsequently argued that methodology – which offsets the benefits associated with reduced load-shedding and avoided coal and diesel burn, against tariffs paid to the renewable independent power producers (IPPs) – had been developed for a constrained power system and for when the use of diesel generators was high. It would need to be adjusted, therefore, to give the correct fuel-saving value in a context where the system is less constrained and to reflect the value that a new power generator has with regards to fuel burn, maintenance and capital costs.

Nevertheless, Eskom calculated that, from January to December 2016, it purchased 6 TWh from solar photovoltaic (PV) and wind plants, which translated into total financial benefits of R3.2-billion. However, this saving was offset against a tariff cost of R12.2-billion, leading to the assessment of a R9-billion net loss to the economy.

In its response, Sarec argued that Eskom was “being opportunistic in its attempt to mislead and deceive the public, to serve its bid for nuclear power”. The utility controversially issued a ‘Nuclear New Build Programme’ request for information on December 20, notwithstanding a legal challenge and the fact that the recently updated Integrated Resource Plan base case indicated that the first reactor would only be required in 2037, rather than the 2023 date outlined in the current, but outdated, IRP.

Sarec chair Brenda Martin argued that any assessment of the costs or benefits of the renewables plants should take account not only of the immediate cost-avoidance, but also the longer-term benefit of cost reductions over time.

“For example, while the first three bid rounds of solar PV and wind have resulted in tariff payments of roughly R12-billion in 2016, the fourth round of solar PV and wind projects will trigger tariff payments of merely R6.6-billion per year,” added Martin.

By taking a short-term view, Eskom had “deliberately distorted tariff effects”.

“It is worth noting that with the first three bid rounds of the REIPPPP, the South African government effectively made a sound investment decision into new power generation technologies, knowing that learning curves would kick in and, as has been proven, costs would decline over time.”