Eskom given go ahead to sign stalled deals with renewables IPPs

2nd February 2018 By: Terence Creamer - Creamer Media Editor

Eskom given go ahead to sign stalled deals with renewables IPPs

Public Enterprises Minister Lynne Brown announced on Friday that Eskom’s application to purchase additional renewable energy from independent power producers (IPPs) had been approved, clearing the way for the signing of power purchase agreements (PPAs) for 27 wind and solar projects procured by the Department of Energy in late 2015.

The projects, which have a collective investment value of around R60-billion, had been left in limbo since 2016, when Eskom indicated that it was not willing to conclude further PPAs, owing to its return to a power generation surplus.

The utility’s action effectively brought to a standstill South Africa’s globally lauded Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), under which some R200-billion-worth of renewables investments were made between 2011 and 2017. It also led to uncertainty and delays in IPP procurement programmes for baseload coal and gas to power.

Through the REIPPPP auction model the cost of both onshore wind and solar photovoltaic (PV) projects fell progressively over the four bid windows and more than 6 000 MW of capacity was procured.

Wind costs fell from 151c/kWh in the first bid window to below 70c/kWh in the fourth bid window, while solar PV costs fell from 365c/kWh to below 90c/kWh. During a subsequent round the tariff bid for both onshore wind and solar PV projects fell to 62c/kWh. However, no projects were actually procured from the bid window, owing to the impasse with Eskom.

“The conclusion of the PPAs to enable the implementation of the outstanding projects under bid windows 3.5, 4 and 4.5 of the REIPPPP is critical to implementation of the national energy policy as articulated in the Integrated Resource Plan of 2010,” Brown said in a statement.

Eskom has, to date, signed 64 PPAs for a total of 4 000 MW under bid windows 1, 2, 3 and 3.5. An additional 2 305 MW of capacity has been procured under bid windows 3.5 and 4, including the extension of the round, known as bid window 4.5.

On January 11, Eskom submitted an application to Brown under Section 54 of the Public Finance Management Act to purchase the additional energy and the Minister approved the application on February 2.

“I have requested Eskom to work expediently to implement the decision and avoid further delays. I have also written to the Ministers of Energy and Finance requesting that we discuss how to address Eskom’s genuine concerns through expediting a revision of the Government Support Framework Agreement (GFSA).”

The GSFA is the framework agreed to between Eskom and the Ministers of Finance, Public Enterprises and Energy outlining the support that government should provide with regards to Section 34 of the Electricity Regulation Act, which governs the Ministerial determinations that facilitate the procurement of IPP capacity. It also outlines the processes to be followed in providing government support in a situation where Eskom is unable to meet its obligations as the single buyer.

Brown added that finalising amendments to the National Energy Regulation Act would enable Eskom and the National Energy Regulator of South Africa to “efficiently and effectively resolve deadlocks relating to tariffs and regulatory frameworks by including a pre-determined appeal mechanism”.

The South African Wind Energy Association (SAWEA) said it was "relieved" that the 27 projects, which included wind, solar PV and concentrated solar power plants, would soon be able to proceed towards construction.

“We are sure that the many rural communities surrounding prospective wind farms who have been waiting for the development benefits associated with power plant construction, and the thousands of South Africans employed by the industry are certain to be as relieved as we are,” SAWEA CEO Brenda Martin said in a statement.

Brown’s approval, she added, was the last step in the process of enabling affected parties to set a mutually suitable date for the signing of the PPAs.

Martin also expressed cautious optimism that the country’s renewables procurement programme, which had been subjected to "extensive uncertainty" over the past two years, could be placed back on track.

"The task of getting the South African renewables programme back on track will be a challenge for all involved. SAWEA looks forward to working with government, civil society and labour to ensure that the programme makes an optimal contribution to South Africa’s economic, social and environmental security as the country prepares for the necessary energy transition."