‘Rogue’ power firm threatens renewable expansion

File picture: Nadine Hutton, Bloomberg

File picture: Nadine Hutton, Bloomberg

Published Dec 6, 2016

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Johannesburg - Opposition from South Africa’s state

power utility  Eskom Holdings and government infighting threatens to

sabotage the world’s fastest-growing green energy programme.

Eskom is stalling on signing government-brokered deals to

buy renewable energy from private producers, encouraged to develop capacity

after outages over the past eight years hobbled Africa’s most industrialized

nation. With the economy in the doldrums, the state utility says it no longer

requires additional green power, arguing it’s not always available during peak

demand periods and will push up prices for South African consumers.

Eskom’s reticence over renewables contrasts with its

enthusiasm to find bidders for nuclear plants, even after the Energy Ministry

last month proposed delaying new atomic reactors by 14 years. That contradiction

reflects the schism at the heart of government, where President Jacob Zuma’s

championing of nuclear power puts him at loggerheads with his Finance Minister

Pravin Gordhan, who has questioned its affordability.

“There are strong political overtones to this,” said

Professor Harald Winkler, director of University of Cape Town’s Energy Research

Centre. “It doesn’t give investors in renewable energy consistency. It’s a way

of exercising control by Eskom.”

Increasing risk

Eskom has refused to sign off on an agreement to

purchase 250 megawatts of power from two wind projects planned by Irish

clean-energy developer Mainstream Renewable Power Ltd., and a deal

with Saudi Arabia’s ACWA Power International to supply 100 megawatts of

solar energy.

Eskom’s actions are “in contravention of government

policy,” Mainstream Chief Executive Officer Eddie O’Connor said in a Nov.

30 phone interview. “These guys have gone completely rogue. It’s

increasing the risk of outside investors investing in South Africa fairly

dramatically."

Some projects haven’t been signed off because they are

“very expensive,” Eskom spokesman Khulu Phasiwe said by phone. 

“The price they are charging for their power is much

higher than we are selling it for and higher than we are willing to pay,” he

said. “The projects that came at a reasonable price, we were able to sign them

on.”

Read also:  Eskom to procure Nuclear power

Energy Minister Tina Joemat-Pettersson and Public

Enterprises Minister Lynne Brown have done little to pull Eskom into line.

Since South Africa initiated its program to purchase

renewable energy, independent producers have committed 194 billion rand ($14

billion) toward new infrastructure and as of June, 2,200 megawatts of power

from 44 projects had been connected to the national grid. Asset finance

for the projects rose fourfold last year, the most of any country in the world,

Moody’s Investors Service said in a report.

Destroying confidence

While Joemat-Pettersson has signed off on about 37 other

projects worth R58 billion that will generate 2 354 megawatts of power and

create about 4,800 construction jobs, developers are still waiting for Eskom to

sign the off-take agreements.

“A program like this only works if you have got certainty

and you’ve got continuity,” Wido Schnabel, head of business development for

Africa at Canadian Solar, said by phone. “Now that the program has been stalled

again because Eskom doesn’t want to sign the power-purchase agreements, it is

destroying all the confidence and all the positives.”

Joematt-Pettersson told reporters on November 22 that

determining South Africa’s optimal energy mix must take account of cost,

security of supply, efficiency and the environment. Colin Cruywagen, a

spokesman for Public Enterprises Minister Brown, who oversees Eskom, didn’t

immediately respond to an e-mail seeking comment.

Too expensive

In August, SMA Solar Technology AG cited the lack of

commitment toward the green energy program as the reason for shutting its Cape

Town factory and transferring production to China and Germany, where it

has its headquarters.

Eskom can delay projects by letting quotes for connecting

plants to the grid lapse, said Hein Reyneke, Mainstream’s business development

manager for Africa. The quotes have been directed to the CEO’s office “but

nothing comes out," he said.

Eskom is building the Medupi and Kusile coal-fired plants

that it estimates will cost at least R306 billion and will supply about 9,560

megawatts when both are complete. They have run over budget and are years

behind schedule. Matshela Koko, appointed Eskom’s acting CEO on December 1, has

said the utility is shielding consumers from higher tariffs by not signing new

off-take agreements.

Read also:  Eskom stalls IPP deal as costs escalate

“I understand where they are coming from,” said Robert

Jeffrey, managing director and senior economist at Johannesburg-based advisory

service Econometrix. “Eskom actually has a duty to supply efficient power at

the lowest possible price. Clearly renewables don’t allow it to do that at this

stage of technological development.”

Monopoly concerns

Winkler of the University of Cape Town disagrees, saying

renewable energy prices, particularly for photovoltaics and wind, have come

down dramatically.

“Those two are now cheaper than new coal or new nuclear,”

said Winkler. “Any monopoly will have concerns about competition.”

South Africa only has an over-supply of electricity

because of Eskom’s inability to previously meet demand halted new development

and choked off growth, according to Schnabel of Canadian Solar. He sees energy

storage solutions improving and decreasing in cost over the next five years,

enabling renewable energy to be used at any time.

“We’re missing this huge opportunity,” he said. The

developers take the risk and “all Eskom needs to say is that they’ll buy the

energy from them over the next 20 years."

-With assistance from Rene Vollgraaff.

BLOOMBERG

 

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