Peter Attard Montalto, the head of capital markets research at Intellidex, said that the idea of renegotiating IPP costs was somehow to lessen the burden on Eskom, or to make room in the tariff for larger Eskom tariff increases by reducing compensation for IPPs. Photo: Reuters

JOHANNESBURG – The National Treasury on Wednesday said the value of signed independent power producers (IPPs) contracts would amount to R146.9 billion by next month.

The government had committed to buy up to R200bn in renewable energy from IPPs.

Finance Minister Tito Mboweni, however, shied away from commenting on the Department of Energy (DOE) plans to renegotiate some of the IPPs.

Last week the DOE told legislators that it wanted to renegotiate with companies that won the first two rounds of renewable energy procurement. 

Peter Attard Montalto, the head of capital markets research at Intellidex, said that the idea of renegotiating IPP costs was somehow to lessen the burden on Eskom, or to make room in the tariff for larger Eskom tariff increases by reducing compensation for IPPs. 

“Renegotiation is certainly possible, but the incentive to do so is minimal, given that the feed-in tariffs are guaranteed by the National Treasury (and are a separate line item to Eskom guarantees),” Montalto said. 

The first two rounds of the Renewable Energy Independent Power Producer saw the prices of solar and wind at R3.84 kilowatt per hour (kW/h) and R1.67 kW/h, respectively. However, by round 4, the prices had fallen to 0.96 cents kW/h for solar and 0.76c kW/h for wind. 

In April last year, Energy Minister Jeff Radebe signed a R56bn IPP contract with 27 independent renewable energy IPPs to add 2 300 megawatt of electricity to the national grid over the next five years. 

The procurement process stalled in 2016 after Eskom announced that it would no longer conclude power purchase agreements with IPPs, owing to its return to a generation surplus. 

Cosatu spokesperson Sizwe Pamla said the IPP contracts were unaffordable.  

“Eskom must be allowed to produce renewable energy itself. The DOE needs to resuscitate its solar panel roll-out the programme to indigent households to help make electricity affordable to them and to ensure those panels are locally made,” Pamla said. 

In a reaction to the budget speech, Greenpeace Africa spokesperson Chris Vlavianos said: “We will hold the minister of finance to his assertion that the steps being undertaken at Eskom will allow us to expand renewable energy; anything less will turn the grace of this bailout into an insult and indulgent waste of South Africans’ money.”

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