Picture: Dean Hutton/Bloomberg
Picture: Dean Hutton/Bloomberg

Eskom stalls IPP deal as costs escalate

By Siseko Njobeni Time of article published Aug 31, 2016

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Johannesburg - The rand’s weakening against the dollar has escalated the costs of a Northern Cape solar plant by billions of rands, prompting Eskom to stall signing a power purchase agreement while it raises concerns about the cost of renewable energy with Energy Minister Tina Joemat-Pettersson.

Eskom has come under fire for the delays in signing a 20-year power purchase agreement with Redstone Solar Thermal Power for a 100-megawatt solar project in Postmasburg in the Northern Cape. The project is part of the renewable energy independent power producer (IPP) programme.

The Department of Energy awarded the project a preferred bidder status in January last year. As a designated buyer of power from the IPPs, Eskom is supposed to conclude a power purchase agreement with the project’s developers.

Eskom raised eyebrows when it postponed “until further notice” signing the power purchase agreement in June.

According to Eskom, Redstone was at fault. “We realised that they had not signed the budget quote. So we could not sign the power purchase agreement,” Eskom’s spokesman Khulu Phasiwe said.

Budget quotes, provided by Eskom, are part of the renewable energy programme and give an indication of the costs associated with connecting to the national grid.

Phasiwe said the parties did not sign the agreement last week because the costs had escalated to R62 billion because of the rand’s weakness. In June, the power purchase agreement was worth R50bn.

New projects

Eskom decided against signing the agreement until it had met Joemat-Pettersson, Phasiwe said. Eskom felt that R62bn was too high. “It is higher than some of our new projects.”

The 1 333 megawatts (MW) Ingula Pumped Storage Scheme cost R26bn if completed in 2016/17, he said. “Compare that to R62bn for a 100MW project over 20 years.”

Eskom is increasingly expressing its concerns about the costs of renewable energy, especially as its generation capacity improves. The power utility last month announced that it would not sign power purchase agreements beyond the selected preferred projects under bid window 4.5 of the renewable energy programme. Instead, Eskom wanted discussions with the government about renewable energy.

Redstone was not immediately available for comment.

In a recent article, Eskom’s head of generation, Matshela Koko, said the impact on the average electricity price due to purchases from IPPs was not fully appreciated.

He said, excluding short-term IPP contracts, Eskom would buy 7 210 gigawatt-hours at R15.5bn for the 2016/17 financial year from renewable IPPs, at 214c per kilowatt-hour. Eskom’s average selling price is 83c/kWh, including transmission and distribution.

Koko said, over the next 20 years, R1.2 trillion, in nominal terms, was forecast to be spent on about 7 300MW from co-generation, peaker plants, renewable energy and bid windows 1 to 4.5.

Public Enterprises Minister Lynne Brown said yesterday that she had asked Eskom to immediately provide a report required by the Treasury, which was investigating the utility’s coal contracts. Brown said she was concerned a public row between the Treasury and Eskom could lead to the utility being downgraded by credit rating agencies.

* With additional reporting by Bloomberg


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