Private funding for Eskom’s Coal 3 seen as scarce
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Johannesburg - Power utility Eskom would probably struggle to find private investors to fund its third coal-fired power station, energy analysts said on Friday.
David Lipschitz said instead of being part of an Eskom power station project, private investors would adopt a wait-and-see attitude to determine where the developments would go. He said investors would probably opt for more participation in the coal independent power producer (IPP) programme rather than Eskom.
“If I had the money necessary to build Coal 3, and if I had the intention of building a large-scale coal power station, then I would build it myself and sell the electricity to Eskom as an independent power producer,” Lipschitz said.
Public Enterprises Minister Lynne Brown on Thursday announced that Eskom would seek collaboration with private sector investors on its next coal power station, known as Coal 3.
The utility is currently in the middle of an ambitious capacity expansion programme that entails building the Medupi and Kusile power stations.
This is not the first time Eskom has taken a pragmatic stance on private equity interests on its projects.
At the height of its financial problems in 2010, Eskom considered bringing private-equity investors to the Kusile power station. At the time, Eskom’s plan was to sell 30 percent of the power station to a private investor in order to raise about R40 billion. Eskom did not proceed with the plan.
Grove Steyn, the managing director of Meridian Economics, questioned the wisdom of building another coal-fired power station. “There is no need for Coal 3. In 10 years’ time, there is going to be electricity overcapacity,” he said.
He added that combined additional capacity from nuclear and the renewable energy, gas and coal procurement programmes would lead to the overcapacity. “A private investor in a coal power station will want to be sure that there will be demand for the electricity.”
The Department of Energy last year announced plans to procure 2 500 megawatts (MW) in a coal base load IPP procurement programme. According to the department, similar to the renewable energy IPP procurement programme, the coal procurement programme will be launched in a number of bid windows, each with a capped allocation and tariff to ensure competitive pricing.
To date, the government has procured 3 126MW of electricity from renewable energy projects. But the Southern African Venture Capital and Private Equity Association (SAVCA) was more optimistic about the prospect of private investors in the project.
SAVCA represents about R170bn in assets under management, through more than 140 members. “SAVCA’s membership includes private-equity funds that specialise in funding and project managing infrastructure assets, including power-related programmes.
“The managers of these funds would welcome the opportunity to work alongside the government to bolster South Africa’s power capacity,” SAVCA chief executive Erika van der Merwe said.
“Government’s intentions to collaborate with private sector funders for the creation of new base load power-generating capacity was a positive development.
“Private sector funding from local, regional and international sources is crucial in filling South Africa’s infrastructure funding shortfall.
“Beyond that, and equally important, are the insight, experience and skills provided by private sector funders for such large-scale projects.”