Picture: Neil Hall/Reuters
JOHANNESBURG - Energy consultant Ted Blom has questioned the wisdom of signing power purchase agreements (PPAs) with independent power producers (IPPs), saying they were an expensive option. 

Blom, a partner at Mining & Energy Advisory, says the 27 IPP projects that were scheduled to sign PPAs with Eskom this week would bring about substantial investment and some jobs “as would almost any investment which offers 20-year government guarantees and 100 percent off take.”

But he says the agreements would have dire consequences for South African consumers who would have to bear the consequences of the high tariffs as a result of the IPP power. 

He says, under the current energy scenario, South Africa will have more than 60 Gigawatt hours (GWh) of capacity by 2022, against a flagging demand of below 30GW.

He says the primary reason demand has fallen to below 2007 levels is the massive increases in electricity costs of over 500 percent. Basic electricity prices have ballooned from around 15 cents/kilowatt hour (kWh) to an average of over 100c/kWh, and in some cases to over R3.00/kWh, dependant on the demand profile.

He says renewable energy companies are queuing at the door with energy projects that are virtually guaranteed to make money under this artificial price floor.

“The consequence of this recipe spells disaster for South African consumers and business. It will lead to a 20-year depression as electricity tariffs get blown sky high to compensate a dying Eskom and inflation-linked Renewables with guaranteed off-takes,” he says. 

The Department of Energy this week canceled the signing of PPAs with the 27 IPPs after the National Union of Metalworkers of South Africa (Numsa) and Transform RSA applied for an urgent last-minute interdict against the signing of the IPP agreements. They have argued that the conclusion of the agreements would be detrimental to coal mining and would result in job losses especially in the Mpumalanga area where many of Eskom’s coal-fired power stations are located.