File image: Minister of Energy, Mmamoloko Kubayi

JOHANNESBURG - The Department of Energy provided certainty to the renewable energy industry when it directed Eskom that all outstanding power purchase agreements (PPAs) must be in place for signing before the end of next month, but demanded that the Independent Power Producers (IPPs) reduce their prices to 77cents per kilowatt hour (kW/* ) or less for the agreements to be concluded.

This meant that the minister had acceded to Eskom’s earlier position that it would sign only those contracts where the cost of energy was 77c per kW/* or less.

Energy Minister Mmamoloko Kubayi on Friday said it had been brought to her department’s attention that Eskom had an excess generation capacity of electricity and based on the current demand patterns the situation was projected to remain this way until 2021.

She said this was an important factor to consider with respect to the IPPs. “With regard to the review of the pace and scale of roll out under the circumstances of overcapacity up to 2021, the departments agree that the majority of the projects in Bid Window 3.5 and 4 will be commissioned closer to 2021 and will, therefore, have minimal contribution to the overcapacity up to 2021,” Kubayi said.

Eskom and the IPPs have been in a stand-off for more than 18 months, with Eskom arguing that some IPPs were charging high prices, making it difficult to do business with them. Early this year, the electricity subcommittee of the National Energy Regulator of SA said it would recommend that the energy regulator institute a formal investigation into complaints that Eskom was flouting the conditions of its licence by refusing to conclude PPAs for 37 renewable-energy projects procured by the Department of Energy.

Wind energy

Of the 37 projects, 12 are wind-driven projects. Khulu Phasiwe, the spokesperson for Eskom, said Eskom would abide by the department’s directive, as the power utility had already funded 64 projects since 2011 but had halted other projects as it wanted value for money.

In his State of the Nation Address in February, President Jacob Zuma said the government was committed to the project and that it would be expanded to other sources, including coal and gas, in addition to renewable-energy sources. Brenda Martin, chief executive of the SA Wind Energy Association, said Kubayi’s announcement had provided policy certainty and evidence that the country’s renewable-energy procurement programme remained part of the government’s vision for a more diverse energy.

“Thousands of South Africans employed by the renewable-energy industry and the many rural communities surrounding current and prospective wind farms, who have been waiting for the development benefits associated with renewable power investment, are heartened by the confirmation that preferred bids from rounds 3.5 and 4 will be concluded within two months,” Martin said.

Figures released by Nedbank earlier in the year showed a sharp decline in renewable-energy capital projects - from 92 projects worth R163billion in 2015 to 56 projects worth R89bn last year.

The bank said the slowdown in investment commitments was noticeable, mainly in the private sector, due to delays in signing the PPAs. Chris Yelland, an energy analyst, said while the decision by the minister was welcomed, it was unlikely that all outstanding projects would be able to renegotiate their prices.

“The devil is in the detail The fact that the minister has capped the price at 77c per kW/* means that the IPPs have under two months to negotiate a new price. Some producers will be forced to walk away from the project, as there has been significant technological advancement and currency fluctuations in the past 18 months,” Yelland pointed out.

The Department of Energy launched the renewable energy independent power producer procurement programme in 2011, which called for 3725MW of renewable energy technologies. The capacity under the existing signed agreements is expected to be in commercial operation by the end of 2018.

Eskom has said that in the 2015/16 financial year it spent R15.4bn on procuring power from the IPPs, up from R9.5bn it spent in the 2014/15 financial year. Kubayi also expressed her dissatisfaction at the lack of transformation regarding local ownership of some projects.