IPP contracts for renewable energy to be signed next year

IPP contracts for renewable energy to be signed next year

The contracts have been awaiting signature for nearly two years, and the long wait could cost the country R60bn in investments

It is unlikely that the long-delayed independent power producer (IPP) contracts for the supply of renewable energy will be signed before next year‚ Parliament has been told.

The Departments of Energy and Public Enterprises, and representatives from Eskom, appeared before Parliament’s energy committee to explain why the contracts‚ which have been awaiting signature for nearly two years‚ have still not been signed.

Former energy minister Tina Joemat-Pettersson said they would be signed by April‚ but new Energy Minister Mmamoloko Kubayi delayed the process saying she wanted to speak to Minister of Public Enterprises Lynne Brown first.

Deputy director-general for policy planning in the department of energy Ompi Aphane, however, told the committee there are six steps that need to be completed first. Brown said signing would happen once this is done.

Among the steps listed is the conclusion of the update of the Integrated Resource Plan to define the “pace and scale of new generation capacity”‚ which Aphane said would be completed by February 2018. The National Energy Regulator of SA (Nersa), the body that sets electricity tariff prices, also needs to be approached regarding “Eskom’s hardship”.

Aphane said the problem was that the projects resulted in “a higher cost to Eskom than it could recover through tariffs paid by its customers and thus had an adverse impact on its balance sheet”.

Power produced by the IPPs is no longer needed as there is an oversupply of electricity and lower demand as a result of low GDP growth. Brown said that contracts with IPPs in the first three bid windows have been signed‚ but those in bid windows four and five have been delayed.

The presentation stated that government risks litigation if the process is not resolved. As the holder of Eskom’s guarantees‚ the government also risks increased exposure on these if Eskom’s financial woes worsen and the energy utility defaults. Other risks listed include a potential sovereign downgrade‚ and market uncertainty‚ both affecting investor confidence.

Brown said renewable energy was expensive‚ costing R2.14kW/h to produce. Eskom would only be able to charge consumers about R0.84kW/h. Eskom had earlier indicated it would only sign contracts where the cost of energy was R0.77kW/h or less. But MPs challenged the presentation saying it relied on old figures for the cost of renewable energy‚ and did not factor into its calculations the cost of building new nuclear plants.

Read the full article on BusinessDay ⟶

Source: 20 JUNE 2017 – 15:33 by BIANCA CAPAZORIO (BusinessDay).