Energy Minister Tina Joemat-Pettersson says the “deadlock has been broken” between Eskom and the renewable-energy independent power producers (IPPs), with the National Energy Regulator of South Africa (Nersa) confirming its willingness to consider an application from the State-owned utility should the connection of IPP projects have implications for its financial sustainability.
Speaking at an Economic Sectors, Employment and Infrastructure Development Cluster briefing in Cape Town on Tuesday, Joemat-Pettersson said there had been “several engagements” with Eskom and the Department of Public Enterprises on the impasse in the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).
The programme, which according to the cluster chairperson Gugile Nkwinti has unlocked R200-billion in investments and created more than 115 000 jobs, was thrown into uncertainty in 2016 after Eskom announced that it would not sign power purchase agreements (PPAs) for projects selected during the fourth bid window before receiving guidance from national government.
However, in his State of the Nation address (Sona), President Jacob Zuma announced that Eskom would sign the outstanding PPAs for renewable energy “in line with the procured rounds”.
Joemat-Pettersson said that, following meetings with Eskom and Nersa, it was agreed that the cost pass-through for the IPPs was in line with the multiyear price determination methodology and that the cost recovery mechanism would be dealt with through the Regulatory Clearing Account (RCA).
She acknowledged the current difficulty Eskom faced in making new RCA applications in light of last year’s Gauteng High Court ruling declaring the handling of the RCA applications by Nersa to be “irrational, unfair and unlawful”. However, she highlighted that, in its recent approval of a 2.2% tariff increase from April 1, Nersa indicated a willingness to entertain an application from Eskom relating to the financial implications of the renewables programme.
“So we are convinced that the impasse between the renewable energy IPPs and Eskom . . . has been broken,” she said, adding that the gas IPP programme was also on track and that the programme would be launched soon.
“Eskom has repeatedly said that it would not delay the implementation of baseload,” the Minister added.
However, the South African Renewable Energy Council stated recently that Eskom was “dragging its feet” in signing PPAs, noting, too, that the utility had not yet issued any updated budget quotes for the delayed projects.
Eskom group executive for transmission Thava Govender described reports regarding the signing and execution of budget quotations and PPAs as “misleading”. However, he reiterated Eskom’s concerns relating to the uncertainty on the cost-recovery mechanism for the IPPs.
“Eskom wishes to assert that it remains committed to government’s energy procurement programmes and intends to sign budget quotations and power purchase agreements related to these programmes,” Govender wrote in a recent opinion piece. “This commitment,” he added, “will be carried out within a framework that takes into consideration the scale and pace of the roll-out of IPP procurement programmes, the long-term financial sustainability of Eskom and the value for money criteria vis-a-vis whether South Africa’s customer base can afford the current IPP tariffs and their projected trajectory.”
Meanwhile, the cluster reiterated the position, outlined in government’s Nine-Point Plan, that manufacturing industries supplying into domestic infrastructure build programmes, including the REIPPPP, should be expanded.
Trade and Industry Minister Dr Rob Davies acknowledged that there had been a “wobble” in the localisation programme associated with renewables as a result of the delays and uncertainty. However, he said that the statement made by Zuma in the Sona about renewables was important in re-establishing certainty.
The draft Integrated Resource Plan (IRP) Base Case, Davies noted, envisaged an even higher penetration of renewables in the future electricity mix, which should facilitate further industrialisation to produce components for the growing fleet of domestic wind and solar farms.
It has been argued separately that the role of wind and solar photovoltaic technologies, in particular, could be expanded well beyond that envisaged in the Base Case if the yearly deployment limits currently imposed on the two technologies were removed from the Base Case model.
Joemat-Pettersson indicated that the IRP process was being decoupled from the approval of the broader Integrated Energy Plan (IEP), which would be taken to Cabinet soon, so as to ensure that the IRP could be fully canvassed with stakeholders prior to receiving Parliamentary and Cabinet approval.
She gave no indication of the anticipated timelines for approving the new IRP, saying only that the plan would be subjected to a “rigorous and extensive consultative processes” to ensure that legal challenges were avoided and that there could be no suggestion that the process had been non-transparent or rushed.
Davies, meanwhile, stressed that the renewables sector was not alone within the infrastructure setting, where the application of government’s localisation policy was generally uneven. “We are aware of a number of inconsistencies in the application of localisation and one of the targets we will be setting ourselves as a department this year is to ensure that we iron out those.”
He made a direct link between dealing with these “glitches” and government’s aspiration to accelerate the creation of black industrialists, noting that, in some instances, black-owned manufacturers had been bypassed in favour of imports.
“There are reports where serious black industrialists have found themselves not getting access to contracts, which were given to other people that are actually not producers and industrialists. We want to make sure that this doesn’t happen so that we can use procurement to support actual productive players in the economy and particularly black industrialists.”
Davies also stressed, that despite the current fiscal constraints, the black industrialists programme had, to date, supported 27 entrepreneurs and leveraged R2.5-billion in private sector investment.
The first phase of the Black Industrialists Programme envisages support for 100 black industrialists over three years, with government targeting 30 transactions by the end of March. “But instead of 70 more over two years, we will now do 70 more over one year . . . so we are accelerating the roll-out of the programme.”