Government deliberately vague on renewables policy
SA has endured a long winter of unfulfilled promises on the signing of powerpurchase agreements (PPAs) by Eskom with the independent power producers (IPPs) of renewable energy.
Energy Minister Mmamoloko Kubayi announced on September 1 2017 that the PPA for bid window 3.5 and 4 would be signed “by the end of October 2017”.
One could be forgiven for thinking that this was cause for celebration. Eskom first defied government instruction to procure large-scale renewable energy back in July 2016, when it refused to sign the PPA with Redstone Solar. Remember, Eskom is owned by the state and the renewable-energy IPPs are part of a government programme. So, after 14 months of unnecessary and damaging delays, the news that “Eskom [is] to ensure that all contracts are in place for signing on October 28 2017” should be welcomed, right?
Unfortunately, there is one highly problematic condition and two recommended action points that completely undermine this announcement.
Firstly, the Department of Energy “through the IPP office [is] to engage with all affected parties for bid window 3.5 and 4 to renegotiate not above 77c per kilowatt hour”.
Now, as some background, there was a robust bidding process that was applied to the renewable-energy programme.
This competitive process had a set structure to select preferred bidders. Industry players along with local and foreign investors understood and respected the system.
The idea was that once a bidder received preferred bidder status, Eskom signed the PPA and then the project could move through construction to being commissioned.
Now we know Eskom threw the first spanner in the works by refusing to sign PPAs. In January this year, the then acting Eskom CEO, Matshela Koko, threw in a second spanner dressed up as a “solution”. He suggested that Eskom would sign all PPAs that were at 62c per kilowatt hour (kWh) or less.
In the first instance, it is not Eskom’s role to dictate policy, and second, this suggestion clearly makes a mockery of the bidding process whereby the projects were selected.
Koko was subsequently suspended from Eskom, but sadly it seems that the Department of Energy has bowed to this illegitimate and continuing pressure from Eskom, by now putting a price restriction on which PPAs must be signed. The Department of Energy parliamentary briefing in June 2017 cited this figure of 77c/kWh as being the amount (in nominal 2016 terms) that Eskom had a “willingness” to pay. However, the value of the price ceiling is not the issue – it is the illegal changing of the rules after the procurement process was duly completed.
Think about it from an investor standpoint. Investors support industry through a long and expensive process, where all the requirements are factored into a proposal, which is accepted at a set electricity selling price, only to find out after more than a year of costly delays, that the underlining premise is being shifted.
Of the 26 projects affected by the energy minister’s statement, some are under 77c/kWh and are likely to sign their PPAs. The question will be whether those more than 77c/kWh will take the matter to court. Added to these worries are the further pressures of a court case by the Coal Transportation Forum and imminent strike action by Cosatu. The future was looking grim for the renewable energy sector, and at this point of vulnerability, it has been offered a deal – but it is not a fair one. If some IPPs do consider renegotiating, it will set a very dangerous precedent. It would indicate an acceptance of exploitation. Also, this blanket price limit has been applied across all technologies. This makes no sense. Concentrated solar power combines energy generation with energy storage, so it cannot be placed under the same guidelines as other IPPs that only produce energy.
There was then the point that “the departments agree that the majority of the projects in bid window 3.5 and 4 will be commissioned closer to 2021”.
This is directly linked to Eskom claims that it now has overcapacity of electricity supply until 2021, but the wording in the statement is ambiguous. It could simply be a recognition that in addition to the construction lead time for projects (which average 1.8 years), there can be additional delays such as connecting the IPPs to the grid.
That could bring commissioning “closer” to 2021, but this is vague. However, it could also be an indication that the Department of Energy intends to push back the construction time frames and the pace of roll-out.
If this is the case, then it again implies changes to the conditions of the procurement process after the fact. It would also indicate further capitulation of the Department of Energy to requests from Eskom. The final point of concern is that “all future programmes [are] to be put on hold until a proper review is done and to allow the IEP [Integrated Energy Plan] and IRP [Integrated Resource Plan] to be concluded”.
Again, this is far too vague. What constitutes a “future programme”? Does this include the coal IPPs? The other ministerial determinations? Could it even cover the nuclear programme?
If the technical task team have been working on this since May, surely we can get something more lucid? However, of greatest concern is that this may include the “smalls” bid windows.
These 20 small-scale projects have the highest requirements for all of the following: local and black job creation, local manufacturing content, local and black ownership, enterprise development and socioeconomic development. So why cut out the IPPs that proportionally offer the most to SA’s citizens?
The IRP that is referred to, is about seven years out of date, and along with the IEP, both seem to be subject to almost endless stalling, with a succession of deadlines slowly grinding by.
There needs to be a loud call from everyone for good governance. This means full transparency from the government and precise articulation in its communications. This means concluding the PPAs as they were originally accepted, as outputs from a legitimate bidding process, rather than changing the rules now.
If there is indeed an overcapacity of electricity, how about increasing the amount of free basic electricity to the poor? The current allocation of 50kWh per household per month is widely regarded as wholly inadequate.
How about targeted reduction in electricity prices? By careful tariff adjustments, there should be a point where more people would be able to buy more power at the lower price without reducing overall revenue to Eskom.
Surely, we can now use the situation of surplus electricity to alleviate energy poverty? These ideas are certainly preferable to attempts at squeezing out the renewable energy industry through underhanded tactics by elements in Eskom, and a situation of excess electricity being lost because millions of people can no longer afford it.
Richard Halsey, a member of the Policy and Research Team at the Cape Town-based environmental group Project 90 by 2030.