Sarec unpacks Eskom IPP delay
Paper looks at market share
LARGE-scale deployment of renewable energy and gas could displace Eskom by 2050, hence the power utility’s alleged cool reception to renewable energy technologies, according to a briefing paper of the South African Renewable Energy Council (Sarec).
The renewable energy industry is pushing Eskom to sign outstanding power purchase agreements with 37 independent power producers (IPPs).
On the other hand, Eskom is concerned about the prudence of signing 20-year contracts with the IPPs, citing costs and electricity overcapacity in the country. According to Sarec, delaying the projects puts on the line a R58.5 billion investment.
“The projects are ready to go and construction will typically take less than two years to complete, depending on when Eskom can make grid connection available,” said Sarec.
“Eskom has so far resisted pressure to sign the contracts, even months after President Jacob Zuma said, in his State of the Nation address in February, that Eskom would sign the power purchase agreements.
In the briefing paper, Sarec said the government’s policy choices on future generation capacity, through the integrated resource plan process, had far reaching implications for Eskom.
“Depending on the choices made, Eskom’s share of the generation market in 2050 could decline from the present near monopoly (of) 94 percent to a still dominant 70 percent in a big coal and big nuclear scenario or as low as 7 percent in the least-cost renewables and gas scenario.
“These are dramatically different outcomes for the utility. It is not far-fetched to presume that Eskom – which has always regarded generation as its core business – is fighting for its life,” said Sarec.
It said large-scale deployment of renewable energy would make it harder for Eskom to justify what it said were the utility’s preferred generation technologies, coal and nuclear.
In her budget vote speech last month, Energy Minister Mmamoloko Kubayi said that there was uncertainty around the IPP programme. “We will need to evaluate whether or not the programme is assisting us to achieve our objective as initially outlined. We need to reflect what are the lessons learned so far and what needs to be improved,” said Kubayi.
Sarec also revived the call for an independent system operator, which is widely regarded as a necessary condition for “levelling the playing field” in the electricity industry. The body said that there was an inherent conflict of interest given Eskom’s multiple roles. The utility is a generator, owner and operator of the national electricity grid as well as the designated single buyer of power.
“The failure to reform the electricity sector governance has allowed Eskom’s conflict of interest to continue and to result in a situation where the national utility is delaying signature of Renewable Energy Independent Power Producer Procurement projects for no clear reason.
“This is a significant problem for the industry and the country as a whole. The utility cannot be trusted to put the national agenda ahead of its own narrow interests. Reforms to the industry and market structure are a necessary condition if we are to benefit fully from the inevitable transition to a modern, renewable-led energy system. Eskom cannot be allowed to hold hostage our collective future,” said Sarec.