Eskom consumers to gain from green refinancing

Consumers will get the benefit of the successful refinancing of four of the early contracts between Eskom and renewable energy independent power producers, which were costly by today’s standards when renewable technology was new to SA.

The early rounds of the Renewable Energy Independent Power Producer Programme (REIPPP) concluded 20-year power purchasing arrangements with Eskom with prices for solar photovoltaic and wind power at R4.02/kWh and R1.67/kWh, respectively. Those costs have since dropped dramatically, with the prices for round four in 2016 at 96c/kWh for solar and 76c/kWh for wind.

The higher cost of earlier rounds has been a point of contention between the government and producers, with public enterprises minister Pravin Gordhan declaring in 2019 that he wanted the contracts renegotiated. While the contracts themselves have not been renegotiated, the department of mineral resources & energy has approved the refinancing of projects, which include the ACWA Power Solafrica Bokpoort Concentrated Solar Power plant and three Globeleq renewable power plants. This has been done on a voluntary basis.

“The refinancing is undertaken in terms of a framework set by the department. It does not include the extension of power purchasing agreement terms but rather the optimisation of debt terms and conditions. The resultant reduced tariff will be applicable for the remainder of the original contract term,” the department said in response to questions.

The savings from the four projects’ successful refinancing are expected to exceed R1.5bn over the remainder of the respective power purchasing agreement terms.

However, it will not improve Eskom’s financial position as the independent power producer (IPP) costs are a direct passthrough to the consumer. It will lower a portion of future electricity tariffs for consumers. This year’s benefit will be processed through Eskom’s regulatory clearing account, a mechanism for the retrospective adjustment of tariffs according to cost incurred, Eskom said in response to questions.

The department hopes to approve refinancing for several other IPPs that have approached it and has given Eskom approval to offer additional power purchasing agreements to existing IPPs that have excess power.

The high cost of the early rounds of the renewable energy programme resulted in a higher average cost for renewable energy of R2.01/kWh, significantly more expensive than the cost of coal at 62c/kWh. This has provided critics of renewable energy with a stick to beat Eskom and was the rationale used by former executive Matshela Koko to stall the fourth round of the REIPPP and to refuse to sign any further power purchasing agreements.

With the programme now resumed, the fifth bid window closed last week. Prices are anticipated to be keenly competitive with 39 wind and 63 solar PV in the running and could drop as low as the latest prices elsewhere in the world to around 40c/kWh.

THE HIGH COST OF THE EARLY ROUNDS OF RENEWABLE ENERGY PROGRAMME RESULTED IN A HIGHER AVERAGE COST OF R2.01/KWH