The economy and the environment need the benefits that renewables will bring
South Africa’s promising utility-scale renewable energy industry ground to an abrupt halt in the course of 2016 as Eskom refused to sign further power purchase agreements (PPAs) with 37 independent power producers duly selected for the Renewable Energy Independent Power Producer Programme (REIPPP).
With power plants from earlier bid rounds now fully operational, the more labour-intensive construction and equipment supply portion of the industry has found itself high and dry with nothing to do but wait for the impasse with Eskom to break. Thousands of jobs in factories and in advisory, transport and logistics, engineering and management firms are at risk, if not already lost. Many of the local firms that sprung up to service this new industry have had to retrench staff, if not close shop. The impasse has stretched on, with no apparent end in sight.
Five good reasons why delayed PPAs should be signed
R58.5-billion worth of investment and around 13 000 construction jobs depend on these agreements. The projects are ready to go and construction will typically take less than two years to complete, depending on when Eskom can make grid connections available.
These projects will invest R13.4-billion into socio-economic and enterprise development programmes in their communities over their 20-year lifetimes. They will distribute a further R6-billion of dividends to local community shareholders.
Signing these agreements would confirm government’s stated policy, restore market confidence and stimulate investment in domestic manufacturing.
The law obliges Eskom to sign power purchase agreements, just as it has done in the past. Signature will confirm the rule of law.
Continued growth of renewables is necessary for South Africa to meet its commitments under the Paris Accord.
Addressing Eskom’s concerns
Eskom is required by law to enter into power purchase agreements with duly selected preferred bidders in line with determinations by the minister of energy. Eskom has protested that renewable energy is more expensive than energy from its existing coal plants.
Since Eskom has no say in the procurement process, the minister of energy and the National Energy Regulator (Nersa) have provided Eskom with guarantees that will allow the utility to recover these costs from the consumer.
Why halt a successful programme?
Renewable power procurement in South Africa has been a resounding success, with bid tariffs dropping far faster than policymakers expected. Private investor appetite has been massive. Projects have been financed easily, built on time and completed within budget. By contrast, Eskom has struggled to finance its new-build programme and has run massively over budget and over time.
2017: A critical year for South African energy policy
The country stands on the brink of significant energy policy decisions, which will determine the energy generation mix to be used until 2050. Recent modelling by the Council for Scientific and Industrial Research (CSIR) clearly demonstrates that the least-cost path for the country consists of a mix of renewable power and gas turbines.
Depending on the government’s choices, Eskom’s share of the generation market in 2050 could decline from 94% to 70% in a big coal or big nuclear scenario — or as low as 7% in the least-cost renewables and gas scenario (CSIR, 2016). It is not far-fetched to say that Eskom is fighting for its life.
What needs to be done?
Government must ensure that the national utility fulfils its legal mandate — and signs agreements with duly procured independent producers. The economy needs the benefits that renewables will bring. Government should also take steps to address Eskom’s inherent conflict of interest and ensure that such an impasse never arises again.
Worth noting
Investment to the value of R201.8-billion, of which R48.8-billion is foreign investment, has been attracted by the Renewable Energy Independent Power Producer Procurement Programme to date. A further R58-billion will be unlocked once the remaining power producer agreements are signed.