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Govt's renewable energy tariff renegotiation 'illegal'

Energy minister Mmamoloko Kubayi.

Energy minister Mmamoloko Kubayi.

Government is set to renegotiate the price at which Eskom buys power from renewable energy independent power producers (IPPs).

This is after energy minister Mmamoloko Kubayi announced on Friday that power purchase agreements (PPAs) for bid windows 3.5 and 4 of the Renewable Energy Power Producer Procurement Programme (REIPPP) will be signed by the end of October.

The renewable energy industry has since welcomed the confirmation of the dates by the Department of Energy.

Eskom and IPPs have been at a standstill over the signing of new PPAs for some years now. There have also been suspicions that the continuous delays in the signing of new deals was a deliberate ploy by the power utility to sign a nuclear deal which has so far been shrouded in secrecy.

Eskom has frequently lamented the cost of connecting the IPPs. This has led to a stalemate between the utility and the renewable energy industry. The power utility says, in the first six months of last year, it spent R6.64 billion to purchase 3 048-gigawatt hours of renewable energy at an average cost of 218c per kilowatt hour.

Government guarantees

Earlier this year, the power utility said investments in renewable energy projects resulted in a net loss of R9 billion to the South African economy in 2016.

"The Department of Energy, through the Independent Power Producer office, will engage with all affected parties for bid window 3.5 and 4 to renegotiate not above 77c per kilowatt hour," Kubayi said.

According to the minister, the renegotiation will assist in reducing the requirements for additional government guarantees that would impact negatively on the current economic climate and constraints in the fiscus.

However, industry body the South African Wind Energy Association (SAWEA) says while the announcement provides much-needed policy certainty, SAWEA is concerned the energy minister has imposed a condition, stating that tariffs for the unsigned projects in bid window 3.5 and 4 should be renegotiated to under 77c per KWh.

"This condition, which requires tariff negotiating, is illegal in the Renewable Energy Procurement Programme's rules," the organisation says. "SAWEA is looking to the minister for guidance as to how this condition will be imposed and in light of this has requested a meeting with her offices this week."

In May, government set up a technical team to help resolve the impasse on the signing of PPAs between IPPs for bid window 3.5 – which includes concentrated solar power technology – and 4, which includes wind technology and Eskom.

At Friday's briefing, the minister acknowledged the matter remains complex and there are no easy solutions.

"However, it is our commitment as government to try to find a balanced solution in the interest of all parties involved," said Kubayi of the long outstanding PPAs for renewable energy projects procured from IPPs in 2015.

The technical team met and provided a report on its work last Wednesday. At the meeting, it said power utility Eskom has excess electricity generation capacity. With the current demand patterns, the situation is projected to remain this way until 2021.

The power utility has submitted a tariff application, which is under consideration by the National Energy Regulator of SA (Nersa). The Constitutional Court judgement, with regard to the Regulatory Clearance Account (RCA) in favour of Nersa, has also paved the way for Nersa to implement tariff adjustments in line with the approved RCA.

Minister Kubayi said Eskom will ensure all contracts are in place for signing on 28 October.

"We are dealing with bid window 3.5 and 4 only because they are the ones that remain to be signed. Anything outside of that we are not committing at the moment. These are approximately 26 projects that we are talking about. Other [bid windows] will have to be put on hold," said the minister.

She pointed out government has its own guarantees for the projects. "If Eskom does not pay, it means government must pay and that is a [concern] for government, especially in the fiscus trajectory. We need [fewer] guarantees that will burden the state."

Review process

Deputy minister Thembi Majola said after the conclusion of bid window 3.5 and 4, the department will embark on a review process.

"We do need to take time … [to look at] the long-time implications because it has been a subsidised programme that has had a direct impact in terms of affordability, so we will be reviewing," she said.

Kubayi said she will meet with all IPP participants in all bid windows to discuss issues of concern from IPPs. The meeting will be an opportunity for government to give feedback on concerns before the date of signing, she noted.

Given the current excess generating capacity, the department said the majority of projects in bid window 3.5 and 4 will be commissioned closer to 2021 and will, therefore, have minimal contribution to the over-capacity up to 2021.

Kubayi also spoke on the interdict by the coal sector and the Section 77 notice filed by the Congress of South African Trade Unions (Cosatu) at the National Economic Development and Labour Council.

Cosatu in April announced it would oppose the planned closure of five coal-powered power stations, which could result in job losses by the involvement of IPPs.

"We are hoping all parties will consider this position," said the minister.

With regards to transformation and local ownership in some of the IPP projects, Kubayi said: "This has to be reconsidered and adequately addressed. Allocations of projects and the ownership structure must be in line with South African transformation policies.

"We further reiterate our position that transformation of the energy sector is long overdue and we can't compromise on it any longer."

The Department of Energy launched REIPPP in 2011, which called for 3 725MW of renewable energy technologies.


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