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Nene budgets for nuclear

Quiet on Eskom’s IPP funding problem.

Finance Minister Nhlanhla Nene has in his mini-budget allocated R200 million “to support preparatory work for nuclear procurement” – a clear indication of government’s continued intention to go ahead with the controversial nuclear build programme.

He said National Treasury is working with the Department of Energy to assess the cost, benefits and risks associated with the proposed nuclear build program.

No clear time lines were given with regard to the planned procurement process and no cost ceiling was provided.

Government’s plans to build new nuclear power plants are based on an allocation of 9 600MW of nuclear generation capacity in the 2010 Integrated Resource Plan which maps out the country’s future energy needs and the technology mix needed to meet this demand. In his mini-budget Nene said government is revising this plan, which has been criticised as being outdated with regard to energy demand.

He says electricity supply constraints remain the single largest drag on economic activity, estimated to cost close to 1% of annual GDP growth.

Nene said progress has been made with addressing the supply deficit, with the first unit of Medupi that started commercial operations last year, adding 800MW of generating capacity to the grid. Another 900MW will return when the unit of the Koeberg nuclear power plant taken out of service on planned maintenance returns to service in December. “The Sere wind farm added 100MW of capacity in February. The Majuba plant has been returned to service and work to repair the damaged boiler at the Duvha plant is in progress.”

Eskom has also been taking steps to improve the efficiency of its maintenance programme, Nene said.

He emphasised the role of Independent Power Producers (IPPs) in adding additional generation capacity.

He did not address the problem that Eskom has with funding grid strengthening and power purchases from renewable IPPs beyond bid window 3. Moneyweb earlier reported that Eskom has stopped issuing budget quotes to renewable projects beyond bid window 3 until 31 March 2018 for this reason. This step in effect prevents the projects from progressing towards financial close.

To date 92 IPPs have been selected as part of government’s renewable energy procurement program, representing private sector investment of R193 billion. In aggregate it will add R6 329MW of generation capacity to the grid, if it can be connected.

37 projects with a nameplate generation capacity of 1 800MW have already been connected.

Eskom earlier stated that these projects operated at a load factor of 31% during the previous financial year.

“The Minister of Energy recently issued a determination to procure another 6 300MW through the renewables programme. The programme is expected to boost electricity capacity by 17 000MW by 2022”, according to the mini-budget.

Nene said IPP procurement has been extended to other technologies with procurement of 1 350MW of generation capacity approved by the energy regulator (Nersa) in terms of short-term contracts for 2015/16. “An additional 2 500MW of coal, 3 126MW of gas, 1 800MW of cogeneration and 2 609MW of imported hydro power generating capacity is expected to be connected to the grid between 2020 and 2025.”

Nene said government has stabilised Eskom’s financial position with a R23 billion equity injection financed by the sale of its stake in Vodacom. He has attached stringent conditions to this recapitalisation with regard to planned plant maintenance, capital expenditure and cost reduction.

Government further converted its R60 billion subordinate loan to equity, strengthening Eskom’s balance sheet.

Eskom is currently utilising R162 billion of its R350 billion government guarantee facility.

Through inter-governmental co-operation 59 defaulting municipalities have entered into payment agreements with Eskom, to repay arrears of R4.9 billion.

Eskom’s capital expenditure is projected at R157 billion over the medium term, including the construction of its new Medupi and Kusile power stations and strengthening of the transmission and distribution networks.

“These efforts are beginning to yield results, with an immediate reduction in the debt observed. Eskom recorded a profit of R3.5 billion in 2014/15.”

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Economics 101. Let private capital put up wind/solar whatever and buy power from them. Cheaper and quicker and will be better run than building yourself. Been proven already.

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