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‘Rogue’ Eskom threatens fastest renewable expansion

Power utility stalls sign-off of power-purchase deals.

Opposition from South Africa’s state power utility Eskom Holdings and government infighting threatens to sabotage the world’s fastest-growing green energy programme.

Eskom is stalling on signing government-brokered deals to buy renewable energy from private producers, encouraged to develop capacity after outages over the past eight years hobbled Africa’s most industrialised nation. With the economy in the doldrums, the state utility says it no longer requires additional green power, arguing it’s not always available during peak demand periods and will push up prices for South African consumers.

Eskom’s reticence over renewables contrasts with its enthusiasm to find bidders for nuclear plants, even after the Energy Ministry last month proposed delaying new atomic reactors by 14 years. That contradiction reflects the schism at the heart of government, where President Jacob Zuma’s championing of nuclear power puts him at loggerheads with his Finance Minister Pravin Gordhan, who has questioned its affordability. 

“There are strong political overtones to this,” said Professor Harald Winkler, director of University of Cape Town’s Energy Research Centre. “It doesn’t give investors in renewable energy consistency. It’s a way of exercising control by Eskom.”

Increasing Risk

Eskom has refused to sign off on an agreement to purchase 250 megawatts of power from two wind projects planned by Irish clean-energy developer Mainstream Renewable Power, and a deal with Saudi Arabia’s ACWA Power International to supply 100 megawatts of solar energy.

Eskom’s actions are “in contravention of government policy,” Mainstream chief executive officer Eddie O’Connor said in a November 30 phone interview. “These guys have gone completely rogue. It’s increasing the risk of outside investors investing in South Africa fairly dramatically.”

Some projects haven’t been signed off because they are “very expensive,” Eskom spokesman Khulu Phasiwe said by phone. 

“The price they are charging for their power is much higher than we are selling it for and higher than we are willing to pay,” he said. “The projects that came at a reasonable price, we were able to sign them on.”

Energy Minister Tina Joemat-Pettersson and Public Enterprises Minister Lynne Brown have done little to pull Eskom into line.

Since South Africa initiated its programme to purchase renewable energy, independent producers have committed R194 billion ($14 billion) toward new infrastructure and as of June, 2 200 megawatts of power from 44 projects had been connected to the national grid. Asset finance for the projects rose fourfold last year, the most of any country in the world, Moody’s Investors Service said in a report.

Destroying Confidence

While Joemat-Pettersson has signed off on about 37 other projects worth R58 billion that will generate 2 354 megawatts of power and create about 4 800 construction jobs, developers are still waiting for Eskom to sign the off-take agreements.

“A programmr like this only works if you have got certainty and you’ve got continuity,” Wido Schnabel, head of business development for Africa at Canadian Solar, said by phone. “Now that the program has been stalled again because Eskom doesn’t want to sign the power-purchase agreements, it is destroying all the confidence and all the positives.”

Joematt-Pettersson told reporters on November 22 that determining South Africa’s optimal energy mix must take account of cost, security of supply, efficiency and the environment. Colin Cruywagen, a spokesman for Public Enterprises Minister Brown, who oversees Eskom, didn’t immediately respond to an e-mail seeking comment.

Too Expensive

In August, SMA Solar Technology cited the lack of commitment toward the green energy program as the reason for shutting its Cape Town factory and transferring production to China and Germany, where it has its headquarters.

Eskom can delay projects by letting quotes for connecting plants to the grid lapse, said Hein Reyneke, Mainstream’s business development manager for Africa. The quotes have been directed to the CEO’s office “but nothing comes out,” he said.

Eskom is building the Medupi and Kusile coal-fired plants that it estimates will cost at least R306 billion and will supply about 9 560 megawatts when both are complete. They have run over budget and are years behind schedule. Matshela Koko, appointed Eskom’s acting CEO on December 1, has said the utility is shielding consumers from higher tariffs by not signing new off-take agreements.

“I understand where they are coming from,” said Robert Jeffrey, managing director and senior economist at Johannesburg-based advisory service Econometrix. “Eskom actually has a duty to supply efficient power at the lowest possible price. Clearly renewables don’t allow it to do that at this stage of technological development.”

Monopoly Concerns

Winkler of the University of Cape Town disagrees, saying renewable energy prices, particularly for photovoltaics and wind, have come down dramatically.

“Those two are now cheaper than new coal or new nuclear,” said Winkler. “Any monopoly will have concerns about competition.”

South Africa only has an over-supply of electricity because of Eskom’s inability to previously meet demand halted new development and choked off growth, according to Schnabel of Canadian Solar. He sees energy storage solutions improving and decreasing in cost over the next five years, enabling renewable energy to be used at any time.

“We’re missing this huge opportunity,” he said. The developers take the risk and “all Eskom needs to say is that they’ll buy the energy from them over the next 20 years.”

© 2016 Bloomberg


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Unfortunately Eskom’s case to buy renewable at a higher price than what it sells is true and we need to also side with them. How could you be buying power at R3.00/kw and selling it at R1.50/kw. The other major concern we have is the duck belly theory in solar energy supply. Solar only kicks in when the sun energy increases during the day and is not available during peak times, 6am to 10am and 4pm to 7pm. This than places huge strain on Eskom to ramp up generation during these hours and loose the sales and electricity demand when the solar kicks in. This is also than bad for the consumer because Eskom will have to take this phenomena into account and bill excessive rates during maximum demand periods to offset the extremely low demand when solar kicks in.

We dont have issues with nuclear energy but we do have an issue with who is pushing for it and why. There is no transparency in its procurement process and we clearly know that if you are dealing with the Russians than its obviously that the Zumas and the Guptas stand to gain over 100 Billion rands in kick backs.

We definitety need to find a quick solution around the impasse or else we will find that our next generation will be left without power when they need it most. Whats wrong with Mozambican gas power plants?

End of comments.





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