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Eskom committed to renewables ‘at affordable cost, pace’

Quotes CSIR on R9bn net renewable loss for economy.

Eskom issued a statement on Tuesday night highlighting the net loss to the economy of R9 billion in 2016 as a result of its renewable power purchases from independent power producers (IPPs).

This follows Eskom being criticised for its apparent reluctance to incorporate into the grid renewable energy projects procured by the Department of Energy’s internationally-acclaimed independent power purchase programme.

Both Eskom acting CEO Matshela Koko and his predecessor Brian Molefe have complained about what they consider to be the high cost to Eskom and the intermittency of the power production. Eskom favours nuclear energy and last month issued a ‘request for information’ as the first step towards procuring 9 600 MW of new nuclear generation capacity.

In its statement Eskom says it “remains committed to renewables at a pace and cost the country can afford”. This is the same phrase used by government to counter concern about the cost of embarking on the nuclear new build programme.

Eskom in its statement “acknowledges the positive role played by the renewable energy programme in the reduction of load shedding and in turn the benefit to the South African economy.”

The utility refers to the methodology developed by the Council for Scientific and Industrial Research (CSIR) to quantify the net economic benefit of renewables (solar photovoltaic (PV) and wind). “This is achieved by calculating the benefits of reduced unserved energy (load shedding), as well as cost savings to Eskom (avoided coal and diesel burn). These benefits are then offset against the total tariff paid to the renewable IPPs, resulting in a net economic benefit or loss.”

Eskom states that it purchased 2.0 Terawatt hours (TWh) of wind and solar PV for the first six months of 2015, when the renewable power projects started coming online. “The CSIR calculated a total financial benefit of R8.2 billion. This was offset against the R4.3 billion renewable energy tariff cost, resulting in a net economic benefit of just under R4 billion.”

It then continues to state that it purchased 6.0 TWh of renewable energy from solar PV and wind during the whole of 2016. “Using the same methodology, Eskom calculated the total financial benefits, which amounted to R3.2 billion. This was offset against the renewable energy tariff cost of R12.2 billion, resulting in a net loss of R9.0 billion to the economy.”

Eskom says this net loss to the economy “will continue for as long as there is surplus capacity.” Eskom currently has surplus capacity until 2021 and can meet any increase in demand.

“Eskom has added a total of 5 568 MW, adding an additional 15% capacity to the grid in the last two years. Additional capacity was added by improving performance and the commissioning of new build plant. In the next five years, Eskom will add a further 8 304 MW capacity through the new build programme.”

Eskom points out that the associated cost impact of the renewable energy purchases has also been highlighted by rating agency Moody’s. “On 20 September and 05 December 2016, Moody’s credit opinion stated that “the group’s financial ratios remain very weak as a result of rising operating costs primarily driven by higher primary energy costs and ongoing growth in power purchase agreements with IPPs, as well as the continued roll out of its large capex programme”.

The utility states that it will, together with government, “continue to work together determinedly to address all issues as highlighted in the Moody’s credit opinion reports of 2016 at a cost and pace that the country can afford.”

Eskom included in its statement a copy of the CSIR article that contains it findings. It can be read here.

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Eskom is a drag on the economy and is to blame for the loss of tens of thousands of employment opportunities. Eskom is responsible for the surplus capacity because they forced clients out of business who could not afford the cost of electricity.

South Africa can no longer afford this monster government monopoly.
With abundant wind, sun, gas and shallow coal deposits, we should have the cheapest electricity in the world. Due to cadre deployment, corruption, incompetence and state-capture, we have the most expensive electricity in the world. The price of electricity in South Africa is simply a tax on honest people to fund corruption and cadre-deployment.

Privatize Eskom and we will once again, as under the previous government, have the cheapest electricity in the world.

mean while, the rest of the world are full steam ahead with renewable s. We are positioned well as a country for large scale solar development but Eskom thinks coal and nuclear is the way forward.

No Eskom you idiots;

Firstly, having excess capacity is an argument against nuclear.
Secondly, economic loss (per their method of calculation) is a directly due to capacity mismanagement – an inability they have continuously proven, and one which is implied by their report if they were willing to connect the dots past their own convenient conclusion.

Blaming the loss on renewables is the equivalent of saying my bond/mortgage is rising when I have bought a well-paying solid investment property on the side; don’t blame your higher mortgage on your productive investment property (which has a short term cost for a large future benefit [the core of a good investment]) ..blame it on your lavish house where you extravagantly overspent (inefficiently applied your capital).

The ironic part is that Molefe isn’t an idiot, he’s just spinelessly following the orders of the ANC’s agenda around Nuclear; receiving the short term benefits of all the NPV’d cashflow coming in from the Russian ‘Infrastructure spend’ if nuclear goes ahead.

The problem is that Eskom is not run as a business but as a milch cow for the benefit of ANC cadres.

As a result of this sad, shameful and wholly untenable situation the consumer and the economy as a whole has suffered. The demand for electricity is lower than ten years ago as a result of the wanton destruction suffered by the price sector engine of wealth and economic growth.

The solution is to break up Eskom into power generation, power distribution (grid) and sales divisions (remove this function from corrupt municipalities). Then privatise each. Power distribution companies would then be free to purchase energy from whomever offered them the best deal. If renewables were a cheap reliable source of energy they would then force out coal and there would be no reason for any power generation company to embark on a journey seeking nuclear.

The argument is that Eskom needs renewables to meet the demand is false. Simply put if the demand outstrips supply, then the price is too low. The solution for high prices is high prices and a free market.

The issue is that nobody every looks at what Eskom pays for a kWh of renewable energy and what Eskom sells it for. You will find that after transporting it on their grid they make a loss.

That, britches, makes no sense and is called wealth destruction.

Eskom keeps using this argument but this is backwards looking and based on projects that were built on the back of high tariffs. Those tariffs have come significantly to the point where it seems new build renewable energy is cheaper than what Eskom can build new energy. Their coal fleet is extremely old and therefore it makes sense to roll out the projects waiting to be built, the tariffs on those projects are significantly lower than what is currently in operation.

Ben Franklin I agree with you. Also to add to this. All arround the world renewables (solar and wind) surpassed energy from coal for the first time in 2016. The price ($/kWh) is expectected to further reduce going forward. Many countries including China increased their investment in renewable sources. BUT our dear Eskom did their own calculations and concluded renewable energy is too expensive and decided nuclear is what it should be (note: unclear as one of the most cost intensive option of all sources). So mr Eskom please explain your position. Your demonstrated inability to do simple calculations are maybe another reason why rating agencies have downgraded you.

Eskom’s figures for 2016 are suspect.

Comparing the relevant paragraph with the previous one, the cost to Eskom INCREASED by a factor 12.2/4.3 = 2.84 from 2014 to 2016, while the benefit DECREASED from R8.2 to R3.2 billion.

Also, the benefit to Eskom in 2016 for buying 6 TWh of solar & wind power is calculated in the above article at R0.53 per kWh — below half of what Medupi & Kusile power will cost.

And less than a quarter of what nuclear power from the latest European (the Flamanville, Olikiluoto and Hinkley Point C) nuclear reactors will cost.

Moody’s higher primary energy costs refers to coal. Eskom irrationally if not illegally awarded Tegeta coal contracts ABOVE R800/ton against the R100/ton it had paid for the same coal to the previous owner of the same Optimum mine.

Moody also refers in the same sentence to Eskom’se capex program, wat is billions over budget, and a decade behind schedule.

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