Eskom entitled to delay IPP signing – Nersa

SAWEA fighting to prevent recurrence.
Source: Shutterstock

Following an investigation, energy regulator Nersa found that Eskom was within its rights to delay the signing of power purchase agreements (PPAs) with 27 renewable energy independent power producers (IPPs).

It did however find that Eskom contravened the conditions of its transmission license by failing to provide budget quotes to the IPPs within a reasonable time.

The PPAs were eventually signed in April after a delay of about two years that threatened to derail the country’s very successful Renewable Energy Independent Power Producer Procurement (REIPPP) Programme.

Nersa’s findings will be the subject of a Nersa tribunal hearing and if confirmed, can open the door to a recurrence in future bid rounds of the two-year delay that cost IPPs millions, says Brenda Martin, CEO of South African Wind Energy Association (SAWEA).

Eskom and Nersa are the only parties in the tribunal hearing and SAWEA has applied to intervene.

No decision has yet been made on whether SAWEA will be given access to the hearing for which no date has yet been set.

SAWEA first laid its complaint against Eskom late in 2016. It stated that Eskom acted unlawfully and contravened its license conditions by unreasonably delaying the signing of PPAs with preferred bidders in the Department of Energy’s bid windows 3.5, 4 and the small projects round for renewable IPPs.

Eskom further contravened the law and its license conditions by its failure to provide budget quotes to all the preferred bidders, and/or its failure to extend such quotes where necessary, SAWEA stated.

Budget quotes are final cost calculations and technical specifications that Eskom issues to IPPs for the necessary grid connections. They are a prerequisite for financial close and issuing them leads to the conclusion of power purchase agreements that place the obligation on Eskom to buy all the power the IPPs produce.

As part of its investigation, Nersa held a hearing in September last year from which the public, and therefore the media, was excluded.

It finalised its report in December last year.

According to the report, Eskom argued that it did not refuse to sign the PPAs, but merely delayed due to a need to engage the DoE, as the procurer, about the tariff at which it would have to buy the power from IPPs. Eskom argued that it had a fiduciary duty in terms of the PFMA to ensure value for money.

Eskom further argued that it did not want to issue the budget quotes, because it would later bind the utility to prices issued months ago.

Nersa found in favour of Eskom that “Eskom’s explanation that it required to engage with the procurer (DoE) and that this was permissible . . . has to be accepted.”

It further found that Eskom applied for exemption from the provisions of the grid code that obliged it to provide budget quotes within an specified time frame, but Nersa rejected the request.

Eskom did not stick to the prescribed timelines and therefore contravened the provisions of the grid code and therefore its license conditions, Nersa found.

Nersa invited SAWEA in writing to make submissions and attend the hearing of the tribunal that was scheduled for May 24. Martin and two lawyers flew from Cape Town, only to be told by the tribunal the invitation was “an administrative error” and that it would have to apply formally to intervene, Martin told Moneyweb.

The hearing was postponed to give SAWEA an opportunity to do that. It has submitted its application, but no new date has been set for the tribunal hearing, Martin said.

While the matter seems moot after the signing of the 27 outstanding agreements in April, Martin says it is important to continue to pursue it at the tribunal.

“Over the last two years, Eskom’s capacity to prevent grid access to renewable independent power producers, even though they have been selected through due procurement process has resulted in significant value chain damage to South Africa’s relatively young renewables industry.

“The industry’s job-creating manufacturing and construction sectors in particular, have borne the direct brunt of the implementation delay.

“Recognising that if the tribunal adopts the investigation findings, that Eskom may at any point in the future again elect to delay grid access, SAWEA will continue to pursue this matter,” he says. 

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We seem to have a clear disconnect here. On the one hand Eskom is adding two massive coal fired power stations and will end up with more then R500 billion of debt, while its sales are declining and additional renewables will eat further into its sales. And to add insult to injury renewables will also change the residual load profile to be supplied, making Eskom’s brand new power stations unsuitable for the job. Something will have to give. Short of a gargantuan bail out from the state I struggle to see the way out. I wonder if the new IRP will shed some light on this conundrum?

The really sad thing is… If the new power stations were completed on time and even remotely within budget, they would have made perfect sense.
But through the incomprehensible levels of corruption and incompetence, they pretty much made sure that Eskom will probably never be able to make a profit ever again. Even if they do get a huge bailout.

you’d think that as an SOE, ESKOM would operate in the interests of the taxpayer instead of the ruling regime and the greed of its cadres. You’d think.

hmm – that’s a tricky comment. As a Government entity it should act in the interests of the majority of the country that elected the Government. I would say that taxpayers are a subset of the majority that elected the Gov and hence don’t have as much say as to how Government spending is allocated as they’d like.

Nersa is supposed to act in the interests of the consumer, citizens, voters and taxpayers. In practice Nersa is an organisation that enforces and secures Eskom’s monopoly. Nersa supports and enforces the corruption,,ineptitude and inefficiencies at Eskom. Nersa enables Eskom to loot the consumers. Nersa = ANC = stagnant economy.

End of comments.

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