Eskom got another bloody nose at the National Energy Regulator (Nersa) on Wednesday, this time about a decision that, if approved, could bring government’s successful procurement of renewable energy from independent power producers (IPPs) to a halt.
Moneyweb earlier reported that Eskom asked for exemption from the obligation to issue budget quotes to preferred bidders beyond round three of the renewable IPP programme. These quotes are for the cost of infrastructure needed for connecting to the grid.
The cost is for the account of the IPP, but the quote is a requirement for financial close and for reaching a power purchase agreement (PPA), which places an obligation on Eskom to buy the power these IPPs will generate, for the next 20 years.
Eskom has suspended the issuing of budget quotes until April 1, 2018, apparently in an effort to avoid incurring this obligation. In its application for the exemption it said it needed a revenue guarantee from Nersa before it can proceed with the budget quotes.
Twenty-six preferred bidders have already been announced in round four of the procurement process, representing a total nameplate capacity of 2 205MW and investment commitment of almost R50 billion. These projects and all subsequent renewable projects could have been seriously at risk if Eskom’s application was granted.
Nersa’s electricity sub-committee rejected Eskom’s decision during its meeting on Tuesday. This is expected to be confirmed by the regulator itself during its meeting at the end of the month.
During the discussion Nersa chairperson Jacob Modise characterised the Eskom application as “cheeky”, equating it to blackmail. Modise said Eskom has to comply with its licence conditions, which include the requirement that it issues budget quotes within the prescribed timeline. He said the government could not allow all this renewable development and then allow this decision by Eskom.
Regulator member for electricity TT explained that Eskom’s current tariff application (MYPD3) that stretches until March 31, 2018, made provision for renewable projects according to the planning in government’s Integrated Resource Plan 2030 (IRP2030) and the necessary revenue was approved.
As a result of Eskom’s generation deficit the Department of Energy however accelerated its procurement, which resulted in projects being developed earlier than was anticipated during the MYPD3 determination.
This means that provision has not been made in the MYPD3 revenue allocation for funds for Eskom to buy electricity from the expedited projects.
Bukula said Nersa is however bound to its MYPD3 determination. It cannot, as Eskom requested, give guarantees outside of the MYPD framework.
He said Eskom has to get the revenue by submitting an application in terms of the Regulatory Clearing Account (RCA) – that provides for clawing back certain unforeseen expenses – or address it in the next tariff application (MYPD4).
Nersa will deal with it once it gets such an application, he said.
Bukula said the request for a guarantee is a backlash from Eskom after it “requested something it didn’t get”, an apparent reference to Eskom’s failed bid earlier this year for a “selective re-opener” of MYPD3 and the lower than expected award in its earlier first RCA application relating to MYPD2.
He said the regulator has never before issued guarantees. However, if Eskom follows the prescribed processes, Nersa is obliged to award it the revenue for IPPs as a pass through cost. That is where the guarantee lies, he said.
Bukula also pointed out that there is not even clarity whether any of the current preferred bidders will reach commercial operations during MYPD3 and whether Eskom will therefore be exposed to purchasing power from them before March 31, 2018, at all.
Department of Energy Deputy Director-General for Policy, Planning and Clean Energy Ompi Aphane said once Nersa concurred with the Minister of Energy’s determination of the extent of renewable energy to be procured, there would be a clear legislative guarantee that Eskom has to buy the electricity the approved projects generate and its cost would be recovered.
He said the law does not pronounce on liquidity though. The timing of the recovery may not coincide with when the expense is incurred. Eskom has to manage its liquidity using the same mechanisms any other company does to do so, he said.
Eskom spokesperson Khulu Phasiwe said it is the utility’s primary objective to connect the IPPs to the grid, but it wants to avoid a situation where it commits to expenses it cannot afford and thereby trades recklessly.
He said Eskom is engaging its shareholder about getting the necessary funds. These discussions will inform when the RCA application will be submitted and whether it will be for both the first and the second year of MYPD3, or for only one.
He said clarity would be given to stakeholders about the way forward regarding budget quotes at the public forum about Eskom’s Transmission Development Plan for 2016-2025 that will be held on Friday.