Renewable electricity suppliers gaining ground

Generating capacity of independent producers is just about equal to that of an Eskom power station.
It’s not just environmental factors that are driving renewable energy projects; in SA, it is becoming a necessity to counter electricity shortages. Image: Shutterstock

We can expect the debate about the future of electricity supply to reignite after the National Energy Regulator of South Africa (Nersa) granted Eskom approval to increase prices to recover past expenditure to the tune of R13.3 billion and warnings that load shedding is bound to resume when economic activity restarts.

The coming increase in electricity tariffs is due to the pricing structure that allows Eskom to adjust future prices to claw back “lost revenue” of the previous year if costs and income differed from estimates tabled when prices were determined at the beginning of the year.

An alternative view of the pricing process is that Eskom uses the so-called regulatory clearing account to recover revenues it did not get during a particular period because Nersa did not grant the tariff increase that Eskom applied for originally.

Setting prices a ‘game’

The process of setting electricity prices has become a game, with Eskom applying for an increase and Nersa allowing less than what Eskom asked for, followed by the next round of negotiations in which Eskom ask for a clawback of revenue after the event – with Nersa, once again, approving less than requested.

Nersa announced that Eskom applied in August last year for an increase in electricity tariffs big enough to ensure the recovery of R27.3 billion relating to a shortfall of revenue in the 2018/2019 year, but Nersa only allowed adjustment in tariffs to recover R13.3 billion.

Eskom will announce pricing details later, but estimates suggest that prices will increase by some 6%, in addition to the normal increase of around 8% in prices granted for the current year.

Meanwhile, Eskom is stumbling from one problem to the next. Its debt is increasing and its older power stations need lots of maintenance and repair work, while the newer power stations are plagued by design faults.

In addition, its labour force stymies cost-cutting exercises, politicians refuse to consider restructuring proposals, and environmental issues with its fleet of coal-fired power stations have created huge problems.

Options

Alternatives are slowly gaining ground, as Sasol’s recent invitation to suppliers of renewable energy shows.

Sasol says it is looking for an independent power producer to install either a wind or solar power plant with a capacity of at least 20 megawatts (MW).

Sasol intends procuring a total of 600MW of renewable energy to reduce greenhouse gas emissions from the generation of electricity by approximately 1.6 million tons per annum.

It is not only environmental factors that are driving renewable energy projects anymore. In SA, it is increasingly becoming a necessity to counter electricity shortages.

Figures and estimates show that independent power producers and corporate installations are close to generating as much electricity as one of Eskom’s modern power stations. Importantly, this ‘power station’ was built and financed by the private sector and is operating without a cent of assistance from taxpayers.

Utility-scale projects

Energyblog lists a total of 95 utility-scale sustainable energy projects in SA that are operational, in construction, or approved with construction starting soon. The total installed capacity of these projects will exceed 6 400MW, with an estimated generating capacity of nearly 2 000MW.

The difference between the installed capacity of solar and wind farms and what the installations generate is due to the fact that the wind does not blow and the sun does not shine 24 hours each day.

Estimates of other green energy installations (mostly commercial, industrial and residential solar installations) differ widely, with the SA Photovoltaic Industry Association (Sapvia) estimating at least 1 200MW of grid-tied installations and the SA Wind Energy Association (Sawea) a total of at least 2 000MW.

Installed capacity of 2 000MW equals generating capacity of around 600MW. Thus, the total generating capacity of green energy in SA is approaching 2 500MW – just less than the average produced by Eskom’s fleet.

Eskom’s newest six-pack power stations consist of six generating units designed to produce 600MW each for a total of 3 600MW from every one of the modern power stations, but Eskom is still running its older, small power stations.

Figures show that Eskom’s 13 power stations produce 34 952MW of electricity, which equals an average of less than 2 700MW per station.

Figures supplied to Moneyweb by Sapvia CEO Niveshen Govender show that installation of photovoltaic solar systems is expected to increase threefold in the next 10 years, from the current installed capacity of around 3 800MW to 12 000MW.

Multiple benefits

“It can create a significant number of jobs, contribute to carbon reduction targets and promote local manufacture,” says Govender. “We remain positive that solar PV [photovoltaic] storage is the future of energy supply in SA as demonstrated globally.”

He points out that solar technology continues to improve, while costs are decreasing. However, says Govender, the recent weakening in the exchange rate will have an impact on the cost of new projects.

The wind energy people share these sentiments. Sawea CEO Ntombifuthi Ntuli says the Integrated Resource Plan 2019 (IRP 2019) makes provision for another 14 400MW worth of wind energy installations over the next 10 years, which will have a knock-on effect through the economy.

“Wind power has a role in bridging the gap in energy availability as SA will see massive decommissioning of old coal-fired power stations over the next 10 years as the plants reach the end of their lives.

Positive spin-offs

“This new generation capacity from wind energy will have positive spin-offs for the country’s economy as it is expected to attract more than R300 billion in investments, create jobs across the industry value chain and deliver cheap electricity to consumers,” says Ntuli.

Read: Eskom CEO says getting independents onto power grid will be costly

She says the association believes the build of new wind farms should be part of government’s Covid-19 stimulus package, since “it is infrastructure investment that government does not need to put capital investment into”. It is all financed by private investors.

The big benefits of wind and solar projects are that they are quick to construct and come in on budget.

A utility scale wind or solar PV plant can be put up in 10 to 24 months (excluding the time for planning and licensing), while it takes Eskom longer than 10 years to build a power station.

And any similarity to the original budget would be purely coincidental.

It seems that government delays and legislation limiting sustainable energy projects are problems. Ntuli says the development of new wind farms experienced a slump due to a delay of three years in the signing of power purchasing agreements for projects in the fourth bid window.

In addition, the size of wind farms is limited to 140MW, while the amount of electricity they are allowed to export to the grid is limited to pre-agreed maximum levels.

Sawea has previously, when SA suffered load shedding, called on government to remove these limitations as wind farms had 500MW excess capacity available at the time and could deliver additional electricity for as low as 40c per kilowatt hour.

Both Sawea and Sapvia welcome the proposed amendment in regulations that would allow independent power producers to sell electricity directly to municipalities.

The amendments are currently in the process of calling for public comment and will hopefully be promulgated soon.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   21

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

Boy, this country of ours have massive problems. I can see no way that these problems will ever be solved. And all the problems are from SOE’s. Government made problems.

Im not sure that State owned enterprises are responsible for all our problems. They do not have a monopoly on fraud and corruption as can be seen from Steinhoff etc…

But the state can fix things. Imagine if there was a functioning NPA and fraudsters actually went to jail. And if ESCOM staff was to be reduced by half. Imagine if municipalities were functioning and IPP’S supplying them were actually paid..

What was that John Lennon song again about imagine…?

Agree no arms deal fraud plus plus, we would have free education, cheap fuel, electricity, employment………what the hell pass that zol please.

‘Now since man is naturally inclined to avoid pain — and since labour is pain in itself — it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.

When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labour.” – Frederic Bastiat – The Law

When the criminal justice system has been decimated by socialist policies, then criminality is widespread because that is the nature of man. Bankruptcy is the punishment for criminality in business, as it is for rampant corruption in the state. When the system does not hold people accountable, then the system incentivises the most unscrupulous individuals to exploit the system. This is true for both a capitalist company as well as a socialist government.

The important difference is that the shareholders can immediately act against corruption because a company is not democratic. The voters cannot act against the state though. The citizens are at the mercy of the state when the majority of voters are waiting for their opportunity to share in the loot.

For the same reasons that we should not invest in companies that commit fraud, we should not invest in countries that are ruled by criminals. Fraud is not easy to spot at a company, but it is clear for everyone to see when governments are criminal. They write their intentions in their manifestos. They make socialist laws and the voters support them.

What is being do to the 90% of the municipalities and townships who do not pay for the electric.

Great that Sasol has suggested a green alternative, not so great that Eskom chief says it’s too expensive to connect Green energy to the current grid. Seems like the SOE’s are not keen on alternative suggestions, perhaps because they then lose control of the purse that’s feeding them?
The difference between Capitalism and the welfare state – in both instances some get richer than others!

It is a pretty simple and crooked scheme where Eskom has a monopoly over distribution and will try and squeeze independent suppliers even if they do not use the Eskom grid (i.e. they are in municipal areas). I doubt Eskom know what there true generation costs are but I will provide a clue. Divide annual expenses by power produced and one will, I think, get a shocking number. When was the last annual report?

Only one answer for me. Break it up and privatise which, of course, will never happen.

This is why Eskom needs to be split, a healthy gridco that can charge a sustainable amount for connecting and then let generators compete, privatising distribution would be wise as well because munics with huge debt to Eskom is not sustainable.

Projects already get charged for connecting to the grid, that is supposed to include upstream costs in there as well but if not then again charge the projects but do it evenly, Eskom generators should have to pay the same charges that anyone else does.

Several years ago the National Maize Producers Organisation, NAMPO, embarked on an ambitious project to produce Ethanol from maize as a renewable alternative to diesel. The thought process was that it would make us less dependant on fuel imports, improve the balance of payments and also be kinder to the environment.
The government was concerned that it could impact food production especially since it was a staple food for so many people. After lengthy consultations, a tentative green light was given for the project. Contractors moved onto the proposed sight in Bothaville with there earthmoving equipment. Then one day the bean counters and engineers got together and it was discovered that it would cost considerably more in diesel and fertilizer, made from oil or coal, that the actual liters of ethanol produced.
The important lesson learned here seems to have been lost on the proponents of alternative renewable energy. How much energy is consumed making a wind turbine, PV cell, or reflector, and what is the lifespan of these alternatives? It might come as a surprise that sometimes just using the coal to generate electricity instead would have been a better option. It might be better to go pebble-bed nuclear or find more efficient ways of burning coal.

Yawn, zero substance argument.

Firstly, it is not alternatives vs coal vs nuclear. It is a energy plan that generates the required energy at the required time with the least cost and environmental impact. Plenty of studies done to predict the best mix with far more science than the rather meaningless argument put forward here.

We need to avoid straw man arguments here and look at the facts. The use of coal to produce power is declining worldwide. Renewable power is increasing by leaps and bounds. South Africa has about 2500 hours of sunlight per year compared with Europe’s 1000. We also have almost half the rainfall compared with the rest of the world (about 492mm compared with the rest of the earth at 985mm). So: a perfect scenario for PV energy. And with 3000 kms of coastline, we also always have wind blowing (ever seen a weather report that said: Wind CT: 0km/h, PE: 0km/h, Durban 0km/h ?) The once-off costs of producing wind turbines or PV panels are just that: once off. And even after 25 years PV panels are still producing 80% of their original power. It’s time we got away from the Socialist doctrine of one mega-power producer producing all the power for our large country. Given the circumstances, it’s frankly idiotic.

As far as Sasol’s plans go, they are a large consumer of natural gas. This could be added to the mix to provide stability for wind+solar power generation. In total much greener than coal.

I think we all agree that South Africa has many problems and everyone seems to have an idea about how to resolve them and that is where we often find disagreements. Maybe because proposed solutions are one sided. I also believe the current political environment will never resolve our problems, it is South Africans themselves outside the current political parties who can resolve our problems. For as long as we as the people of this nation are divided, we will not see the change that we want.

The current systems in the world either be capitalism, socialism or communism etc, they cannot solve our problem, SA need to find a balance between them and make it work. When solving the problems of this nation, you cannot and must never ignore the current inequality. SA has many poor people and the solution needs to accommodate them with the plan to eventually phase it out.

We can continue blaming everyone in power and if we do not do anything for ourselves as South African, working as a unity its game over. Even in 10 year time we will continue complain about corruption, poverty, crime, inequality etc

You are correct. This is the point of the entire discussion though. Every political-economic system has particular definable results. Every political-economic system incentivises and rewards certain behaviour patterns among the pollution. When you live in a country where inequality, unemployment and hunger have grown over the past 25 years, then it is clear that your leaders have implemented the wrong system. The entire debate is about which political system can uplift the nation and eradicate poverty.

Employment opportunities create an escape from poverty. This is the only viable escape from poverty. Free-market policies enable entrepreneurs to create job opportunities, while socialist policies destroy jobs. The local policies make South Africa the dumpsite for international unemployment. The Tripartite Alliance exports job opportunities to developed nations and imports unemployment from them.

The ANC, like Mugabe and Maduro, is highly successful at creating poverty because this is the inevitable result of the chosen system.

Claw back?? Excellent news! I cannot wait to hear about the 20 year claw backs from Soweto and the other non paying municipalities then? Should make for very entertaining reading me thinks.

The problem the Govt and Eskom have with IPP’s is that they will not have control and milk them dry as they have been doing for years with SOE’s.
The dramatic drop in air pollution worldwide during lockdown and its rapid return to previous levels now that vehicles and industry are back says everything about fossil fuels.

I would really like to see what the total behind the meter solar energy is in SA by now. Fair chance there is more private solar than the IPP solar farms. I suppose it depends on geography and markets, but very large sections of SA (all cold stores, wineries) can displace 1/2 of their energy consumption with solar, without batteries. Add modest batteries and more solar and that number is easily 100% actually > 100% as you would add so much solar that you would certainly generate far more than annual loads.

If it wasn’t for government’s concerted efforts to stall the roll-out of renewable energy during the Zuma years (because he was trying his damnedest to get nuclear approved), we would in all likelihood be free and clear of load-shedding by now.

Thanks to the crooked practices of the ANC, we lost 3 vital years, and given it takes only 10-24 months to install a solar or wind farm, those 3 years would have made all the difference.

Too true, Dr G. The push for nuclear power with Russia was solely motivated by Zuma (and his crooked cohorts) desires to become fabulously rich. No nuclear plant has ever been constructed within budget or expected time of completion. But here in SA we have millions of hectares of unproductive farmland drenched with sunlight and plenty of wind on our coastline. The fact that the ANC is not jumping with alacrity to take advantage of our natural assets says either they are stupid (possibly) or are still clinging to a forlorn belief in a Communist system where the State supplies everything. The world is changing fast and there’s nothing so hard to stop as a trend.

As long as the Price of the IPP they is not more than what we are paying for I dont have a problem. The problem will be when they will sell at the hire price than what eskom is selling to us.

New solar and wind sell to Eskom at 60 cents per kWh. New coal station build costs are more than R1.30 per kWh and Kusile and Medupi are double that. What is Eskom charging you? You are paying for the cushy jobs at Eskom and for the BEE coal mining companies. You are paying for the ANC’s failures in other words.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: