Sarec says Eskom dragging its feet in honouring Zuma’s renewables ‘injunction’

The South African Renewable Energy Council (Sarec) says Eskom has yet to issue any updated budget quotes for projects that President Jacob Zuma said in his State of the Nation address (Sona) would proceed, following a protracted impasse that arose as a result of the State-owned utility’s refusal to enter into power purchase agreements (PPAs).

Budget quotes detail the cost to connect a new independent power producer (IPP) to the grid and are required ahead of the signing of a PPA.

The IPP projects selected in April and June of 2015 as part of bid window four of the Renewable Energy Independent Power Producer Procurement Programme) paid Eskom for budget quotes, which include engineering design and costing. However, as a result of the subsequent delay, these had mostly all lapsed.

Sarec board member Mark Pickering tells Engineering News Online that the IPPs have sought updated budget quotes in light of Zuma’s instruction that Eskom “sign the outstanding power purchase agreements for renewable energy in line with the procured rounds”.

However, only pricing estimates are currently being released, with no indication from Eskom as to when final, signature-ready quotes could be expected. In addition, no date had yet been set for the signing of the PPAs.

“There have been various changes made that have alarmed some bidders, with prices having shot up and, in some cases, even doubled,” Pickering reports, noting that the costs of transmission and substation connections can run into hundreds of millions of rand.

“The more important issue here is how the board and interim CEO are responding the President’s instruction. They have not exactly sprung into action.

Sarec chairperson Brenda Martin argues that there are, in fact, signals that Eskom is dragging its feet. “Despite the President’s injunction, Eskom has yet to issue a single IPP with an updated budget quote. Eskom managers report that the Eskom board and interim CEO have yet to approve the formal issuance of these quotes.”

Also of concern to the IPPs are reports suggesting that renewable tariffs be “capped” at 62c/kWh, a price that was publicised by the Department of Energy for projects bid in November 2015, but never awarded, under the so-called ‘expedited’ round, also known as bid window 4.5.

Pickering says the average price bid for wind projects in bid window four was 75c/kWh, while the average price for solar photovoltaic projects was 91c/kWh. “It is, therefore, alarming that the 62c/kWh is still being put on the table, despite there being no basis for doing so for the bid-window-four projects.”

Eskom but has indicated previously that, in addition to the 64 PPAs already signed with IPPs, there were 2 383 MW of renewables for which PPAs remained to be signed. The board’s investment and finance committee had approved these, while the necessary approvals had also been received from Public Enterprises Minister Lynne Brown.

“Furthermore, the National Energy Regulator of South Africa has provided the necessary assurances for cost recovery of these PPAs,” Eskom reported.

Spokesperson Khulu Phasiwe also said that Eskom "is willing to have a dialogue with the renewable-energy industry in an effort to find an amicable and sustainable resolution regarding the scale and pace in which these projects will be signed".

However, Sarec restated that Eskom was not a policymaker and, therefore, had no legal authority to negotiate tariffs with preferred bidders.

A Sarec solicited legal opinion indicated that Ministerial determinations are binding on Eskom and the utility has no discretion to impose further conditions on preferred bidders or to negotiate tariffs following a completed competitive tender process.

“Eskom’s duty is to timeously and clearly follow the President’s directive and move rapidly to sign the outstanding PPAs,” Martin said, indicting that the projects had a combined investment value R58-billion and the potential to create 13 000 jobs.