Opposition growing to IPP contracts

The conclusion of additional power purchase agreements (PPAs) with independent power producers (IPPs) would burden South African consumers with unwanted and expensive electricity, according to energy consultant Ted Blom. Blom, a partner at Mining & Energy Advisory, said yesterday that the 27 IPP projects that were scheduled to sign PPAs with Eskom this week would bring about substantial investment and some jobs “as would almost any investment which offers 20-year government guarantees and 100 percent off-take”.

But he said the agreements would have dire consequences for South African consumers, who would have to bear the consequences of the high electricity tariffs as a result of the IPP power. In the year ended March 31, Eskom purchased 11529GW/* from IPPs at a cost of R 21.7 billion, compared to 9033 Gigawatt hours (GW/* ) at R15.4 billion in the 2016 financial year. The IPP power cost 188c/kW/* , compared to 171c/kW/* in the 2016 financial year. He said, under the current energy scenario, South Africa would have more than 60GW/* of capacity by 2022, against a flagging demand of below 30GW.

He said demand had fallen to below 2007 levels, mainly because of massive increases in electricity costs. Basic electricity prices have ballooned from around 15cents/kW/* in 2007 to an average of more than 100c/kW/* in the 2017 financial year, and in some cases to more than R3/kW/* , depending on the demand profile, he said. He said renewable energy companies were queuing with energy projects that were virtually guaranteed to make money under what he termed an artificial price floor.

“The consequence of this recipe spells disaster for South African consumers and business. It will lead to a 20-year depression as electricity tariffs get blown sky-high to compensate a dying Eskom and inflation-linked renewables with guaranteed off-takes,” he said. The Department of Energy this week cancelled the signing of PPAs with the 27 IPPs after the National Union of Metalworkers of South Africa and non-profit organisation Transform RSA applied for an urgent last-minute interdict against the signing of the IPP agreements. They have argued that the conclusion of the agreements would be detrimental to coal mining and would result in job losses, especially in the Mpumalanga area, where many of Eskom’s coal-fired power stations are located.

Transform RSA said yesterday that the current IPP procurement programme was expensive, unsustainable and would result in higher electricity costs. “The current IPPs tender contract will cripple Eskom’s balance sheet and the cost to the utility is prohibitive. Eskom’s financial statements indicate that (it) does not have enough liquidity to invest in the IPP agreements. The cost of IPP procurement will run to the tune of R1.4 trillion over the life of the project, and that cost will be passed on to workers, taxpayers and consumers,” said Transform RSA President Adil Nchabeleng.

New Energy Minister Jeff Radebe this week lauded the role of renewable energy.