Koko unpacks Eskom’s renewable costs, but experts disagree

Fin24, comment by Harald Winkler of UCT ENergy Research Centre, 18 January, 2015.

Cape Town – Eskom acting CEO Matshela Koko has revealed how renewable energy costs are suffocating Eskom’s finances, but energy analysts have queried the science behind his calculations.

Koko and a team of Eskom experts last week gave Fin24 a presentation detailing Eskom’s power costs on any given day, revealing how they have to use “expensive” renewable power before using their own “cheap” coal power.

His presentation followed Fin24’s story, 5 reasons why Eskom is wrong about renewables costs – CSIR, which was a reaction to Koko’s statement that renewable energy costs the South African economy R9bn a year.

However, an energy analyst told Fin24 that Koko – in his presentation to Fin24 – was comparing “old apples to new oranges”…

… Eskom comparing old apples to new oranges – ERC

However, Professor Harald Winkler, director of the Energy Research Centre (ERC) at the University of Cape Town, cautioned Fin24, saying it is hard to make sense of the partial information presented by Eskom.

“The comparison takes the costs for renewables, including capital expenditure, and compares this to what looks like only fuel costs for coal,” he said in an emailed response.

“We know that renewable project developers have capital expenditure as their main cost, factored into the bids they make – and reflected in contracted prices.

“One has to guess, given the limited information Eskom makes public, but take Lethabo shown at 13c/kWh.

“We know the coal costs R200 per ton. Working this out (1 ton / 16 GJ; 33% efficiency; 3.6 GJ / MWh, 100 c / R gives 13.6c/kWh.

“That suggests NO capital costs of Lethabo are taken into account, only the coal.

“That makes sense only from a narrow perspective of what goes in and out of Eskom’s books. An academically rigorous comparison would include capex, opex and fuel costs for all technologies; or else exclude them for all.

“Perhaps the most important technical point is that Mr Koko is using prices of REI4P first bid rounds (bid window 1, maybe 2), and resultant power purchase agreements (PPAs) before prices decreased further.

“We have already seen that the unit costs of wind and solar PV declined dramatically in later bid windows. Presenting historic prices in the knowledge the later prices are lower is misleading to the public.”

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CSIR responds to Eskom claim of R9bn renewables-related economic loss in 2016

Engineering News, 11 January, 2016.

The Council for Scientific and Industrial Research (CSIR) has responded to Eskom’s claim that buying power from the country’s renewable-energy plants resulted in a net economic loss of R9-billion in 2016 – a trend that could persist for the next five years, owing to the country’s surplus supply position.

To reach its conclusion, the State-owned utility used a CSIR-developed methodology, which offsets the benefits associated with reduced load-shedding and avoided coal and dieselburn, against tariffs paid to the renewable independent power producers (IPPs).

From January to December 2016, the utility purchased 6 TWh from solar photovoltaic (PV) and wind plants, which Eskom said translated into total financial benefits of R3.2-billion. However, this saving was offset against a tariff cost of R12.2-billion, leading to the assessment of a R9-billion net loss to the economy.

Eskom argued that this trend of net losses would persist until 2021, owing to its assessment that South Africa will continue to have surplus capacity until that date.  It, therefore, argues that new renewable IPP plants should only be introduced at a “pace and cost the country can afford”.

The utility has, since mid-2016, steadfastly refused to conclude power purchase agreements with IPPs for the most recent projects selected under the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), leaving 26 projects, with a combined investment value of around R50-billion, in limbo…

In its response to Eskom, CSIR stresses that its methodology, which measures only the immediate fuel-saving effect on the existing fleet and underestimates the value of new investments, had been developed for a constrained powersystem and for when the use of diesel generators was high.

“When the power system is less constrained and dieselturbines are not operational most of the time, the methodology underestimates the diesel-fuel savings. It needs to be adjusted to give the correct fuel-saving value.”…

REAL VALUE

The real value, the CSIR argued, of the projects arising from the first three bid window lies in the cost reductions achieved for solar PV and wind to 62c/kWh, which is 40% cheaper than new coal. These reductions would not have been possible in the absence of the competitive bidding associated with the REIPPPP…

… “While the operational solar PV and wind projects triggered tariff payments of roughly R12-billion in 2016 and produced roughly 6 TWh in the same year, the entire bid window 4 solar PV and wind projects (original, additional and expedited) will trigger tariff payments of merely R6.6-billion a year, while they will produce more than 9 TWh a year. That means 45% less annual payments for 50% more energycompared to the currently operational solar PV and wind projects. These new projects will, therefore, be almost cost neutral from a pure fuel-saving perspective.”

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Wind/solar sectors mull Eskom court bid while new energy plan delayed

EE Publishers, 11 January, 2016

The Department of Energy (DoE) has delayed the deadline of the public consultation process regarding its draft energy plans, while the renewable sector is considering going to court to force Eskom’s hand amid the sector’s new build woes.

In November 2016, the DoE published the draft Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP) for public comments, a welcome step as the 2010 energy policy has yet to be updated.

The closing date for written comments was meant to be February 15 2017. However, the DoE has extended the public comments period to 31 March 2017 in response to requests from a number of stakeholders, the department says.

The finalised energy plan is seen as a crucial policy plan that will provide clarity for the energy industry, with the renewable, nuclear and gas sector the possible beneficiaries of new build programmes. The DoE had originally planned to have the new policy approved by Cabinet by April, but this delay will change matters.

Currently, the energy plan sees 9,6 GW of new nuclear being built by 2030. This could change once the new plan is approved. However, Eskom and state nuclear body Necsa have already started the request for information process in a bid to start the build programme.

Eskom blocks renewables, while pushing for nuclear

Over R200-billion has been invested in the renewable energy sector in the last few years, according to Finweek which quoted the Energy Research Centre at the University of Cape Town’s Jesse Burton recently.

However, with Eskom keen to get going on its nuclear programme, it shocked the renewable industry in 2016 when it refused to issue final budget quotes to preferred bidders in Round 4 and the Round 4 extension of the Renewable Energy Independent Power Producer Procurement Programme.

There are 26 preferred bidders across a range of technologies, none of which has reached financial close due to Eskom’s refusal to sign further power purchase agreements, South African Renewable Energy Council (SAREC) chairperson Brenda Martin explained. “These projects represent a combined value of R50bn in investment into the country that has been put on hold, which is ludicrous when considering our current economic climate,” she said.

SAREC is perplexed by Eskom

Speaking to Fin24 in a studio interview, Martin said she was perplexed by Eskom’s actions. “All political sentiment suggests that there is full support for this to happen, so we really are confused about why is it that Eskom is just digging its heels in,” she said, adding that the arguments cannot carry around cost or grid capacity.

Acting Eskom CEO Matshela Koko wrote on Fin24 that SAREC is “turning a blind eye to the crowding-out effect of the renewable IPP costs on the Eskom tariff”. Koko suggests that SAREC is implying that Eskom is engaged in a sustained attack on the renewable energy programme in an attempt to protect its own narrow-minded interests.

SAREC considering court action

SAREC director Mark Pickering told Fin24 in a studio interview that the renewable sector is considering two options: it can continue to talk to government, or it can go to the courts. “The legal opinions we have are very clear,” he said. “Where we go to court, we would get an enforcement order that Eskom should sign these power purchase agreements.

Pickering says however, that court action is not SAREC’s first choice of action and that the body would prefer to resolve this through dialogue and is engaging with all the key stakeholders in government and with Eskom.

There is a sense of progress, Pickering says, but it’s slow with a sense that there’s something which is difficult to talk about.

According to Pickering, Eskom has been very clear about its intentions. The power utility wants to run a nuclear programme. he says, and is hoarding whatever cash it has from its cash flows to finance a nuclear programme. Pickering suggests that a lot of pressure is also being applied on Treasury to bring it to the point of giving in to the utility’s demand to finance the nuclear.

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National Energy Efficiency Strategy – call for comments by 22 Jan 2017

Government Gazette, 23 December, 2016

GOVERNMENT GAZETTE, 23 DECEMBER 2016:

I, Tina Joemat -Pettersson, Minister of Energy, hereby publish the draft post – 2015 National Energy Efficiency Strategy for public comments. Interested persons and organisations are invited to submit, within 30 days, written comments on the draft post -2015 National Energy Efficiency Strategy on any of the following: ….   For Attention: Xolile Mabusela

 

It’s a 4.2MB file (40 pages):   http://www.gov.za/sites/www.gov.za/files/40515_gen948.pdf

 

‘Eskom lays claim to nuclear buying’

Engineering News, 11 January, 2017.

Eskom insists on undertaking the procurement of SA’s proposed new nuclear plants itself and will not give permission to the Department of Energy to run the tender process on its behalf, states a new affidavit submitted to the High Court in Cape Town on Tuesday.

The affidavit forms part of an application by two antinuclear lobby groups — Earth Life Africa and the Southern African Faith Communities Environment Institute (Safcei) — which are seeking to derail the project through court action.

In it Earthlife Africa’s Johannesburg branch co-ordinator, Makoma Lekalakala, says comments by Department of Energy director-general Thabane Zulu indicated that Energy Minister Tina Joemat -Pettersson had taken legal advice.

 

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