Category Archives: IPP

Independent Power Producers

Eskom to sign up IPPs, but at what cost?

GCX, Dustin Lawrence, 8 September, 2017

(Ed. note: Apologies for the late posting, but it is a good article and we ARE STILL WAITING for Eskom to sign the PPAs, and with David Nuke Mahlobo now at the helm, anything could happen!)

Eventually, Eskom has to sign….wait, what?! – These were my thoughts when reading about the Minister of Energy’s decision on the IPP/Eskom PPA signing impasse.

On the 1st of September 2017, the Minister of Energy, Mmamoloko Kubayi held a press conference to indicate that Eskom had until the end of October 2017 to sign all outstanding PPAs with REI4P preferred bidders from bid windows 3.5 and 4. With one caveat, all projects would need to renegotiate their prices to below R0.77/kWh. Hang on a second there, let us consider that again:

Winning bidders, in a globally acclaimed renewable energy auction, need to renegotiate their bid prices, 2 years after being selected as preferred bidders.

Is that even legal…? What signal does this send to future investors? When rating agencies talk about policy uncertainty, this would be a perfect example. Award a contract at a set price that has been guaranteed by the government for 20 years, then refuse to sign the PPA, later decide to sign the PPA’s but cap the prices across all generation types.

On the day of the announcement, not much was said about the price cap. Most of the statements released by renewable groups were positive in terms of policy direction. A set date for PPA contracts establishes a path towards job creation and local economic development. (After all, some local companies had to virtually shutter their businesses amongst the uncertainty created by Eskom not signing the PPA’s).

A few days later and several authors have voiced their concerns about the price cap. As ignorant as I am, I have some concerns of my own. Surely, effectively being forced to change the price at which you sell your product, 2 years after signing a contract at a set price (adjusted by inflation), has some serious implications for your business plan and to your investors’ return on investment.

Apart from this, the price cap also has not been adequately defined, at least in the minister’s statement. Is the cap of R0.77/kWh in 2015 Rands or in 2017 Rands? REI4P prices are adjusted annually by inflation and thus this could have a substantial effect. Regardless of this, based on the winning bid prices, some projects will end up being excluded. CSP and biogas projects in particular are expected to be affected as their prices are generally over R1.00/kWh. They are however more valuable in high demand times as they are dispatchable during these periods (as opposed to solar and wind).

Why R0.77/kWh? Although this is higher than the R0.62/kWh that Eskom previously stated would be their cut-off point, no explanation has been given to indicate as to how this figure was decided.

Can projects reduce their prices to below the cap?

Some projects are likely; Solar panel and wind turbine prices have reduced significantly in recent years due to technology advancements and supply. This would result in a reduction in initial set up costs and thus a reduction in total financing costs that could result in lower prices.

Others are potentially likely; Bidders have most likely already cut the profit margins significantly to ensure that they ended up being preferred bidders. Reducing revenue further would mean asking investors for reduction which is unlikely to happen. Again the, “but we agreed to x and now you want y” principle applies.

While others could definitely not; CSP and biogas will find it very hard and most likely impossible to reduce their prices any further than their agreed prices. The winning bids for these technologies were above R1.00/kWh.

What about Round 5, Coal IPP and Gas IPP?

All suspended for now, at least until the Integrated Energy Plan and Integrated Resource Plan has been updated. A decision on these rounds will be made after these are completed in February 2018.

Are we going to see something similar happen to these project in 2018? This will likely depend on the actions taken by the Projects affected by this latest decision.

In Conclusion:

While some projects may be able to reduce their prices with a small effect on their business plans, others will find it hard and in some cases impossible to match the minister’s price cap.

Renegotiating the contracted price cap is probably illegal, and in fact, at least one renewable organisation has obtained legal advice that it is. So litigation on this aspect is likely.

Government and by extension SOE’s have again become their own worst enemies. At the same time as providing policy clarity, they have again stoked investor mistrust by effectively breaching their contracts with IPPs.

Here is a link to the article


Nersa may probe whether Eskom’s refusal to sign renewables PPAs contravened licence

Engineering NEws, 11 May, 2017

he electricity subcommittee of the National Energy Regulator of South Africa (Nersa) will recommend that the Energy Regulator institute a formal investigation into a complaint that Eskom was flouting the conditions of its licence by refusing to conclude power purchase agreements (PPAs) for 37 renewable-energyprojects procured by the Department of Energy.

Spokesperson Charles Hlebela said the next meeting of the Energy Regulator would take place on May 25, and confirmed that, at its meeting on May 3, Nersa’s electricity subcommittee had endorsed the probe, following a preliminary investigation. Should it proceed, the subcommittee wants Mbulelo Ncetezo, the regulator member responsible for electricity, to chair the probe.

Here is the full article

South Africa: Integrated Resource Plan clear for Q3

ESI Africa, 15 February, 2017.

On Tuesday, an official from the department of energy said that the Integrated Resource Plan (IRP) should be confirmed in Q3 2017.

Engineering News reported that the IRP finalisation is dependent on Cabinet’s reception of the energy blueprint.

According to the DoE’s director general, Ompi Aphane: “It will not be before June this year, but it might be by July, August. But then if Cabinet says go back and consult more, then that is in the hands of Cabinet.”

Integrated Resource Plan under review

Addressing parliament’s portfolio committee on energy, Aphane said the department had received 63 presentations in nine public meetings — one in each province — since the draft plan was tabled, along with the draft Integrated Energy Plan, Engineering News reported.

The department of energy’s Jacob Mbele said: “Based on the outputs from these committees they were able to include externalities that were not there in the first drafts.”

Media reported that energy experts, including a ministerial advisory committee, have maintained the cheapest energy mix would not include building more nuclear reactors.

“Once we have taken all inputs from the public participation process into account the base case scenario will look different,” Aphane said.

Outlining the IRP

In November 2016, South African energy minister, Tina Joemat-Pettersson, delivered a speech outlining the Integrated Energy Plan (IEP) and Integrated Resource Plan (IRP) processes, including a reflection on the key aspects of the processes.

Joemat-Pettersson explained: “Since the promulgation of the IRP 2010-30 there has been a number of developments in the energy sector, the country and the region, which necessitate that we review and update the plan.

“Some of the developments or changes includes, additional capacity that has come online, demand lower than envisaged in IRP 2010-30, draught in neighbouring countries experiencing resulting electricity shortage, reduced Eskom plant performance and changes in technology costs.”

She added: “The IRP update process is different from the IRP 2010-30 development processes in a sense that the update process is not zero based but use the from the promulgated policy adjusted IRP 2010-30 as a reference point.

(Ed. note: This is ominous! So if the IRP2010 was flawed, which it patently was – energy demand much too high, unbalanced cost assumptions – then our minister aims to continue with the flawed basis. )

“The IRP development and update process as in the case of the IEP aims to balance similar objectives which are; security of supply, cost of electricity, job creation and localisation, minimal negative environmental impact, minimal water usage, to diversity of supply sources (energy mix) and promotion of energy access.

“Against these objectives the Department set four key milestones in regard to the development of the IRP, which are (1) settling the key assumptions, (2) developing a Base-Case, (3) modeling and analysing the Scenarios and sensitivities, and finally (4) developing the final plan taking into account the various scenarios and policy positions.”

(Ed. note: Also dangerous. If the base case has 9 600 MW of nuclear forced in, and scenarios and sensitivities don’t include a completely unconstrained case – allowing unlimited nuclear and renewable energy – we might never see the true savings to be made by going the renewable energy route rather than the forced nuclear route.)

The IRP 2016 update was welcomed by industry with comments from the South African Independent Power Producer Association (SAIPPA), the South African Photovoltaic Industry Association (SAPVIA) and the South African Renewable Energy Council (SAREC).


Here’s the link to the article

Eskom renewables impasse over

BusinessDay, 13 February, 2017.

Eskom caused alarm in the sector in July 2016 when it said it would not sign on any more IPPs to the grid because of concerns about affordability

The deadlock between Eskom and independent power producers (IPPs) appears to have broken, with several IPPs having received budget quotes from the power utility indicating what the cost will be of connecting them to the grid.

(EG-SA Ed. note: Great news!
Now Eskom must be made to compensate the IPPs who suffered losses because of the unnecessary delays to financial closure.
Also Lynne Brown representing the DPE (sole shareholder of Eskom), must be held responsible for the cost of the delays and the damage to the renewable energy industry, and Koko must go before he does further damage.)

The quotes preceded President Jacob Zuma’s undertaking in his state of the nation address that Eskom would sign the outstanding power purchase agreements for renewable energy in line with the procured rounds. Eskom caused alarm in the sector in July 2016 when it said it would not sign on any more IPPs to the grid because of concerns about affordability.

On Friday, South African Renewable Energy Council (Sarec) chairwoman Brenda Martin said she had been informed about the budget quotes sent out.

She had also learnt that Eskom had approached the IPP office in the Department of Energy to set dates for the signing of power purchase agreements with the producers.

“So it does look as if things are moving,” she said.

Martin said the budget quotes had been sent to IPPs regardless of the agreed tariff at which they would sell electricity to Eskom. This is despite Eskom’s insistence it would sign them up only to a price of 62c/kWh.

A total of 21 of the 37 IPPs with outstanding power purchase agreements received budget quotes. This included the 10 small bid winners announced two weeks ago. Martin said Sarec’s remaining concern was that all the bidders get their budget quotes confirmed.

On Friday, Eskom spokesman Khulu Phasiwe said 2,383MW of renewable power purchase agreements — about 37 — remained to be signed. To date, Eskom had signed 64 agreements for 4,000MW and two for open-cycle turbines for more than 1,000MW.

Phasiwe said the unsigned agreements had been approved by the investment and finance committee of the Eskom board and by Public Enterprises Minister Lynne Brown. The National Energy Regulator of SA had provided the necessary assurances for cost recovery of the power purchase agreements.

Mitochondria Energy chairman Sisa Njikelana was optimistic about the deadlock being broken. Hulisani executive director Marubini Raphulu said Zuma’s comments indicated the impasse had been resolved.

“Eskom’s primary objective has always been to deliver reliable energy supply at the least cost to the consumer,” Phasiwe said. “Eskom’s position is that all energy sources, be they nuclear or renewables, should be pursued at a pace and scale that the country can afford.”

Here is the link to the article

Public-private partnership bridge energy gap – Ramaphosa

ESI Africa, 19 January, 2017.

South Africa’s Deputy President, Cyril Ramaphosa, advises countries to consider a partnership between government and the private sector in order to bridge the energy gap.

Ramaphosa was speaking during a panel discussion about bridging the energy gap in Africa by 2030 at the World Economic Forum in Davos, Switzerland on Tuesday, Fin24 reported.

According to the media, the deputy president is leading the South African delegation in Davos, themed “Responsive and Responsible Leadership”.

Among other ministers attending the seminar is finance minister Pravin Gordhan, minister of trade and industry Rob Davies and minister of economic development Ebrahim Patel.

Energy gap in Africa

Media reported that Ramaphosa recommended that in order for Africa to improve energy access, governments should look at getting the private sector to partner with them and eventually reach a point where the private sector generates power independently.

He said: “In South Africa we have seen the effectiveness of involving the private sector to set up independent power projects.”

The partnership is said to have resulted in nearly ZAR194 billion ($14 billion) worth of investments and 2,500MW of power generation, which presented the private sector an opportunity to generate power independently.

IPP programme

According to Fin24, Ramaphosa told the delegates that the South African IPP programme was established when government realised it could not bridge the electricity gap alone.

“We needed to bring in new technology and those with better reach for technology were in the private sector,” the deputy president stated.

He explained that the private sector is capable of raising funding and use their networks to acquire technologies, media reported.

As a result, a special unit was set up within the Department of Energy, which developed a policy to evaluate the IPP proposals. He applauded the robustness of the regulations in place.

“We had a huge number of proposals that came in because the private sector realised the government was serious about increasing energy supply in the country and that we wanted to move towards renewable energy and smart energy,” Ramaphosa said.

He added: “The private sector had a key role in sharpening government’s capability in this regard. We came out strong on renewable energy.”

Here is the article.