• South Africa’s state-owned utility Eskom has taken the market by surprise with its decision not to sign anymore PPAs with IPPs beyond the current bid window
  • Local solar association warns this could scare off investors in renewables
  • The government has yet to respond to the decision of the utility

Once the most attractive solar power market in Africa, South Africa’s is in danger of loosing that position thanks to state-owned public utility Eskom saying ‘No’ to any more power purchase agreements (PPAs) with independent power producers.

If not revised, Eskom’s decision will have severe adverse effect on the installation and generation of renewable energy, including solar in the country. With PPAs, South Africa has reportedly mobilised 195 billion Rand in direct investment and adding over 2 GW to the grid. Private sector investment too is expected to take a hit with the Eskom decision.

Eskom board Chairman Ben Ngubane was reported by local medial to have written to the Energy Minister Tina Joemat-Petterson that Eskom will not be signing any more power purchase agreements beyond the current bid window of the 4th round and would like to discuss the matter with the Department of Energy. The latter is authorized to negotiate the rates with IPPs, and Eskom is forced to buy power at that rate and connect it to the grid.

South African news portal Business Day (BD) pointed out that since Eskom cannot negotiate the prices at which it buys power from IPPs, the utility is now realizing that this may affect its future revenue streams, and hence the abrupt decision.

BD quoted Eskom’s head of generation, Matshela Koko, justifying the decision by saying that during the day, when power from renewable is available to the grid, Eskom had an excess of 6,000 MW, while at peak hour, at around 6pm, when renewable sources drop, it has to rely on baseload power from coal and nuclear. “Let’s protect the consumer and not buy excess capacity when we don’t need it. We need a dialogue on costs. We can’t afford to continue to send mixed messages,” Koko was quoted by BD.

Unsurprisingly, the reaction from renewables proponents was very critical.

The head of the South African Photovoltaic Industry Association (SAPVIA), Moeketsi Thobela told BD that ‘the “current discourse” would frighten off investors and could
be devastating to the emerging renewable manufacturing industry.’

Greenpeace commented, “Indeed, one of the barriers to rooftop solar in South Africa is that Eskom believes that people producing their own electricity from solar panels is a threat to their profits.”

The editorial of BD on July 22, 2016 brought in the debate Eskom’s monopoly in the country’s electricity market. It stated, “When times were tough and supply was tight, Eskom was willing to comply. Now that it has an excess of supply — due mostly to the poorly performing economy — Eskom wants IPPs to be reconsidered.” SAPVIA wants the government to resuscitate the establishment of a state-owned independent system and market operator (ISMO).

“The decision by the Board of Eskom to discontinue the signing-on of any power purchasing agreements with Independent Power Producers (IPP) will suffocate the national power grid and lead to more blackouts in the future as 2 145 megawatt will be excluded,” said MP Gordon Mackay from the Democratic Alliance in BD. Adding, “Not only have IPP’s been the main source for national electricity stability but they have resulted in the decrease in the cost of electricity from 2.37 Rand/kWh in 2013 to 0.77 Rand/kWh in 2016, which is a vast decrease of 67% in two years.”

Delays in renewables tender
South Africa is aiming to procure 17,800 MW from renewable energy sources by 2030. While 1.1 GW of solar was auctioned in the first part of the fourth round of bidding, with Enel Green Power winning the largest chunk (419 MW) in April 2015, Business Day pointed out that the Department of Energy is well behind its original plans as the second part of the fourth round for renewables was scheduled for March.

South African party Democratic Alliance said this target may be ‘negated’ with this decision of Eskom. It also warned that discontinuing the scheme will ‘suffocate’ the national power grid and lead to more ‘blackouts’.

All eyes are now on the Governments’s response, which so far has been quiet on Eskom’s statement.