Business News 9.3.2018 08:00 am

Government pulls renewables lever for economic growth

Government pulls renewables lever for economic growth

Eskom confirms it will sign power purchase agreements on Tuesday.

Newly appointed energy minister Jeff Radebe on Thursday confidently announced at a media briefing that the 27 outstanding Renewable Energy Power Producer Projects (REIPPP) will be signed on Tuesday, March 13.

Neither Eskom nor the Department of Public Enterprises was represented at the media briefing, but Eskom spokesperson Khulu Phasiwe confirmed to Moneyweb that the power utility will be signing the agreements on Tuesday.

Phasiwe said a resolution to that effect was taken at a meeting of the Eskom board that took place while Radebe was briefing the media. “Further discussions will take place between Eskom and the Department of Energy, but I can confirm that Eskom will sign the agreements.”

This will bring an end to a two-year delay in finalising the projects after Eskom earlier refused to sign the required power purchase agreements. It later agreed to sign, but only if the tariffs bidders agreed upon with the department of energy were capped.

Read: No end in sight to Eskom delays in signing renewable energy PPAs

Head of the DoE’s independent power producer (IPP) office Karen Breytenbach, told the media briefing that Eskom’s cap of 77c/kWh “could not work” and the average tariff agreed upon across all projects was 86c/kWh in 2017 terms.

The signing will unlock R56 billion of new investment from the DoE’s bid window 3.5 and 4 to stimulate the economy and create 61 600 full-time jobs over the next two to three years, Radebe said. Ninety-five percent of these jobs will be filled by South Africans, according to the minister.

He further announced steps to expedite the 20 projects under the Small Renewable Programme that caters for projects between 1MW and 5MW, has instructed the DoE to sign the two coal IPP projects and the 19 projects under the expedited bid window. All of these projects will unlock a further R105.7 billion of new investment.

Radebe had instructed his department to facilitate the development of a gas market with local and imported resources with the related infrastructure. In this regard, he will work closely with neighbouring countries, he said.

Some of Radebe’s predecessors made similar announcements that were not honoured by Eskom, but the minister was adamant that the utility would sign the agreements on Tuesday.

A total change of the guard since the previous false starts however gives credibility to his announcement. Radebe gave the assurance that the announcement was supported by President Cyril Ramaphosa, finance minister Nhlanhla Nene and public enterprises minister Pravin Gordhan – all newly appointed in their positions.

The REIPPP programme was hailed as the best in the world before it ground to a halt due to Eskom’s resistance. It responds to many of the country’s development goals, including rural development spread across some of the poorest parts of the country and job creation. It further mobilises private sector funding for the development of economic infrastructure.

Radebe said 59% of the jobs created as a result of the projects in bid window 3.5 and 4 will be situated in the Northern Cape, 15% in the Eastern Cape and 13% in North West.

The minister clearly meant business and said: “In the coming months, we will be deploying all our resources, coupled with the strength of our partnership with the private sector, all interested and affected stakeholders and our country partners on the African continent, to mobilise and optimise our endowment of energy resources as a key catalyst to economic growth.”

He said if energy is seen as central to economic growth, it can be the catalyst to build investor confidence and attract investment in the country and the continent.

Breytenbach said some of the 27 projects due to be signed on Tuesday will reach financial close immediately. July 31 has been set as a deadline for the rest. The first projects are expected to start supplying electricity to the grid by 2020.

Breytenbach gave the assurance that the projects will not weigh on the extremely burdened Eskom balance sheet. She said the power utility will never be out of pocket, because its purchases from IPPs are a pass-through approved as part of Nersa’s determination of Eskom’s tariffs.

She said government guarantees the purchases, which will amount to more than R200 billion in total, but will only have to pay the full amount if all the projects are expropriated or nationalised. This is unlikely and is something within government’s control, she said.

Breytenbach added that government provides for a rolling six-month obligation, should Eskom be unable to pay for the purchases. If it has to step in, such payments will be a loan that the power utility will have to repay.

Radebe indicated that he will release two long-awaited and important energy policy documents in the next week or two, namely the Integrated Energy Plan and Integrated Resource Plan. The documents map out the country’s energy mix for decades to come.

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