Six questions answered about Eskom and IPPs

President Cyril Ramaphosa addressed the National Assembly last week Thursday and reassured South Africans that the financial and operational challenges faced by Eskom were not caused by renewable energy programmes. Here are six things you need to know about the struggling power utility and the Independent Power Producer (IPP) Programme.

South Africa’s energy infrastructure is a critical component of our economic activity and growth across the country. With the energy crisis exacerbated by state capture, debt, and infrastructural negligence, there has been a need to establish a solid plan going forward to avoid the country plunging into darkness.

The National Development Plan (NDP) identifies the need for South Africa to invest in a strong network of economic infrastructure designed to support the country’s medium- and long-term economic and social objectives. Part of this plan is to open up the market so that a significant share of the new electricity capacity is developed and produced by Independent Power Producers (IPPs).

On Thursday, March 7, President Ramaphosa responded to a question by EFF leader Julius Malema, who had asked about the cost to Eskom of the independent power producers that signed the latest round of power purchasing agreements with Eskom. He also asked if the costs of the agreements would collapse the power utility. Here are six critical questions involving Eskom and Renewable Energy IPPs.

1. Will the involvement of IPPs cause further problems within Eskom?

Nersa wants to charge applicants a registration fee of R200 and halted registrations to determine how best to do this (however, it has now issued a consultation paper about the idea of this fee). Image: Twitter/@SolarPowerb2b

President Ramaphosa said that the severe financial and operational challenges currently being experienced by Eskom are not caused by the Independent Power Producer’s programme and in particular the renewable energy projects. The president said the IPPs were investing their own debt and equity to construct the projects, including the cost of connecting these power projects to the grid.

Eskom Group CEO Phakamani Hadebe. Picture: REUTERS / Siphiwe Sibeko / File Photo

“Eskom’s challenges have been driven by massive cost and time overruns on the new build programme, the effects of state capture and corruption, collapse in governance, unsustainable debt levels, and poor maintenance of plants,” said President Ramaphosa. This has resulted in the return of load shedding in the country. During his state of the nation address, President Ramaphosa announced that they would be reconfiguring Eskom’s operations into three separate state-owned entities – generation, distribution, and transmission. To support Eskom’s financial turnaround plan, which focuses on driving efficiency and reducing costs, the government has allocated R23 billion a year for the next three years to support Eskom during its reconfiguration.

3. What is the value of the agreements signed by IPPs?

According to President Ramaphosa, the value of the 27 Independent Power Producers’ agreements signed in April 2018, represented in terms of private sector investment, is R57 billion. To date, the total value of private investment in South Africa’s renewable energy generation capacity is R202 billion. It is expected that a total of 372 MW will be connected to the grid between now and March 2020 and that Eskom will buy electricity worth R170 million in the 2019/20 financial year.

4. Who incurs the cost of electricity between Eskom and IPPs?

Essentially the cost of IPPs is fully covered by The National Energy Regulator (Nersa) through the cost recovery mechanism in the multi-year price determination process. So the cost of Eskom buying electricity from IPPs will essentially be covered by this regulator through tariffs that they set.

“The costs of the most recent power purchase agreements will only be incurred when these plants are constructed and connected to the grid. The costs will therefore certainly not collapse the power utility,” continued Ramaphosa.

5. Will restructuring Eskom lead to privatisation?

President Ramaphosa reassured South Africans that the restructuring of Eskom will not lead to privatisation, contrary to what has been doing the rounds in the news lately.

“In turning its operations around, Eskom has developed a plan that focuses on resolving unplanned breakdowns, addressing the performance and reliability challenges affecting the new units at Medupi and Kusile, improving coal stocks, and strengthening human resource capacity. Alongside these direct interventions, the plan is to restructure Eskom into separate state-owned entities responsible for generation, transmission, and distribution.”

6. Will load shedding still continue?

It is difficult to tell but there has been rotational load shedding in some areas across South Africa. The best way to keep up with the load shedding schedule is to download the EskomSePush load shedding app or visit the Eskom website.

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