Eskom wants to renegotiate what it pays IPPs - SAREC

Cape Town - It seems Eskom still wants to renegotiate prices for the purchase of renewable energy from Independent Power Producers (IPPs), according to the South African Renewable Energy Council (SAREC).

According to SAREC, reports are emerging that budget quotes may only be approved if the cost of connection is significantly increased (in one case, doubled) compared to the original quotes. Of even greater concern for Sarec is that this allegedly depends on the condition that renewable tariffs are capped at 62c/kWh.

SAREC is aware of a case where Eskom allegedly wants to double the cost IPPs must pay to be connected to the national grid.

Mark Pickering, a board member of SAREC, told Fin24 on Friday that it is basing its renegotiation allegation on feedback from a preferred bidder who was communicating with Eskom officials over the finalisation of a budget quote to connect to the national grid.

"SAREC obtained a legal opinion which confirmed our understanding that Eskom has no legal basis for refusing to sign the power purchase agreements, or negotiating the price of the power. Eskom signed power purchase agreements for bid rounds 1 to 3 without complaint," said Pickering.

"The [then] new CEO of Eskom Brian Molefe took a different position. Since his resignation the acting CEO Matshele Koko has continued with the same position. We do not see this as a legal dispute. Eskom has never raised a legal concern."

Engagement

SAREC would prefer to resolve the dispute through engagement.

"We have engaged with Eskom and government since Eskom made its position public in July 2016. We are prepared to consider a court challenge if engagement fails. For now we are focused on engagement," said Pickering.

Brenda Martin, chair of SAREC said in a statement that signs are emerging that Eskom will drag its feet wherever possible to resist signing outstanding power purchase agreements with renewable producers. This despite President Jacob Zuma having indicated that Eskom will sign the outstanding power purchase agreements (PPAs) for renewable energy in line with the procured rounds.

SAREC pointed out that, before power purchase agreements can be signed, Eskom must first finalise budget quotes for each independent power producer (IPP). This relates to Eskom’s quoted cost to connect the new plant to the national grid. All such budget quotes had expired during the long delay as Eskom refused to move forward with the process, according to SAREC.

“Despite the President’s injunction, Eskom has yet to issue a single IPP with an updated budget quote. Eskom managers report that the Eskom board and interim CEO have yet to approve the formal issuance of these quotes,” said Martin.

Interpretation

Eskom spokesperson Khulu Phasiwe told Fin24 on Friday that SAREC's view is simply SAREC's interpretation.  

"Eskom is saying that we are producing electricity at just less than 60c/kwh. So, we are saying it will be almost shooting ourselves in the foot if we have to pay way above that," said Phasiwe.

"When we started with the project we were paying R3/kwh due to the situation at the time. Now that our power system has been stabilised one cannot defend paying such high prices."

He said Eskom has presented its proposal in this regard to the Department of Energy and the minister agreed with Eskom that, if it continues to fund this project, it must be at the cost Eskom can afford.

As for the cost of connecting to the grid, Phasiwe said it is not something Eskom will decide willy-nilly.

"Just like electricity prices, we have to get approval from the regulator. So in terms of connecting to the grid, we have to present our case to the regulator. We, therefore, have to get approval even if we want to double the cost," said Phasiwe.

"I don't know why SAREC is saying we want to double the cost."

Last week Fin24 reported that Eskom has set the ball rolling to sign 26 power purchase agreements (PPAs) that will mean independent power producers (IPPs) can start construction on wind and solar projects.

Energy Minister Tina Joemat-Pettersson has apparently acted swiftly and wants to see a fast-tracked programme of action so the IPPs can get their projects under way.

According to Phasiwe the 2 383 MW of renewable PPAs remaining to be signed have been approved by the Eskom board’s investment and finance committee and approvals have been received from the minister of public enterprises.

He said to date Eskom has signed 64 power purchase agreements (PPAs) for a total of 4 000 MW under the RE-IPP programme and two PPAs for the open-cycle turbines for a total of over 1 000 MW.