The government has finally signed agreements to buy electricity from 27 renewable energy companies, removing the last obstacle faced by these independent power producers during a two-year delay that cost them millions.
The signing on Wednesday by Energy Minister Jeff Radebe of power purchase agreements paves the way for the building of a new fleet of wind and solar power stations which Radebe said would bring in R55.92-billion of direct investment and more than 60,000 jobs.
The signing comes after two years of the programme being stymied, first by Eskom refusing to sign the power purchase agreements – although it was legally obliged to – and later by a court challenge.
It took a new president to get the renewable energy programme – hailed as one of the most progressive in the world because of its social upliftment commitments – up and running again. One of Radebe’s first actions after being appointed Energy Minister by President Cyril Ramaphosa was to announce that the renewable energy power purchase agreements would be signed.
Karen Breytenbach, head of the government’s Independent Power Producers’ Office, made reference to the new regime at the signing ceremony when she said to Radebe:
“Under your leadership things changed very quickly. It shows how important leadership is.”
Although the signing has removed the last obstacle, the first of the power stations will not come online before 2020.
The next step is for the IPPs to get finance from banks, which could take a few weeks or several months.
In addition, a substantial number of grid connections have to be built to link the renewable energy projects to Eskom.
The new power stations will increase the percentage of South Africa’s electricity generated by renewables from 3% to 4%.
They will also contribute to the country’s goal of moving towards a low-carbon economy and to South Africa’s international obligations of reducing our high levels of carbon emissions.
The IPPs won the right to build power stations through a competitive bidding process in 2015, part of the government’s Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) – as had 64 other private companies before them, many of which have wind and solar power plants already generating electricity.
Eskom had signed agreements with those 64 companies from earlier bid processes, but suddenly in 2016 Eskom refused to sign power purchase agreements with the 27 companies from the most recent bid process.
The companies were stymied. Eskom has a monopoly over the transmission grid, so they were dependent on the utility to buy their electricity.
At the time, Eskom cited the cost of renewables and an existing over-capacity as the reasons it would not buy their electricity, although the price of wind and solar had dropped significantly since the start of the REIPPP.
Estimates are that electricity from Eskom’s new coal plants such as Medupi are around R1.14 a kilowatt hour, while the price of wind has come down in the last bids to an average of 78c a kilowatt hour.
Mark Pickering, chair of the SA Wind Energy Association, said while it was not unusual in any country for the energy mix to be fiercely contested by different interest groups, what was extremely unusual was that a State-owned Enterprise such as Eskom could defy a whole set of ministerial, Cabinet and presidential decisions that governed the renewable energy programme, and simply refuse to do what it was obliged to do.
“It is absolutely extraordinary that a single State-owned Enterprise could have that power. How does one State-owned Enterprise get that kind of power?” Pickering said.
Then in 2017 Eskom made further controversial statements when it said it was to close five of its coal power stations to make way for the IPPs’ renewable power stations. This was widely reported.
However, the Department of Energy said last month that this was not the case. The five power stations due to close had reached the end of their lives and were to be decommissioned over a period of years – and would have close even if there were no renewable energy programme.
Eskom has also changed its tune about this, and now says the power stations are to close because of old age.
Asked by Daily Maverick why it had said in 2017 that the closure was to make way for IPPs, Eskom did not explain, only offering a single sentence:
“Please note that Eskom has not taken any decision to close any of its power stations to make way for the Independent Power Producers (IPPs).”
However, Eskom’s earlier claims had gained traction, and are still firmly believed by the National Union of Metalworkers of SA (Numsa).
Days after Radebe announced that the IPP agreements would be signed on 13 March, Numsa and Transform RSA brought an urgent court application that sought to prevent Eskom and government from signing the IPP agreements.
They argued that with Eskom’s extra generating capacity the utility would have to close several coal-fired power stations in order to buy electricity from the independent power producers (IPPs), and up to 30,000 jobs would be lost.
They also argued that Eskom could not afford to pay IPPs.
The court struck the case from the roll, saying the applicants had failed to make a case for urgency.
The applicants can begin a new case, as the court did not make a finding on its merits, only on its lack of urgency. They can take on review the energy minister’s decision that renewable energy will be part of the country’s energy mix, and ask a court to set the decision aside.
Numsa spokeswoman Phakamile Hlubi said they were waiting for legal advice to decide on the next step.
She said they supported renewable energy, as it would help ward off the crisis of climate change, but not if it meant the closure of power stations and job losses.
“The crisis of climate change can’t be used to create another crisis of job losses,” Hlubi said.
She did not believe Eskom when it said the power stations were to close because of old age, and said Eskom had refused to meet the union.
“We are suspicious of that statement. Why are they refusing to engage with us?”
Although Numsa can begin a fresh court case, the attorney for the IPPs, Michael Evans, said they had no chance of success.
One of the reasons was that an application to have an administrative decision reviewed and set aside had to be made within 180 days of the decision.
“The minister’s original determination was made in 2011 and 2012, so there is absolutely no prospect of success in bringing a review application,” Evans said.
The reason for the time restriction was that people act on administrative decisions, as the 64 renewable energy power companies had already done when they built their power stations.
The minister’s decision applied to the 64 as well.
Although Numsa’s case was struck from the roll, an earlier case, brought by the Coal Transporters’ Forum in 2017, has yet to be concluded. No date has been set for the case.
The forum, founded in 2008 by coal trucking companies that had contracts with Eskom, seeks to prevent Eskom signing contracts with private renewable energy companies.
Former Eskom executive Matshelo Koko, who supports the legal action by Numsa and the Coal Transporters’ Forum, and sat with the applicants in last week’s court case, said he believed the renewable energy agreements signed on Wednesday might still be declared null and void.
“Eskom said in court it can’t afford them. The fiscus is constrained. But still they sign the agreements.
“There will be another day in court. I think it is too early to celebrate,” Koko said. DM
Photo: Some of the 46 wind turbines are pictured at the Gouda wind farm some 150km from Cape Town, Riebeek Kasteel, South Africa, 13 March 2018. Photo: EPA-EFE/Kim Ludbrook
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