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South African RE sector mulls Eskom legal action over PPAs

South Africa’s renewable energy sector is considering court action against state utility Eskom over an increasingly bitter stand-off that's being further fuelled by fears of a policy shift towards nuclear.

The South African Renewable Energy Council (Sarec) said it may resort to legal action if Eskom continues to delay the progress of power purchase agreements (PPAs) offered to 2.2GW-worth of preferred bidders in Round 4 of the country’s renewables programme, announced as long ago as April 2015.

The industry body – which has the country’s main wind and PV associations as members – claims the hiatus has left 50bn rand ($3.6bn) of investment in limbo and threatens to sink confidence in the country’s hitherto admired Renewable Energy Independent Power Producers Procurement Programme (REIPPPP), which has so far awarded a total of 6.3GW with another round of preferred bidders due to be announced soon.

Mark Pickering, a director of Sarec and chair of the South African Wind Energy Association, told local media outlet Fin 24: “We have the option of talking to the government or we have the option of going to the courts.”

Pickering said Sarec has “very clear” legal opinions that a court action would result in an enforcement order compelling Eskom to sign the PPAs, but negotiation remains its preferred option for now.

The South African renewables sector is also highly agitated by delays to finalising the government’s draft Integrated Resource Plan (IRP), which was released in November and welcomed as a renewed commitment by the country’s government to large-scale wind and solar.

The consultation for the IRP was due to close on 15 February, but the South African energy department this week said that deadline has been extended to the end of March “following requests from a number of stakeholders”.

The delay is fuelling suspicions of a shift in policy towards supporting nuclear generation at the expense of renewables.

Anxiety aplenty, but South African RE can still thrive

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Pickering claimed Eskom is “hoarding cash” to finance its nuclear ambitions, which he described as “the elephant in the room” during negotiations over the impasse.

The sector has been at loggerheads with Eskom ever since it last year warned it would review the signing of future PPAs under REIPPPP.

Eskom yesterday fired back with a statement of its own repeating its contention that REIPPPP PPA’s were straining its finances, saying it remains committed to renewables “at a cost and pace that the country can afford”.

Using a methodology it attributes to the Council for Scientific and Industrial Research (CSIR), the utility claimed its purchase of 6TWh of wind and PV power in 2016 at a cost of 12.2bn rand resulted in a net economic deficit to South Africa of 9bn rand.

“This net loss to the economy will continue for as long as there is surplus capacity. Eskom currently has surplus capacity until 2021 and can meet any increase in demand,” the utility said.

South Africa had about 2.9GW of renewables in operation by late 2016, the vast majority of it wind and solar.

Analysts at BMI Research this week said they expect non-hydro renewables in South Africa to grow at an annual average of 13.1% between 2016 and 2026, reaching almost 10GW by the end of that period.

But BMI warned: “If the ongoing disconnect between the government and Eskom results in prolonged uncertainty with the REIPPP and delays to new bidding windows being implemented, it will serve to dent investor confidence in the market.

“We could then see developers seek opportunities elsewhere, particularly as the investment climate for renewable energy improves in select markets across the sub-Saharan Africa region, notably in Kenya and Zambia.”

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