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Don't break renewable deals to aid Eskom, South Africa warned

Wind industry raises 'spectre of breach of contract' after minister says early REIPPPP deals may be revisited

South Africa raised fears of a fresh self-inflicted blow to its renewables sector when its government hinted it may seek to change deals awarded to older projects in a bid to ease pressure on creaking state utility Eskom.

The country’s public enterprises minister Pravin Gordhan said the government would “explore possibilities” of lowering the rates Eskom has to pay wind and solar plants given power deals in the first two rounds of South Africa’s REIPPPP renewables programme, which launched in 2011.

Debt-ridden and relying on an ageing coal-fired power fleet, Eskom has subjected South African’s to frequent blackouts in recent weeks, sending a resolution of its many financial problems shooting up the country’s political agenda.

South African renewables fear new procurement hiatus

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Eskom – the offtaker for renewables projects contracted under REIPPPP – has complained it is saddled with high guaranteed power tariffs from the earlier stages of the programme, compared to those signed in the last few months for the latest Round 4, which showed falls of 50% on previous rounds.

But the South African Wind Energy Association (SAWEA) warned changes to the terms of the first two rounds would be “a clear breach of contract and damaging to investor confidence”.

The South African renewables sector is only just recovering from a years-long hiatus that saw Eskom refuse to sign contracts awarded under Round 4, until the impasse was finally resolved by the incoming government of Cyril Ramaphosa earlier this year.

SAWEA CEO Brenda Martin said: “Renegotiation, besides raising the spectre of breach of contract, would require extensive and careful process to ensure fairness to affected investors while also providing sufficient assurance to prospective investors.”

Martin argued that initial rounds in the national procurement process had to provide rates attractive enough to kick-start the market, and South Africa has since been rewarded with spectacular cost reductions down to 0.76 rand/kWh ($0.054/kWh).

Renewables back on the move in South Africa as impasse ends

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Chris Ahlfeldt, a South African energy specialist for consultancy Blue Horizon, told Recharge that it was misleading for Eskom to blame renewable independent power producers for its problems, given that IPP costs are a direct pass-through to consumers approved by the country's regulator.

More than half the utility's debt is down to two large coal plants that are delayed and over-budget, he said. “If Eskom wants to cut costs and improve efficiency then they should consider scrapping future construction and buy lower cost renewable energy,” said Ahlfeldt, who added that the current power crisis might at least speed up political efforts to sort out Eskom's many problems, and those of the wider energy sector.

Gordhan was keen to calm investors’ nerves during an interview with Reuters, when he said: “The simple assurance is that this is not about scrapping a contract. This is about exploring possibilities that are created by the rapid fall in costs in the renewable sector, whether that’s solar or wind.”

REIPPPP took South Africa from a standing start to the procurement of about 6GW of renewables over its four tendering rounds, with plans for a fifth already announced by the government.

But the programme’s status as one of the world’s most admired renewables procurement mechanisms has already taken a knock from the earlier hiatus, and fears of a “contracting gap” under current plans to add a further 8.1GW of additional wind power and 5.67GW of new solar PV in the next decade.

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