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Eskom Crisis Worries South African Renewable Energy Power Producers

Eskom Crisis Worries South African Renewable Energy Power Producers


Renewable energy players fear power-purchase deals could be renegotiated.

South Africa’s wind industry this month attempted to deflect a threat to renewable energy interests caused by troubles at state utility Eskom.

A renegotiation of terms with successful bidders from the first two rounds of the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) would be “a clear breach of contract and damaging to investor confidence,” said the South African Wind Energy Association.

The statement came in response to reports that South Africa’s Minister of Public Enterprises, Pravin Gordhan, was considering a review of the REIPPPP terms promised to independent power producers (IPPs).

So far IPPs haven’t been formally requested to renegotiate their contracts, said South African Wind Energy Association CEO Brenda Martin.

But South Africa’s renewable energy industry, once held up as the exemplary result of a well-managed auction process, is clearly nervous about the fallout from a crumbling Eskom. In recent days, the plight of the massive public utility has become a political hot potato.

South Africa’s main opposition party, the Democratic Alliance, unveiled a poster campaign this month claiming the governing African National Congress had “killed the lights,” a reference to prolonged rolling blackouts resulting from load shedding at Eskom.

South African papers, meanwhile, reported blackouts were hitting small enterprises ranging from potteries to restaurants. “Load shedding is killing small businesses,” claimed the community-based news agency GroundUp.

The root of the blackouts is coal, which in most other markets would be considered a stable if messy form of baseload generation. Eskom’s two newest coal plants, Medupi and Kusile, “were badly designed and badly constructed and are not performing to optimum levels,” Gordhan has admitted.

Other sources said the plants, which by some estimates have cost around three times their original budget, are only 40 percent reliable. In the 10 months up until the end of January, Medupi tripped offline 66 times and Kusile another 18.

With the rest of Eskom’s aging coal fleet also subject to frequent unplanned outages, the South African grid simply can’t cope with demand. Even an end to Medupi’s and Kusile’s problems probably won’t fix the situation.

In a saga that rivals Pacific Gas & Electric’s wildfire liabilities and resulting bankruptcy, Eskom has been teetering on the brink for years as a result of corruption and mismanagement that even led to the ousting of South Africa’s president, Jacob Zuma, a year ago.

At that time, Eskom was on the brink of going bust. A hastily installed new management team was rushing to put together a rescue plan. But it wasn’t until earlier this month that President Cyril Ramaphosa finally revealed the details.

Eskom will be split into separate generation, distribution and transmission businesses under a state holding company, he said. It remains to be seen whether this strategy will work.

“While breaking up Eskom may make it easier to manage and improve its operational performance, it won’t immediately address its financial woes, with the company sitting with 419 billion rand ($31 billion) of debt,” Bloomberg reported.

Furthermore, the proposed unbundling means job losses pitting Ramaphosa against powerful union interests, which the president needs on his side to be sure of winning elections in May.

Chris Ahlfeldt, energy specialist at Cape Town consulting firm Blue Horizon, said splitting up Eskom would at least give IPPs more of a level playing field in which to sell their supplies.

Up until now, the state utility has tended to prefer taking energy from its own generating assets, which led to an embarrassing delay in the signing of IPP power-purchase agreements last year.

One other renewable upside to Eskom’s woes is that regular blackouts are forcing richer energy customers to seek alternatives to the grid. “There’s a lot of customers looking to upgrade battery systems and put solar on the roof,” Ahlfeldt said.

It appears getting more renewable energy into the system could only be a good thing. Ahlfeldt said the REIPPPP had already added 4 gigawatts of potential generating power, split across 65 IPPs.

More could be in the cards under an integrated resource plan that is expected in the coming weeks. But while Eskom, the only major offtaker in the country, remains mired in debt and management strife, it is hard to see what a difference further procurement rounds will make.

Source: greentechmedia
Anand Gupta Editor - EQ Int'l Media Network


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