Treasury might be feeling far less dismissive of the “risk-free” R200 billion contingent liability – a potential liability that may occur, depending on the outcome of an uncertain future event – on its books. This as a result of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), initiated by the state to attract private sector investment in wind and solar power.
Treasury had previously declared there was almost no chance of these guarantees being called upon, because the National Energy Regulator of SA (Nersa) was obliged to pass the cost directly to consumers via the Eskom tariff.
Matshela Koko, Eskom’s head of generation, now wants Treasury to activate this liability and take over paying for the expensive first waves of renewable projects.
“Ring-fence it and let Treasury fund it separately,” he told City Press on Thursday.
Koko’s proposal shows that Eskom’s attitude to the procurement programme has hardened significantly.
The utility previously sent shock waves through the nascent renewables industry by saying it did not want to proceed with additional renewables beyond the current projects already signed for.
Now it wants the existing ones to become someone else’s problem too, undermining the entire framework of the R200 billion public-private programme.
South Africa’s rapidly expanding renewables sector revolves entirely around Eskom, with all projects getting funded off the back of 20-year power purchase agreements with the state-owned company, at guaranteed tariff rates.
All these agreements are fully guaranteed by Treasury, amounting to a contingent liability almost as large as all the guarantees given to other state-owned companies put together.
So certain was Treasury of the zero risk attached to these guarantees, it initially did not even record them publicly. They were added to the budget in February this year, even though Treasury at the time still maintained there was little chance it would ever have to actually pay anything.
Koko has written a series of frank and combative columns for leading newspapers and websites over the past few weeks, arguing against the REIPPPP as it currently exists.
Talking to City Press on Thursday, Koko said Eskom should never have allowed government to make it sign the REIPPPP agreements. “One of the things Eskom is guilty of is keeping quiet,” he said.
Koko compared the current situation to the foreseeable collapse of the power system in 2008, which ushered in years of load shedding.
Eskom warned government years in advance about an imminent increase in demand on the power grid, but did not get the go-ahead to build new power stations until it was too late to forestall a fundamental outstripping of power supply by demand.
Koko told City Press that the financial strain caused by the REIPPPP was indefensible.
He did not, however, dispute that his proposal shifted the burden from Eskom’s customers to all taxpayers. “I am an executive of Eskom. I will not preside over Eskom sinking,” he said.
“You cannot be a cardinal and not believe in the pope.”
The REIPPPP has been widely celebrated as a successful public-private partnership.
It let private consortiums bid against each other to build renewable energy plants in successive “windows” of bidding. To date, there have been five windows, numbered 1 through to 4.5, which have generated a total of 102 projects.
Eskom’s fury stems largely from the high tariffs it had to pay for the first three waves of private power projects that emerged from the REIPPPP.
Recent projects have come up with far lower tariffs, but the cumulative effect of the early expensive contracts will last for 20 years. “Those celebrating the REIPPPP do not tell the whole story,” said Koko.
While admitting that renewable prices had fallen spectacularly, he said: “You get some cheap stuff and some expensive stuff. There are no-brainers that cannot proceed, and there are no-brainers that must proceed.”
Eskom has refused to sign off on one particular REIPPPP: the Redstone concentrated solar thermal power project.
According to Koko, the power from this project would cost R5 per kilowatt – almost four times the standard Eskom tariff. “Why must we accept that? It will be very stupid to do that,” he said.
According to Koko, Eskom wanted to express its concerns about the entire REIPPPP to Minister of Energy Tina Joemat-Pettersson.
“We wrote to the minister and said there was reason to talk, to put all options on the table,” said Koko.
“This may have been overtaken by events,” he added, referring to a dispute taken to Nersa by the SA Wind Energy Association this week.
The process that the wind energy body’s complaint will kick-start presents Eskom with an opportunity to make its counter-argument against the REIPPPP, Koko told City Press.
The body claimed Eskom was “neglecting or refusing” to carry out ministerial determinations around the procurement of renewable energy. The proof of this, according to wind energy association CEO Johan van den Berg, was that Koko had publicly stated that Eskom refused to sign at least one REIPPPP agreement.
This, said Van den Berg, was a tacit admission of guilt because Eskom could not legally decide not to follow a ministerial determination.
“Eskom has no discretion about whether or not it will carry out energy policy as determined by the minister of energy.”
According to Van den Berg, wind projects totalling at least 300 to 400 megawatts were awaiting Eskom’s signature on their power purchase agreements.
These were projects from window 4 of the procurement programme, with low tariffs.
“Their tariffs are about 40% below the cost per kilowatt-hour of Eskom’s Medupi station, and half the cost of the nuclear power Mr Koko is so keen to build,” said Van den Berg.
“They are waiting to put shovels in the ground,” he told City Press.
Van den Berg said it was “expedient” for Eskom to focus on the earliest projects in the REIPPPP and the exceptionally expensive Redstone solar thermal power project.
“Taken as a whole, over 30 years the REIPPPP will contribute by far the lowest-cost electricity – in the form of wind and solar photovoltaic power – that South Africa can buy,” he said.
THE HEART OF THE MATTER
Even though Nersa was obliged to pass REIPPPP costs to consumers as part of the Eskom tariff, Koko said it would be wrong to conclude that Eskom was unaffected.
When consumers had to pay for the programme, it left Eskom with little room to fund its own projects through the tariff. This included the nuclear power stations it was planning to built over the next decade.
“In 2021 and 2022 the renewable projects will necessitate 6% tariff increases as the power purchase agreements get automatically passed on,” said Koko.
“If Eskom then wants 6% for its own requirements, which is more or less just an inflation adjustment, consumers will face a 12% increase.”
This crowding-out effect would leave Eskom unable to attempt any major capital projects despite the fact that it did not finance the renewable projects itself.Read Fin24's top stories trending on Twitter: Fin24’s top stories