Cape Town – The call for Eskom to break its vertically integrated model has heightened after the power utility halted the implementation of 37 independent power producer (IPP) projects worth R58bn.
Windaba chairperson Mark Pickering told media on Wednesday it is unacceptable that Eskom is halting a process spearheaded by the Department of Energy’s IPP office.
“Everything is in place and the shovels are ready to start construction,” he said, “The power purchase agreements are sitting on the desk of the Eskom CEO. What is holding them up? He (Eskom CEO Brian Molefe) talks a lot about irrational and rational policy. Why are we not seeing progress? Government has spoken loud and clear and yet we still don’t have dates of signature for power purchase agreements.”
Finance Minister Pravin Gordhan told Parliament last week that Treasury’s approach to energy security and to meeting climate change commitments includes a “substantial renewable energy programme”.
“Contrary to the views of some, these are sound and sensible long-term investments. A total of 64 projects are already in progress, bringing investment, jobs, clean energy and community development,” he said. “Minister Joemat-Pettersson and the National Energy Regulator have approved another 37 independent power projects.
“Once Eskom has signed the offtake agreements, a further R58bn in investment and some 4 800 construction jobs will commence, bringing 2 354 MW of capacity to the electricity grid.”
Eskom ready for IPP challenge
This message came after Matshela Koko, Eskom’s head of generation, said he wants Treasury to activate the R200bn contingent liability of the IPP programme 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 in October.
The South African Wind Energy Association has taken Eskom to national energy regulator Nersa over its refusal to continue signing on the fourth round of independent power purchase agreements.
“Eskom looks forward to this challenge and hopes that issues that were raised before, especially around pricing of the renewable energy projects, will come out in the open so that all of us can discuss them and find a long-term solution,” Koko said in a piece published on Fin24.
However, the Windaba chair said this clearly showed why Eskom should be broken up.
“There needs to be a separation of Eskom’s generation interests from grid interests to prioritise the grid,” said Pickering. “Policy blockages around the market structure need to be addressed. It requires a stable planning and policy environment that supports rational decision making in renewable space.”
Anton Eberhard: Eskom needs to be unbundled
An energy policy expert who has called for the unbundling of Eskom’s structure is University of Cape Town Professor Anton Eberhard.
“Eskom needs to be unbundled precisely to avoid the situation we face now, where Eskom is being the arbiter of whether it builds the next big chunk of power or whether the private sector comes in with IPPs and renewables,” Eberhard told Fin24. “It shouldn’t be Eskom’s decision; that is a broader policy decision.
“Eskom can’t be building its own capacity and deciding on signing contracts with potential competitors,” he said. “It makes perfect sense to hive off the potentially-competitive part of the business – power generation.
“I am not talking about privatisation here. There would be a state-owned generation company and then you have the residual part of the business: transmission along with the system operator that creates a mutual platform to contract least-cost power,” he said.
“If Eskom is willing to sign contracts with the transmission company and the system operator at power that is cheaper than the private sector can provide, that’s great. It’s great for the country. Or if IPPs are cheaper, then the system operator should contract them.
“Let’s see what new power costs on a comparative basis,” he said.
“It’s a good time to consider it, as the lights are on and we are not in a crisis situation around load shedding,” he said. “It could be done quite easily.
“We have an Eskom Holding Company. As a first step, we can place a subsidiary generation company under that holdings company that is separate from the transmission and system operator companies. You ring fence these business. Then you eventually move that subsidiary out as a separate company to remove the conflict of interest.”
The Independent System and Market Operator (Ismo) Bill, which was thrown off the table by the ANC NEC in 2015, would have proposed a slightly different solution – by leaving Eskom largely intact but creating a new institution with the system operator and a buying or contracting function. However, government was not happy with the bill and wanted time to come up with a new plan.
The call for Eskom’s unbundling could form part of government’s plan to reform state-owned entities.
Gordhan said last week in Parliament that “reform of our state-owned companies is similarly both about addressing financial vulnerabilities, and about long-term investment and broadening participation in our economy”.
During the mini budget speech, he said: “Guiding principles for the oversight of state-owned companies have been agreed by the Inter-Ministerial Committee led by the Deputy President. These reforms are aimed at achieving stabilisation, coordination and collaboration, rationalisation and consolidation and an improved governance framework.”
Gordhan said the guidelines include:
- Development of a shareholder management framework,
- Principles for private sector participation to promote higher levels of investment in economic infrastructure,
- A framework to inform the board appointment process, and
- Separation of costs related to the developmental mandates from the commercial mandates of state companies.