Koko unpacks Eskom’s renewable costs, but experts disagree

Cape Town – Eskom acting CEO Matshela Koko has revealed how renewable energy costs are suffocating Eskom’s finances, but energy analysts have queried the science behind his calculations.

Koko and a team of Eskom experts last week gave Fin24 a presentation detailing Eskom’s power costs on any given day, revealing how they have to use “expensive” renewable power before using their own “cheap” coal power.

His presentation followed Fin24's story, 5 reasons why Eskom is wrong about renewables costs – CSIR, which was a reaction to Koko's statement that renewable energy costs the South African economy R9bn a year.

However, an energy analyst told Fin24 that Koko - in his presentation to Fin24 - was comparing “old apples to new oranges”.

Eskom could save up to R60m without renewables - Koko

Eskom data presented by Koko shows a simulated scenario where the utility doesn't use renewable energy sources and ups its diesel usage to fill in the demand peaks, resulting in a saving of between R20m to R60m a day.

In its presentation, Eskom showed two graphs representing simulated costs that exclude renewable independent power producers (IPP), and actual costs that include these costs on August 31 2016.

It said renewable IPPs cost 28.1% of total spend for the day, but produced only 4.5% of the total energy. "This displaced the coal stations at an additional cost of R52m for the day," it said.

Another table by Eskom shows a simulated day without renewables bringing the costs down by R17m:

Eskom comparing old apples to new oranges - ERC

However, Professor Harald Winkler, director of the Energy Research Centre (ERC) at the University of Cape Town, cautioned Fin24, saying it is hard to make sense of the partial information presented by Eskom.

“The comparison takes the costs for renewables, including capital expenditure, and compares this to what looks like only fuel costs for coal,” he said in an emailed response.

“We know that renewable project developers have capital expenditure as their main cost, factored into the bids they make - and reflected in contracted prices.

“One has to guess, given the limited information Eskom makes public, but take Lethabo shown at 13c/kWh.

“We know the coal costs R200 per ton. Working this out (1 ton / 16 GJ; 33% efficiency; 3.6 GJ / MWh, 100 c / R gives 13.6c/kWh.

“That suggests NO capital costs of Lethabo are taken into account, only the coal.

“That makes sense only from a narrow perspective of what goes in and out of Eskom’s books. An academically rigorous comparison would include capex, opex and fuel costs for all technologies; or else exclude them for all.

“Perhaps the most important technical point is that Mr Koko is using prices of REI4P first bid rounds (bid window 1, maybe 2), and resultant power purchase agreements (PPAs) before prices decreased further.

“We have already seen that the unit costs of wind and solar PV declined dramatically in later bid windows. Presenting historic prices in the knowledge the later prices are lower is misleading to the public.”

Koko's simple (but deliberate) error - Sarec

Koko also told Fin24 that, on average, renewables contribute 2% to the grid but make up about 16% of cost each day. This is compared to coal, which makes up 77% of their cost and contributes 97% to the grid.

South African Renewable Energy Council (Sarec) chairperson Brenda Martin said Koko “is making a simple (but deliberate) error in comparing the cost of new renewables with old and fully depreciated coal”.

“Since it is not possible to buy 'old' coal, it is necessary to compare new renewables with new coal - or gas or nuclear. The Council for Scientific and Industrial Research has done this and the evidence is very clear that renewable power is by far the cheapest option. Any new power generation addition to the system will cause an increase in cost.”

Debate is about science, not politics - Koko

Koko told Fin24 the debate around costs “is about science, not politics”.

“It will be resolved by getting scientists in the same room,” he said, and pledged to create a platform on Eskom’s website where any one can see the cost comparisons.

Winkler said the ERC would welcome Eskom publishing a detailed technical report, “comparing like for like, to make transparent the underpinning of the claims of its CEO”.

“Academic rigour would obviously demand comparing apples with apples,” he said.

Renewables will hurt consumers through tariff - Koko

Koko told Fin24 that of the current electricity tariff increase of 9.4%, 4.9% was a pass-through to the IPPs.

“In 2021, that 4.9% becomes 6.7% purely for renewable IPPs,” he said. “If, say, in 2021 6.7% of the tariff is for renewables and you say for Eskom to sustain capital investment above inflation, it will require a real increase of 8%, then the tariff increase the consumer will see is over 13%.

“We believe 13% will not support the economy to grow,” he said. “We need a tariff path that will support the economy. This won’t support the economy.

“A practical solution is needed,” he said. “Ideally someone else must pay for renewable and not Eskom.

“It is a pity for Eskom to carry the burden for renewables,” he said. “They must ring-fence the cost and something else must pay.”

Koko is not advancing a solution - Martin

Responding, Martin said South Africans need to look at which additions will give us the least incremental increase.

“Even if the already declining cost of renewable power is ignored, it is a fact (see any report on nuclear investment trends) that by 2025 nuclear power will cost the economy far more than what renewable power additions cost the economy today.

“Mr Koko is not advancing a solution. He is advancing a distraction from fact,” she said. “Perhaps the interim CEO should focus on contributing to solving Eskom’s real problems, such as how to finance and complete its much delayed new build programme, preparing to decommission old coal plants, and dealing with the reality of declining demand and spiralling retail tariffs – rather than picking pointless battles with government over its excellent renewable programme. Eskom needs to act within the law, and in the national interest.”

She was referring to the 26 preferred bidders of the renewable energy independent power producer procurement programme, who can only reach financial close when Eskom signs their PPAs.

While Eskom shocked the industry by refusing to sign these, Koko told Fin24 he was working on a plan with Treasury and the Department of Energy to resolve the matter as soon as possible.

Martin told Fin24 on Monday that “it is crucial that Eskom sign the outstanding PPAs in order to sustain the policy momentum of government’s independent renewable power programme”.

“This will also ensure that the declining price path and related value chain effects can be sustained in the national interest, such as local rural community job creation, manufacturing investment and linked jobs, South Africa’s capacity to grow its economy with clean, green power generation.”

READ: The full CSIR explanation why Eskom is wrong about renewable costs

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