Kubayi's Eskom decision provides much-needed policy certainty - IPPs

Energy Minister Mmamoloko Kubayi. (File photo: Nasief Manie)
Energy Minister Mmamoloko Kubayi. (File photo: Nasief Manie)

Johannesburg – Renewable energy producers were buoyed by Energy Minister Mmamoloko Kubayi's announcement on Friday that Eskom must sign independent power producer (IPP) power purchase agreements (PPAs) by the end of October.

The power utility refused to sign the agreements in 2016, because it said it had an over supply and would be paying for electricity it did not need. There are 26 preferred bidders across a range of technologies, none of which has reached financial close due to Eskom’s refusal to sign further PPAs.

The South African Wind Energy Association (SAWEA) and the the South African Photovoltaic Industry Association (SAPVIA) both welcomed the minister’s announcement and said she provided leadership on policy certainty.

Not even the minister’s decision that tariffs for the unsigned project in bid window 3.5 and 4 should be renegotiated to under 77 cents per KWh could dampen their enthusiasm.

The wind association said this shows the country’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) remains part of government’s vision for South Africa’s development, in the context of transition towards a more diverse energy mix.

“Minister Kubayi’s announcement today sends an important signal, particularly to those who recognise the contribution that renewable power is able to make to South Africa’s economic growth,” said SAWEA CEO Brenda Martin.

Transformation a concern

“The thousands of South Africans employed by the renewable energy industry, the many rural communities surrounding current and prospective wind farms who have been waiting for the development benefits associated with renewable power investment, are without doubt heartened by the confirmation that preferred bids from Rounds 3.5 and 4 will be concluded within two months.”

The delayed projects represent a combined value of R58bn in investment and the creation of over 15 000 jobs, at a time when the country desperately needs economic stimulus, Martin said. 

“Now we can all focus on realising the jobs, investments and developmental objectives intended by the Department of Energy when it initiated our country’s utility scale renewable programme,” said Martin.

Kubayi said issues raised during deliberations included the lack of transformation, particularly regarding local ownership of some of the projects. She said she was informed that one of the projects had less than 10% South African ownership. She also said community trust dividends could be restructured to boost empowerment.

Martin added that SAWEA is keen to work with the energy department to address socio-economic concerns raised by the minister, adding that the industry has an unequivocal commitment to addressing poverty, inequality, unemployment and the creation of opportunities for youth.

SAPVIA also pledged its commitment in cooperating with the government to address issues around transformation, and to build a participatory and transformational energy future which delivers benefits to the South African economy and its people.

SAWEA also believes that producers have through the first highly successful rounds demonstrated their commitment to invest, to produce power at increasingly lower prices on budget and on time, and to build stronger communities where they are located.  

Jobs and investments secured

Its engagement with Kubayi leading up to the decision was positive, SAPVIA stated.

This will bring much-needed investment, secure current jobs and manufacturing investments in the sector, and create new jobs and opportunities for communities surrounding these projects, said the solar association.

“The signing of the PPAs will fast track the delivery of employment opportunities, local manufacturing opportunities, social development programmes and the benefits of community ownership, all of which are common features of all REIPPPP projects.”

It said the delays in the programme have endangered long-term investor confidence, investment and more specifically job creation and retention in this market.

“The signing of the PPAs will fast track the delivery of employment opportunities, local manufacturing opportunities, social development programmes and the benefits of community ownership, all of which are common features of all REIPPPP projects.”

It also sent a positive signal to the market that the South African government is committed to ensuring renewable energy plays its part in the future energy mix in a manner that ensures economic transformation of the sector, and ultimately broader economic participation of South Africans in renewable energy, SAPVIA said.

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.

Read Fin24's top stories trending on Twitter:

Brent Crude
All Share
Top 40
Financial 15
Industrial 25
Resource 10
All JSE data delayed by at least 15 minutes morningstar logo
Company Snapshot
Voting Booth
Please select an option Oops! Something went wrong, please try again later.
I'm not really directly affected
18% - 1602 votes
I am taking a hit, but should be able to recover in the next year
23% - 2103 votes
My finances have been devastated
35% - 3166 votes
It's still too early to know what the full effect will be
25% - 2280 votes