Price talks could kill green projects

Mmamoloko Kubayi
Mmamoloko Kubayi

Johannesburg - The department of energy’s solution to the crippling impasse in the renewable energy programme will probably end up with the government being sued, and will certainly kill some of the projects.

On Friday, Energy Minister Mmamoloko Kubayi announced that the existing preferred bidders in the Renewable Energy Independent Power Producer Procurement (REIPPP) Programme needed to drop the prices that the government had previously agreed to.

The projects have been on hold because Eskom has refused to sign power purchase agreements (PPAs) with the bidders.

The whole scheme is based on these agreements, which guarantee the private renewable projects 20 years of sales at a pre-agreed tariff.

Kubayi said all the outstanding PPAs, of which 26 stand to be affected, would be signed by the end of October.

However, this is only if they are all renegotiated to 77c per kilowatt – far less than the tariffs agreed to two years ago.

Eskom spokesperson Khulu Phasiwe said: “Eskom is ready to sign as per the government’s directive.”

Tobias Bischof-Niemz, who heads up the Energy Centre of the Council for Scientific and Industrial Research, said it was unclear what was meant by 77c.

The tariffs agreed to with the independent power producers (IPPs) are inflation-indexed and adjusted every April.

The department did not explicitly say the 77c was meant to be in terms of April 2017, said Bischof-Niemz.

In today’s terms, the affected solar projects, on average, were expecting a tariff of about 92c a kWh. And, until today’s announcement, tariffs for the wind projects were about 73c a kWh on average.

Either way, the new 77c limit “will cut some of them out”, he told City Press.

Some projects have no hope whatsoever of going ahead under the new tariff.

Most of the affected projects stem from the REIPPP’s bidding window 4.

Eleven projects from later rounds are simply suspended.

The only outstanding project from bidding window 3.5 is the Redstone concentrated solar plant – a 100 megawatt project planned for Postmasburg in the Northern Cape.

Its agreed tariff would now be something like R3 a kWh, said Bischof-Niemz.

“There is no way they can do 77c,” he said.

“Conceptually, it is a strange process to now suddenly renegotiate tariffs ... I wonder what that does to investor confidence?”

Now that the department had said it would not honour the previously agreed tariffs, there could easily be lawsuits, he added.

Publisher and power expert Chris Yelland agreed, saying the concentrated solar project was probably dead.

“The question is: From a legal perspective, what are their rights?”

Brenda Martin, chair of the SA Renewable Energy Council, said it would be “completely illegal” to force the existing preferred bidders to settle for a lower tariff.

She had written to the department for clarity immediately after Friday’s announcement, she told City Press.

For some of the projects, the 77c target would be entirely feasible, but would result in far lower investor returns.

The original bids were made two years ago and there had been a dramatic decrease in the cost of solar panels and wind turbines since then, said Bischof-Niemz.

Setting the limit at 77c would also severely reduce the participation of smaller IPPs and shift the REIPPP Programme even more towards large European utility companies, he said.

Another problem was that it made no sense to set a single tariff target for all the different technologies, he added.

The 77c line will prohibit the small bio-gas projects under bidding window 4, even though these projects are easily worth R1.50 a kWh because the electricity from them is dispatchable on demand.

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