Radebe: Renewable Energy Independent Power Producers are 'cost neutral' to Eskom

Eskom's financial problems are mostly related to cost increases including those linked to the new-build projects, and not Independent Power Producers (IPPs), Energy Minister Jeff Radebe has said.

The minister was speaking at a briefing in Pretoria, where he explained government's rationale for including renewables in the energy mix. He also stressed that IPPs are not the reason for Eskom's annual losses.

"The financial losses of Eskom cannot be attributable to the introduction of the renewable energy programme," he said.

Radebe said the cost of buying energy from IPPs through purchase power agreements (PPAs) was included as an expenditure, before the calculation of Eskom's operating profit. Up to 2018, Eskom had presented annual positive operating profit margins. For this reason financial losses of Eskom cannot be attributable to the introduction of the renewable energy programme, he said.

"Eskom is not borrowing money for buying the electricity generated by IPPs or for funding the construction of the IPPs," he told journalists.

Cost-neutral to Eskom

Radebe further said that renewable energy IPPs were "cost neutral" to Eskom, as the cost is passed on to the consumer.

Eskom buys energy from IPPs which are not limited to renewables and can include diesel-fired generators, Radebe explained.

The National Energy Regulator of SA (Nersa) issues a licence to all IPPs, based on a full disclosure of information required, tariff and tariff escalation. A public partipation process also takes pace to scrutinise the tariff before a licence is granted, he said.

"Before Eskom signs PPAs, Nersa will issue an approval for Eskom to enter into PPAs and confirm in writing that Eskom will be allowed the full associated cost under the cost recovery mechanism," he said.

"The assertion that Eskom incurs losses as a result of the IPP programe is without foundation, misleading and false.

"Since 2013, Eskom has not incurred a cent in buying electricity from the IPPs which they have not been able to recover through a tariff allowance," the minister said.

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