Eskom group executive for transmission Thava Govender insists that the State-owned utility will continue to provide nondiscriminatory access to the power system to all IPP projects, but says uncertainty on the cost-recovery mechanism for IPP energy costs remains a key concern

Eskom has noted with concern various misleading reports in the media regarding the signing and execution of budget quotations and power purchase agreements with independent power producers (IPPs) participating in the Department of Energy’s  procurement programmes.

In 2012, Eskom established the Grid Access Unit (GAU) department with a primary mandate of managing the overall service relationship with the independent power producers (IPPs) and facilitating IPPs’ access to the national grid. To date, Eskom has processed and issued over 1 300 cost estimate letters and 110 budget quotations to preferred bidders appointed through the various DoE IPP procurement programmes.

As of January 2017, Eskom has connected 62 IPP projects as part of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and Peaker programmes. These 62 projects have cumulatively added 4 200 MW of generation capacity to the grid.  A further 620 MW is expected to be added to the grid in the  2017/2018 financial year as the third bid window of REIPPPP projects are integrated to the national grid.

The integration of renewable IPPs to the Eskom grid has not only contributed to the diversification of the energy mix but also to South Africa’s economic growth. Eskom’s total capital expenditure costs for enabling IPP connections amount to R3.7-billion for projects in bid windows BW1 to BW4 of the REIPPPP.  Eskom’s total energy costs for IPPs amounted to over R18 billion up to March 2016.

Eskom wishes to assert that it remains committed to government’s energy procurement programmes and intends to sign budget quotations and power purchase agreements related to these programmes. This commitment will be carried out within a framework that takes into consideration the scale and pace of the roll-out of IPP procurement programmes, the long-term financial sustainability of Eskom and the value for money criteria vis-a-vis whether South Africa’s customer base can afford the current IPP tariffs and their projected trajectory.  The uncertainty on the cost-recovery mechanism for IPPs’ energy costs remains a key concern to be clarified with National Energy Regulator of South Africa (Nersa) and other relevant stakeholders.

Eskom will continue to provide nondiscriminatory access to the power system to all IPP projects in compliance with the Electricity Regulation Act.  Eskom is currently processing 50 budget quotations totaling 3 381 MW for the REIPPPP, co-generation and coal baseload programmes. Of these, 32 budget quotations had to be revised owing to delays in the signing of related power purchase agreements. The balance of the budget quotations include new applications from recently appointed preferred bidders.

The costs of connection to the grid (connection charges) are regulated by Nersa through the South African Grid Code and the Tariff Code. Eskom’s quotation process makes such costs explicitly transparent to IPPs and load customers. The implementation of Nersa’s 2014 amendments to the South African Grid Code in respect of connection charges and the Tariff Code makes it imperative for Eskom to charge IPPs and load customers for additional transformation charges where applicable. In some cases this has led to discrepancies or variances in the costs indicated in the issued (or initial) cost estimate letters and actual costs in the budget quotations. This change in policy has affected some of the costs of projects in bid window 4. IPPs were part of the development of the amendments of the code and therefore aware of such changes.

Renewable energy remains an important part of South Africa’s future diversified energy mix and it is therefore critical that the implementation of such programmes should be carried out in a multi-stakeholder approach that supports the country’s economic growth and the realisation of its socio-economic ambitions.