Everybody knows that renewable energy is great for us all: it is free, it does not pollute, it keeps big bad Eskom on its toes and it represents huge investments in South Africa. What is there not to love?

The bids for various wind power farms (this is the amount for which Eskom has to buy power from the wind farm, anytime, day or night) are in accordance with four ‘bidding windows’, which were tendered in the last six years. For Bid Window 1, the amount Eskom will have to pay for wind power is R1.14/kWh, on average. It will have to pay R0.90/kWh for Bid Window 2, R0.74/kWh for Bid Window 3 and R0.62/kWh for Bid Window 4.

Now, Eskom has to sell the electricity it buys from renewable-energy suppliers to large power users and municipalities.

If we look at the current Eskom tariffs, the State-owned electricity utility can make no profit at all from any of the energy it buys from wind power suppliers. Indeed, at some times of the year, it makes a considerable loss. Even more, it has to accept the power generated from wind farms, whether it wants to or not. Surely, Eskom would want to?

No, not so. The national grid is not like a dam that can store electricity. It cannot. What gets generated must be used. So, if a generator stops generating, another must take its place, or the other generators in the system must ramp up to meet the deficit. In the case of wind power, the wind can drop in less than an hour and thus the only really practical method of picking up the load is to start and run gas turbines. These consume diesel fuel at a great rate and generate power at about R4.50/kWh. This is a huge cost to Eskom. It has been estimated by a former Eskom power system engineer that renewable-energy purchases by the parastatal cost it R60-million a day.

Let us talk about financing. A successful bidder has to borrow money to build the renewable-energy facility from, say, Old Mutual or Absa or whoever. The loan is guaranteed by the South African government, so the interest rate is great. The money is then paid to the local developer, who pays a significant amount of it to whoever overseas is supplying the turbines or solar panels or whatever. The loans are for billions of rands and, yes, some money goes to local building costs, but the rest leaves for overseas and not an investment at all; it is a loan from a local financier where the money goes overseas and Eskom pays the loan back to the developer. Oh! One may say, what if Eskom refuses to pay? No worry, that cost is also guaranteed by the South African government.

One thing that is not covered by the loan is the cost (to Eskom) of connecting all the renewable-energy projects to the grid. Eskom has to pay this. But Eskom does not have the money, so it borrows it (more recently from a European bank) – also guaranteed by the South African government. And there are other issues as well.

All we can hope is that Eskom tariffs will rise until the utility can sell renewable power at a profit. This is not an unlikely model for coal-fired stations – these only turn a profit after a number of years. For wind power, it will not happen ever. The wind farms will wear out in about 12 years and the cycle will start again. A new model is needed that is fair to all and that is economically viable. Here’s me hoping.