*Department expects utility to sign round 3.5 and 4 projects
*Cabinet recommends maximum tariff of 0.77 Rand a kilowatt-hour
02 September 2017, Johannesburg — South Africa’s state-owned electricity utility will sign delayed power-purchase agreements with independent producers by the end of October, but not before pricing on the deals is renegotiated, Energy Minister Mmamoloko Kubayi said.
Eskom Holdings SOC Ltd. is expected to conclude agreements for 26 projects, Kubayi said Friday in Pretoria. The power company stalled for more than a year on the government-brokered deals to buy renewable power from private generation projects, saying it’s expensive and not always available.
South Africa has sought to boost clean-energy production to displace coal-fired capacity, which dominates the system. An impasse between the utility and the Department of Energy over the deals has threatened to dent investor confidence in South Africa’s renewables sector, BMI Research said earlier this year. Eskom said in March it would sign the offtake agreements following an order from President Jacob Zuma, but has yet to do so.
The company will conclude the deals by the end of next month, spokesman Khulu Phasiwe confirmed by phone. Eskom had already committed to sign, but was asked to wait by the government, he said.
“It’s regrettable that we took so long,” Kubayi said. The minister said she agreed that prices the government pays for power from the projects aren’t affordable for Eskom and cabinet have recommended a maximum price of 0.77 Rand per kilowatt-hour, which will be applied in the price renegotiation. The utility paid renewable independents an average of 2.09 Rand a kilowatt-hour in the year ended March 2017, while the median price charged to customers was 0.84 Rand, it said in its annual report.
“You have to be cognizant that government has guaranteed these projects,” she said.
South Africa’s program to buy renewable energy from independent producers has drawn 194 billion Rand ($15 billion) of investment so far through a system of bid rounds, according to the government. Projects in rounds 3.5 and 4 will be signed, Kubayi said. The majority of those projects will be commissioned closer to 2021 and not significantly contribute to Eskom’s current overcapacity, she said.
“The timing of the approval and construction period suggests an intentional go-slow story and the stopping of other forms of generation suggests a shocking degree of internal uncertainty,” Jason Harlan, chief executive officer of Fieldstone Africa, a Johannesburg-based, energy-focused investment bank, said in an emailed reply to questions. “On the other hand, the apparent move to a fixed tariff is in itself not the issue and may be a way to expedite future development in the sector.”
The minister also said that local ownership of some of the independent projects lacks adequate participation of black South Africans, which must be addressed along with the restructuring of community trust dividends.
*Paul Verchiatto & Paul Burkhardt – Bloomberg