Eskom finally signs 27 controversial PPAs


April 9, 2018

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Finally. On Wednesday, South African state utility Eskom did what it was meant to do back in 2015. It signed power purchase deals with the owners of 27 wind and solar projects.

We’re happy for the investors in the projects, including BioTherm Energy, Enel Green Power and Mainstream Renewable Power. They’ve now got the clarity they’ve been denied for so long and can push ahead with the 27 projects, including 11 wind farms with total capacity of 1.4GW. But we’re also frustrated that this festered for so long, and recognise that it’s just one victory in a longer war.

We won’t go back through the whole grisly scandal. We’ve spent enough time and pixels on this over the years. However, the thrust of Eskom’s objection was that renewables were too expensive compared to its established coal operations. Its central argument was that it didn’t want to push up power prices for consumers.

Yeah, right. It’s an argument that didn’t stand up to much scrutiny back then. We all knew the real reasons for Eskom’s refusal: its coal addiction and long-term financial problems. Let’s not forget that this is a company whose reaction to rolling blackouts in 2014, which were caused by problems for the grid that stemmed from its reliance on poor-quality coal, was to keep investing in two huge new coal-fired power stations.

We do have a little sympathy. Eskom’s financial issues are partly due to the fact it is investing to fix grid problems after decades of under-investment. We understand why it didn’t want to sign new deals – but we also sympathise with those angry that it has done so much damage to the confidence of renewables investors.

Wind farm investors need to know that a state utility will deliver on government promises, not put renewables in a deep freeze to suit its own plans.

And its cost argument looks even less convincing now. Since 2015, wind developers and turbine manufacturers have been working hard to reduce the cost of wind energy. It has been painful – margins have been slimmed, as have workforces – but needed response to governments’ competitive tenders for renewables.

In many countries, wind is the cheapest form of new electricity generation. This might be the reason why Eskom has now finally conceded to the demand of Energy Minister Jeff Radebe to sign these deals. The irony is that South Africa was once a leader in using competitive auctions to drive down the cost of renewables, via its Renewable Energy Independent Power Producers Procurement Process.

If Eskom had kept up support for renewables then it would likely have low prices to rival the likes of Germany, India and Morocco. But it hasn’t, and now the industry will have to do the work in South Africa that it could have been doing in the last few years. This has stifled the supply chain, and probably the rise of wind in Africa too. We won’t laud Eskom for the fact it has finally done the right thing.

And the future? Well, undoubtedly it’s good news for the wind industry that investors in the sector can get moving on these projects again, but the long-term prospects for the market are tougher. The country is facing an electricity oversupply, which means that the wind industry will have to take market share from coal if it wants to grow. We have seen from Eskom and South African coal unions how tough that could be.

Renewable energy companies are also facing a battle against those working in the nuclear sector, with the likes of the South Africa Nuclear Energy Corporation raising common objections to renewables: they’re intermittent, need storage, and the system needs back-up capacity from coal and nuclear. The debate on South Africa’s future energy plans is far from over, and guess which firm has an interest in growing the nuclear sector. Who won consent to build a new nuclear plant last year?

Yes, it’s Eskom. It may have signed the PPAs it was meant to sign three years ago, but we think its desire and ability to frustrate the wind industry is far from over.

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