Cape Town pushing to buy energy directly from IPPs

The city of Cape Town is pushing for provisions to be put in place to allow municipalities to procure energy directly from Independent Power Producers (IPPs).

Under current regulations, municipalities can buy electricity directly from IPPs if they get ministerial approval. The city decided to approach the courts in 2017 to challenge Eskom’s exclusive right to buy electricity from IPPs for resale.

Cape Town’s legal bid comes as IPPs are under the spotlight following the recent announcement by President Cyril Ramaphosa that Eskom will be split into three separate units — generation, transmission and distribution. Trade unions argue that the proposed split will not solve Eskom’s governance and debt problems, and that it will lead to job losses.  

Those in favour of the unbundling argue that it will create a more efficient system. A separate Eskom entity focusing on transmission, for example, will give it an incentive to procure electricity from the best-priced producers, including IPPs in the renewable energy space. This reduction in costs can then be passed on to the consumer.

On Tuesday, Cape Town MMC for energy and climate change Phindile Maxiti said the city had instructed its  lawyer to request that the High Court in Pretoria treat the pending court matter between the city, the energy minister and the National Energy Regulator of SA as urgent.

“This request aims to allow the city, and other municipalities across SA, to purchase energy from IPPs. The city is fighting for its right to buy cleaner energy directly from IPPs,” said Maxiti.

“We are doing everything possible to move away from sole reliance on Eskom for our energy needs, while at the same time trying to become more resilient and sustainable through the use of cleaner energy such as renewable energy and transitional fuels such as natural gas.”

Earlier in February, the deeply indebted power utility took 4,000MW off the grid for the first time, as 40% of its available generating fleet was offline. Load shedding is conducted rotationally as a measure of last resort to protect the power system from a total collapse or blackout.

“It is vital that we future-proof our city to ensure that security of supply, and cleaner supply at that, is enhanced,” said Maxiti.

He said the city therefore wants a section 34 determination in accordance with the New Generation Capacity Regulations in the Electricity Generation Act to allow it to procure up to 400MW of renewable energy from IPPs.

“If we are allowed to procure renewable energy, we can reduce the long-term electricity costs for our residents and provide cleaner power. Currently, some 65% of the tariff that we charge customers for electricity goes towards the cost to buy electricity from Eskom.

“The price for all renewables has fallen dramatically. For instance, wind energy is now far cheaper than new coal-fired generation,” said Maxiti.

phakathib@businesslive.co.za