BMI lowers forecast for SA electricity capacity, thanks to Eskom’s unruliness
BMI Research lowered its forecast for the renewable energy capacity it expects SA to have installed by 2026, to 8.5 gigawatts (GW) from 9.9GW, due to the government’s chaotic policies and inability to get Eskom to follow its orders.
"The latest Cabinet reshuffle on October 17, which saw a new energy minister appointed [former state security minister David Mahlobo] — the third in less than a year — has done little to reduce policy uncertainty in the country’s energy sector. We believe these factors will weigh on investor sentiment across the country’s power sector," BMI said in a note e-mailed on Tuesday morning.
Previous rounds of the government’s renewable energy independent power producer procurement programme (REIPPPP) were extremely successful at attracting private-sector investment to reduce Eskom’s monopoly.
"However, significant delays of around two years to the signing of power purchase agreements between independent power producers and Eskom under the fifth round of the REIPPPP has delayed the expansion of the industry," BMI said.
"The government has stated that the contracts will be signed before the start of 2018, although independent power producers will have to renegotiate prices at tariffs of R0.77/KWh or less in order for Eskom to still be able to buy power from the independent power producers at a financially sustainable level.
"Renewable energy investors are reportedly already re-evaluating their bids in order to determine whether the projects will still be profitable at this lower price.
"We note that this repeated delay will decrease investor confidence in SA’s renewable sector, as a policy disconnect between Eskom and the government emerges.
"Eskom was ordered by the government to sign the contracts in early 2017, yet it refused despite being obliged to follow the government’s orders.
"We still expect that the success of the previous rounds in the REIPPPP will still attract investment in SA’s renewables sector, although at a potentially lower rate."
BMI said although President Jacob Zuma appeared to remain strongly committed to building 9.6GW of nuclear capacity by 2030, "the high cost of the deal makes it unviable and that it is unlikely that any new nuclear capacity will be developed within our 10-year forecast period".