Promoters of IPPs are pulling the wool over SA’s eyes
Fruitless and wasteful expenditure on solar power already amounts to R27bn per year
The general public and the energy minister are badly informed with respect to the value of solar power. Currently, all energy supplied by solar independent power producers (IPPs) falls into a category called “nonfirm” generation. This means it is available only when the sun shines. At night they produce nothing.
When this happens demand for electricity has to be covered by “firm” energy sources. Firm generation is that which can be relied upon to produce electricity whenever it is needed, regardless of the time of day or weather conditions.
PODCAST: Business Spotlight for more insight and analysis
Nonfirm generation is of limited value if it cannot supply electricity as and when it is needed. This point would probably be accepted by everyone. What is not widely understood is the extent to which the economic value of nonfirm power falls short of the value of firm power in the South African context.
Currently, most of the firm power available to Eskom is generated in its coal-fired power stations. Limited further capacity is available from Koeberg, Cahora Bassa, gas turbines and pumped storage schemes. Supplies of nonfirm power do not relieve Eskom, or for that matter any other power utility, of the necessity to have available equivalent firm generating capacity.
They only reduce the quantities of fuel, water and other materials that would have been consumed for energy generation had the IPPs not existed. The value of these quantities are known, in accounting terms, as “variable costs displaced”.
Using information contained in the Eskom 2017/2018 annual report and some additional information provided in the latest Eskom revenue application to the National Energy Regulator of SA, it is possible to deduce that the variable unit cost of generation by Eskom’s own system is about 26c per kWh. On the other hand, the corresponding average price paid to IPPs is R2.22 per kWh.
Fruitless and wasteful expenditure on solar power already amounts to R27bn per year. Although it appears that prices now offered are about 90% below those of previous rounds, it is of little comfort to the electricity consumer to know that new solar power will now cost four times, rather than 10 times, more than it is worth.
Promoters of IPPs are pulling the wool over the eyes of the South African public by pretending that the value of nonfirm solar power is, or soon will be, anything like the price we are paying for it.
• Joubert, formerly corporate economic consultant at Eskom and now with Econometrix, is an engineer with a 20 year career at Eskom.