ON THE MONEY
STUART THEOBALD: Independent power producers are a solution to Eskom’s woes, not a cause
Cosatu’s claim that IPPs are 'draining' Eskom is wrong
Is it true that independent power producers (IPPs) are “draining and collapsing” Eskom as Cosatu claimed last week during its strike over a proposed restructuring of Eskom? Let us consider the facts. Eskom buys the IPPs’ electricity at prices that are agreed in the rounds of auctions that award IPP projects. So if you know nothing more, it seems as if Eskom is having to pay IPPs at prices that are out of its control out of its own resources. But, the reality is far different. First, IPPs are treated separately when Eskom’s tariff applications are considered by the National Energy Regulator of SA (Nersa). All payments to IPPs get a full pass-through cost into the tariff. So if there were no IPPs, Eskom simply wouldn’t get that element of the tariff. For Eskom’s cash flows, IPPs are therefore entirely neutral — the cost to the utility is perfectly offset by the tariff. There is one small cost to Eskom, however. This is the infrastructure cost Eskom bears to connect IPPs to its grid. I...