EDITORIAL: Kubayi turns off energy future
Eskom has stalled the IPP programme, but it cannot halt the energy revolution
SA’s world-feted renewable energy independent power producer programme, which attracted investments of R201bn in five years, looks like it is over as we knew it.
The programme was run as a competitive bid process, and over the four bid windows prices for renewable energy dropped dramatically, with wind power falling 55% and solar photovoltaic 76%. For bidders, which included the world’s big energy firms, the attraction lay in the certainty and comfort of investing in an environment in which there was a clear line of sight of the risks and the returns.
Bloomberg ranked SA in the top 10 destinations for renewable energy investment.
That all changed for good on Friday when Energy Minister Mmamoloko Kubayi kicked bid windows 3.5 and 4 – which have been in limbo for the past two years – even further into the future. While these bids will be signed by the end of October, they will not be commissioned until 2021.
Without the government programme, producers are still able to form direct supply relationships with customers, such as mines and big industry
An additional round of bids — known as the expedited round, which included the best projects from previous rounds that had not been selected – has been put off indefinitely.
More damaging than the delay was the fact that the minister slapped a price ceiling of 77c/kWh on bid windows 3.5 and 4. In doing so, she undermined the integrity of the competitive bidding process, which had already determined the power purchase price for each project, and hung a large question mark over any further bid rounds that might be held.
The investment certainty that had been the hallmark of the programme evaporated in an instant.
Investors will now be assessing what to do. Half of the wind projects in round 4 were below 77c/kWh, so these bids are still possible. For the solar photovoltaic projects a delay is not such a bad thing as they will get the advantage of hardware prices that are trending downwards.
So, while many of the projects could still go ahead, firms will think hard about participating in the future.
For makers of wind towers and solar panels, the situation is less easy to salvage. By putting off future rounds that had been envisaged just two years back, the outlook for manufacturers is bleak. Several have closed shop in SA during the impasse and more will follow.
Eskom’s argument against signing the outstanding power purchase agreements with successful renewable energy producers has been that it has an oversupply of energy. As economic growth has slowed and people and industry have migrated from the grid, demand has shrunk and excess supply has grown.
With its mountain of debt, Eskom needs to sell more electricity if it is to find some stability and sustainability. This is particularly so as new assets are completed and come on stream. But these dynamics have made it impossible.
Eskom has succeeded in stalling the independent power producer programme, but it will be unable to halt the energy revolution that is leading to the death of conventional power utilities all over the world.
Without the government programme, producers are still able to form direct supply relationships with customers, such as mines and big industry. Increasingly, they are doing so.
The cities also want to buy renewable energy directly from producers, reducing their reliance on Eskom and finding sources of energy that are cleaner and cheaper than coal. The City of Cape Town is in the lead and has taken the energy minister to court to compel her to provide it with the permission to do so.
No amount of anticompetitive or errant behaviour on the part of Eskom will be able to stop this movement.
The problem is not, and has never been, the independent power producers; the problem is Eskom.