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Should the decision be approved, it could have a devastating effect on the IPPs and the energy programme's developments. Pic credit: hercampus

In South Africa, Independent Power Producer’s seeking financial closure of their clean power projects may find this harder to accomplish than anticipated.

National utility Eskom’s move to stop issuing budget quotes to IPPs until March 2018 has stirred frustration amongst those involved in the Department of Energy’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP)—these quotes are necessary for financial close on clean power projects, Moneyweb reported.

Discovering the facts

This information was disclosed in a letter composed by Juan la Grange, Eskom senior manager in the office of the Group Executive for Transmission, Thava Govender. The letter, which was obtained by Moneyweb, states that due to the utility’s “liquidity problems it won’t issue further budget quotes to IPPs until March 31 2018.”

In the letter La Grange says: “Eskom is facing serious liquidity issues, making it impossible to commit to any of the DoE (Department of Energy) REIPPP programmes after bid window 3”.

Once the budget quote is issued to the bidder, the procurement process can continue to include a power purchase agreement (PPA), which seals Eskom into a 20-year agreement.

This decision “is aimed at preventing the conclusion of the PPAs and therefore the financial obligation it places on Eskom,” media reported.

Pushing blame

The utility has accused the national energy regulator, Nersa, for its current situation: “the outcomes of the relevant Regulatory Clearing Account (RCA) submissions are not guaranteed so that Eskom cannot responsibly commit to the related expenditures”.

In terms of the Grid Code, Eskom had to have submitted the required budget quote within six months of receiving an application and according to Thembani Bukula, from NERSA, the utility had not made a RCA submission since its application for the re-opening of the current tariff determination, which was rejected as it did not comply with the prescribed methodology, Moneyweb reported.

Success of the REIPPP programme

On Tuesday, the DoE acting director general Dr Wolsey Barnard released a report indicating that the REIPPP programme has attracted ZAR192.6 billion ($14 billion), of which ZAR53.2 billion ($4 billion) was foreign investment.

Last week, the energy minister Tina Joemat-Pettersson announced that the IPP programme would extend across the continent, as a model for other regions to build on.

Impacting development of IPPs

South African Independent Power Producers Association (SAIPPA) chair Sisa Njikelana said that if the decision is implemented, it will significantly affect IPPs and the successful progress that the energy programme has been making since its inception in 2011.

This move could have a severe effect on investor confidence and drive much needed investment into more ‘stable’ regions.

Njikelana said that SAIPPA had no knowledge of the fact prior to the utility’s letter: “Nersa should intensively engage with Eskom to address this matter, especially its root cause. Nersa should further facilitate a broad consultation with various stakeholders before reaching a final decision.”

 

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