HomeIndustry SectorsFinance and Policy50% of new generation electricity to be owned by IPPs

50% of new generation electricity to be owned by IPPs

The South African government announced yesterday that it had set a target of 50% new power generation from independent power producers (IPPs) over the next 20 years.

In a bid to make South Africa more attractive to IPPs, the government also announced that state utility, Eskom, would be designated as the single buyer of power from the IPPs.

"This policy will ensure that the responsibility and accountability for the construction of power generation capacity is coordinated and provide certainty to the private providers that their power will be bought [by Eskom]."

"Government is basically giving some certainty to the market – that if you [private producers] invest billions of rands into power generation capacity, we as the state … will actually buy that power," said Themba Maseko, government spokesman on Thursday.

Pricing issues would be dealt with in conjunction with the National Energy Regulator (NERSA) and issues of profitability for investors would be ‘looked at’ said Maseko.

"The National Energy Regulator of South Africa (NERSA) will regulate the single-buyer function and specifically approve all commercial agreements between the single buyer and the private producers".

Placing the regulator "in the centre of negotiations [over pricing] is an attempt to make sure that those kinds of pricing issues can be resolved by the third party (Nersa)".

In addition, Eskom has been tasked with the responsibility of building all new nuclear generation facilities in South Africa – although no clarification was given if this referred to traditional nuclear facilities, or the Pebble Bed Modular Reactor technology.

How well South Africa will succeed in attracting private investors is currently not clear.

In 2001 the City of Johannesburg privatised Kelvin Power Station when it sold 95 percent to US based AES Corporation. In 2002, due to a slump in world markets, AES withdrew from the undertaking and sold its stake to Globaleq. Contractually stipulated refurbishments to the Kelvin station were completed by 2004. However, as Globeleq were unable to operate Kelvin at the capacity required to meet its financial obligations, operation of the power station has now been handed over the lenders to the project, Investec and Nedbank.

15 percent of Johannesburg’s electricity is bought from Kelvin Power Station at between 26 and 42 cents per kilowatt-hour.

In a recent report by the National Utility Services, it was reported: “In 2000, South Africa had a reserve electricity generating capacity of 25 percent which, by most standards, is a very healthy position. Over the years, due to government indecision, the reserve capacity is now between 8 and 10 percent. This is below most internationally accepted norms of 15 percent and is of even more concern given the fact this figure is based on Eskom’s total generating capacity of approximately 41 000 megawatts.

“If one considers that the net generating capacity currently stands at 38 368 megawatts, spinning reserves drop to approximately 2 percent at various times, particularly during winter.”

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