HomeIndustry SectorsFinance and PolicySA renewable energy tariffs cheaper than expected Medupi/Kusile generation cost

SA renewable energy tariffs cheaper than expected Medupi/Kusile generation cost

Provided one discounts the costs associated with having backup generation in place for when renewables are unable to provide power, it is more attractive for South Africa’s government to procure new energy from renewable energy sources. This is given the current trend of Eskom electricity generation costs and the competitiveness within the Renewable Energy Independent Power Producer Procurement (REIPPP) programme.

Speaking at a media presentation in Johannesburg Mark van Wyk, head of impact investing at Mergence Investment Managers, said that the tariffs at which renewable energy independent power producers are supplying energy into the grid has decreased significantly over the three successive bidding rounds of the REIPPP. This is partly as a result of efficient project installation costs and technology enhancements.

“The latest round three of the bidding programme has culminated in an average wind energy tariff of R0.65/kWh and an average solar energy tariff of R0.80/kWh. While this compares favourably with Eskom’s current average electricity generation cost of R0.64/kWh, Eskom tariffs are expected to increase higher than inflation with the new generation capacity from the Medupi and Kusile power plants, each with an average expected generation cost in the region of R0.97kWh,” van Wyk says.

According to Mergence research, total investment into wind and solar renewable energy plants currently amounts to R82 billion, with the banking sector, insurance companies, pension funds and international investors as major funders.

Currently more than 85% of South Africa’s generation capacity comes from coal-fired power plants. In terms of government’s 2010 integrated resource plan (IRP) the objective is to reduce carbon intensive coal energy to 50% of the mix by 2030, with renewable energy sources contributing at least 26% of the energy mix.

For each kilowatt-hour of coal-based energy generation, Eskom emits approximately 0.96 kg of carbon dioxide and uses approximately 1.0 litre of water. The current procurement of 3,468 MW renewable energy sources into the energy mix instead of coal-fired power plants will reduce South Africa’s annual carbon emission by some six million tonnes.

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