Eskom to give renewable IPPs a hand

Eskom hopes to give easier access to its electricity grid to developers of renewable energy projects of up to 100MW in the next three to four months by making available land near connection points in Mpumalanga.

This is aimed at expediting the addition of new generation capacity to alleviate the current supply deficit. It will ease the pressure on Eskom and create space to take its hard-run power stations offline for maintenance.

Minister of Public Enterprises Pravin Gordhan announced this move on Wednesday, December 15, at the presentation of Eskom’s financial results for the six months ended September 30.

The South African Wind Energy Association welcomed the news.

Eskom recorded a net profit after tax of R9.2 billion for the period, compared with breakeven during the same period last year. It projects a net loss after tax of R9.1 billion for the full financial year. This is a vast improvement on the earlier projections of a R22 billion loss for the full year.

 

Due to various structural factors such as higher winter tariffs charged during the first half, Eskom always performs much better in the first half of the financial year than in the second.

Professor Anton Eberhard of UCT Graduate School of Business, where he directs the Power Futures Lab, commented on the surprising nature of the results:

It’s rare these days to see performance improvements in South Africa’s state-owned enterprises so great to see these results today from power utility @Eskom_SA . Revenue, profits, cash, debt service cover ratio all up.

— Anton Eberhard (@AntonEberhard) December 15, 2021

While the utility saw an improvement in all financial indicators, Eskom CFO Calib Cassim cautioned that this was on the back of a 15% tariff increase and financial assistance from government to the tune of R32 billion.

He said Eskom’s tariffs do not reflect its costs yet and until that is the case, government will have to keep up its assistance. For the next two financial years such assistance will amount to R21 billion per annum.

Outstanding municipal debt has increased to R41 billion and efforts led by Deputy President David Mabuza to address this have not made a dent so far, according to Cassim.

Gross debt has reduced from R463 billion a year ago to R392 billion, which is still about double what Eskom can service on its own.

Eskom has applied for a tariff increase of 20.5% for 2022/23. Energy regulator Nersa last week published the application and invited stakeholders to submit written comment by January 14.

The tariff determination will be finalised by February 25.

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The land

Regarding the land offer, Eskom CEO Andre de Ruyter explained that the utility has 36 000 hectares of mostly unused land around its coal-fired power stations in Mpumalanga.

The plan is to make this available to developers of renewable energy projects of up to 100MW, who plan to generate electricity for own use or to sell to third parties.

Eskom will follow a competitive bidding process favouring projects delivering the most energy the fastest. It is offering 20-year lease agreements.

This will on the one hand alleviate the problem of grid access for those developers who want to make the most of the licensing exemption announced by President Cyril Ramaphosa earlier this year and on the other hand create economic activity in communities currently supporting those older power stations that are due to be closed in the next few years.

While the best wind and solar resources are available in the Northern, Eastern and Western Cape, the grid in those provinces is saturated. Gordhan also announced plans to extend grid capacity in these provinces, but said that will take time. The Mpumalanga plan must in the meantime unlock additional generation capacity.

Eskom has been vocal about the need for 4 000MW to 6000MW additional generation capacity, without which load shedding will be unavoidable and it will continue to lack the spare capacity to undertake maintenance.

Business Leadership SA welcomed the land plan. It said in a statement: “If the maximum take-up is utilised, this has the potential to add up to 20GW to our supply capacity. For example, 400 plants of 50MW could be developed, or 200 plants of 100MW, mobilising enormous amounts of investment and substantially adding to electricity capacity in SA.”

De Ruyter said Eskom is ready for the legal separation of the transmission business.

He said it will meet with lenders to obtain their consent for the transfer of assets to the newly registered National Transmission Company SA, but still has to obtain a new transmission licence as the current one is in the name of Eskom Holdings.

Read: Eskom’s choice: Environmental compliance at R300bn or closure of 16 000MW