South African Govt urges IPPs to voluntarily review tariffs downwards

Government on Friday asked representatives of the renewable energy sector to a meeting in Pretoria where it begged them to agree to drop electricity tariffs.

Gwede Mantashe, minister of mineral resources and energy, as well as Pravin Gordhan, minister of public enterprises, personally met with representatives of the independent power producers (IPPs).

Analysts were unsettled when news of the meeting was confirmed, as any deviation from previous promises in respect of the IPPs could damage investor confidence.

Stakeholders who attended the conference, however, confirmed to City Press’ sister publication, Rapport, that Mantashe and Gordhan were extremely cautious in their approach to the IPPs and issued no hard order that prices be dropped.

Mantashe and Gordhan also did not insist on a renegotiation of tariffs – something the industry could have been strong-armed into if they wanted to do business with Eskom in the future.

It appears that the diplomatic approach bore fruit, and a first meeting of the IPPs to discuss cooperating with government has been set down for Wednesday.

According to Professor Anton Eberhard, an energy expert previously appointed to give advice to Eskom, the weighted average tariff that Eskom pays per kilowatt-hour to providers in the first round of contracts is 202 cents.

In the previous financial year, Eskom sold the same units for 90c/kWh, which includes generation costs and transmission costs.

It therefore recorded a hefty loss on the green power it purchased.

Eskom is bound to these terms for the duration of the agreement. Agreements of this nature usually last 20 years, with only annual inflation-related increases.

Although the unit cost has come down to 70c/kWh in the fourth round, critics argue that the financial burden on Eskom in terms of renewable energy purchases is too high, and something needs to be done about it.

Criticism has also been levelled at the tariffs from within Eskom’s ranks.

Terence Govender, chairperson of the SA Renewable Energy Council (Sarec), which represents IPPs, told Rapport it was a successful meeting.

He said the ministers explained the state of the economy and the effect high electricity costs were having on the country. They asked for suggestions from within the industry.

According to Govender, it was then decided that Sarec would take the matter in hand and call a meeting of existing independent power producers, developers and financiers in Johannesburg on Wednesday.

The plan was to develop a uniform industry position which could then be taken further by a task team of government and industry officials.

Govender said there was consensus among Sarec’s members that the open discussion proposed by government was most welcome.

The industry also had the opportunity to explain to the ministers what was needed to ensure a sustainable green energy industry., he said.

The ministers further gave assurances that the green energy industry was central to the economy and would have a very important place in the country’s long-term energy plan, the Integrated Resources Plan (IRP).

South Africa’s renewable energy programme is widely regarded as one of the best in the world and has attracted about R200 billion in investment since 2011.

A substantial portion of this is foreign investment.

The plan has, however, stalled over the past few years, against a background of resistance from Eskom and coal miners, as well as uncertainty over the IRP.

It is the final word on the country’s future energy mix and what type of technology would be acquired.

The IRP is crucial to investors because electricity generation projects take a long time to complete.

However, it has been repeatedly delayed.

Government’s latest promise is that the plan will be before the executive in October, and Rapport understands that it has already been referred to Cabinet.

After the meeting, the department of mineral resources and energy said Mantashe also met with coal producers on Thursday.

Govender said it was a welcome development that Mantashe and Gordhan now appeared to be taking the lead in addressing questions regarding the country’s future power supply, after a relatively long period of uncertainty.


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One thought on “South African Govt urges IPPs to voluntarily review tariffs downwards

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