SA’s energy transition can be beneficial for all
While the SA government is backing renewable energy, more has to be done to get everyone one on board as is evident from the court case brought by the Coal Transportation Forum (CTF) against Eskom that will be heard later this month.
By Brenda Martin
The SA government recently reiterated its commitment to clean energy with President Cyril Ramaphosa and Energy Minister Jeff Radebe recently stating that renewable energy independent power producers (IPPs) remain firmly part of the country’s energy future.
Radebe detailed how IPPs have benefitted the economy and dispelled the notion that Eskom incurs losses as a result of the programme. SA has perhaps the most transparent renewable energy independent producer programmes in the world and has received significant international acknowledgement.
There is ample evidence now that the Renewable Energy Independent Power Producer Procurement Programme in SA (REI4P) has not only secured additional MW capacity, helping to reduce the impacts of load-shedding, but has also created new jobs and built local communities. Minister Radebe pointed out that it has also opened multiple opportunities for SA to advance its manufacturing capacity and industrial development, as well as to participate in the value chain of new technologies.
However, some lobby groups still refuse to consider the need for an energy transition, let alone the value of achieving a managed one
Later this month, the High Court in Pretoria will hear a case brought by the Coal Transportation Forum (CTF) to interdict Eskom from signing duly procured power purchase agreements with preferred bidders from round 4 onwards, and explicitly including those selected in the “smalls round” of SA’s renewable-energy independent power producer (IPP) procurement programme.
The forum argues that the court should set aside all power purchase agreements signed with IPPs to-date because it claims that the National Energy Regulator of SA (Nersa) authorised them without proper public consultation. CTF has also argued in its founding affidavit that the renewables programme will impact negatively on Eskom’s financial performance and reduce the demand for coal by up to 10-million tonnes a year in 2021, which would result in mines being shut down and permanent jobs lost.
The assertion that Eskom incurs losses by entering into contracts with IPPs has been found to be without foundation, misleading and false.
In fact, since 2013, Eskom has not incurred a cent in buying electricity from the independent power producers which they have not been able to recover through the tariff allowance. In February, Radebe provided an eloquent summary of Eskom’s financial position in relation to IPPs, pointing out that the financial statements of Eskom reflect that, after deduction of the cost of electricity bought from the IPPs the earnings before interest, tax, depreciation and amortisation (ebitda) margin was positive.
Minister Radebe said that this points to the fact that Eskom’s financial problems are mostly related to the cost increases, including the increased interest during construction, associated with the delay of the new-build projects Medupi, Kusile and Ingula.
By contrast, IPPs – despite years of stop-start procurement – have proven their capacity to deliver built programmes on time and within budget, and that they have the capacity to take on upfront risk and debt on their own and then rely on power purchase agreements over a twenty-year life span to recoup their investments.
This is the kind of public private partnership that South Africa needs to address economic growth. Recent statistics compiled by the Council for Scientific and Industrial Research (CSIR) Energy Centre, show that without renewables, SA would have experienced higher stages of load shedding more frequently in 2018. And in 2015, 85% of all foreign direct investment in SA was attributed to the local renewable energy industry. Today, renewable energy is the cheapest form of new-build electricity and the price gap between renewables and coal will continue to grow.
These are important positive facts which must inform SA’s debate on the energy mix. And while the energy transition away from a dependence on coal may well lead to job losses in the mining and related sectors, it’s clear that the transition to renewable energy presents more social, environmental and economic opportunities, than risks.
At times, change can be painful. However, instead of approaching the courts and discrediting IPPs, lobby groups and interested parties should regard the energy transition as largely progressive, play a leading role in managing it and prepare their members accordingly. Government should also take the lead in the energy transition to ensure it is just and sustainable.
IPPs take seriously their responsibility to ensure that they impact local communities positively; to not only guarantee their social license to operate, but to also build an inclusive economy. To date, R640.3m has been invested by IPPs into socio-economic development contributions to communities and R204.6m in local enterprise development. In fact, their commitment to these elements go over and above compliance and demonstrate a significant measure of good faith.
Given the many social, economic and environmental challenges we face in South Africa, so much more can be achieved by working together than at cross purposes. It’s time to build more than we destroy, to be part of a managed energy transition. With more dialogue and engagement, SA’s energy transition can be smoother and more beneficial than it is currently set to be.
Brenda Martin is the CEO of the South African Wind Energy Association (SAWEA), which represents the interests of its members who are invested in the South African utility scale wind and solar power value chain.