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Interview
The roles of private sector IPPs and Eskom in renewable energy in SA
An interview with the South African Renewable Energy Council
by Chris Yelland, investigative editor, EE Publishers
EE Publishers initially proposed an interview with Eskom on its position and role in respect of renewable energy in South Africa. Eskom agreed and requested the interview questions in advance. However after the interview questions were provided, Eskom failed engage further or provide answers to the questions, despite repeated requests over a 3-week period. The questions were then put the South African Renewable Energy Council (SAREC) instead, who provided the following answers.
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We are aware that Eskom has a number of large wind projects under consideration (e.g. Aberdeen and Kleinzee Wind Farms). How do you think Eskom's renewable energy ambitions and activities fit in with the private sector REIPPP programme projects?
We understand that Eskom had certain obligations under the terms of a US $3,75-billion World Bank loan to build a wind and solar CSP plant, and that Eskom it has its own renewable energy ambitions. The utility currently sits with a renewable energy division of some 30 persons. Currently Eskom is prevented from participating in the REIPPP programme. However, the recent call for expressions of interest (EOI) for a 1500 MW Solar Park by the Department of Energy (DoE), and its stipulation that SOEs should take a minority stake in such Solar Park projects, articulates a role that Eskom could play.
Do you think Eskom has a role to play as developer and operator of utility-scale RE plants in South Africa, and what do you think are Eskom's future plans for utility-scale wind and solar power projects in South Africa?
We have not seen any examples globally where vertically integrated electricity monopolies have successfully competed with IPPs in the deployment of utility-scale renewable energy projects, but we are very clear that the potential of solar PV to power off-grid customers, both in South Africa and the region, is an area where Eskom can compete successfully - and fulfil its developmental mandate. Eskom has its own projects under development but cannot build and deploy plant with the speed and efficiencies that the IPP sector can. We believe Eskom should play a complementary role alongside IPPs by ensuring grid access is managed properly for integrating of renewable energy IPPs onto the grid.
What competitive advantage do private sector developers and operators bring to utility-scale wind, solar PV and CSP plants in South Africa, as compared to those of Eskom?
Private sector developers and operators bring greater speed of internal investment decision-making, development and deployment. They also bring more efficient deployment of capital, with global experience in development and operations, and a broader renewable energy track record, with proven on-time and on-budget delivery of plant.
To what extent are grid access limitations, and/or the need for grid upgrades by Eskom, preventing or inhibiting the roll-out of utility-scale renewable energy projects in South Africa?
Grid access is indeed a significant challenge for renewable energy IPPs. The renewable energy sector believes Eskom's financial constraints, and the large overrun on costs for Medupi and Kusile, has meant that there has been internal financial reallocations from Transmission and Distribution budgets to New Build, and this has negatively affected Eskom's ability to commit to renewable energy commercial operation dates. This is unfortunately compounded by absence of assessing and measuring grid constraints applicable to the various bids, and the investment costs of removing such constraints, in the REIPPP programme adjudication process.
For the recent US $180-million BRICS bank loan, do you know whether the capital must be used by Eskom for grid access for renewable energy, or is this simply general finance that may be used at Eskom's discretion?
We do not know the terms of the New Development Bank loan other than what has been reported in the media, namely that the loan is to be used to expedite the connection of some 500 MW of renewable energy projects, and we are happy about that. However in light of our concerns expressed above around Eskom's budgeting philosophy, we can only hope that the terms of the loan will ensure that the loans will indeed be spent as stated. NERSA needs to also play a stronger role in ensuring that the budget allocation processes are properly accounted for through its various oversight mechanisms.
How does the renewable energy sector in South Africa interpret the Eskom CEO's apparently negative sentiments toward renewable energy in his recent state-of-the-system briefing in Cape Town?
We accept that many stakeholders including Eskom have challenges in understanding the role that renewable energy plays in a modern electricity system, and we feel that the CEO of Eskom probably would benefit from an engagement with a wider group of advisors than he probably listens to at present. We have extended an invitation to Eskom's CEO to meet and discuss the utility's position on renewable energy, as we believe that through direct engagement all parties can make better informed decisions... (more)
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Industry news
Latest calculation of levelised cost of electricity from Medupi, Kusile & IPPs
by Chris Yelland, investigative editor, EE Publishers
In order to understand and compare the cost of electricity from a power plant, whether it is coal-fired, nuclear, hydro, gas, wind or solar, one needs to look further than simply the capital, fuel or operating and maintenance costs in isolation, to a concept known as the "levelised cost of electricity" over the lifetime of the plant.
Click here to read the full article
The levelised cost of electricity (LCOE) from a generation plant is the net present-day monetary cost per present day kWh unit of electricity delivered, which when adjusted for inflation each year over the lifetime of the plant, will recover its full costs, including the initial investment, cost of capital (including dividends and interest), fuel and all other fixed and variable operating and maintenance costs.
Too often, LCOE figures for different power plants or electricity generation technologies are discussed, presented or compared without a clear statement of the parameters and assumptions upon which the calculations are based, in which case the figures have little meaning.
A revised estimate of the LCOE of Eskom's Medupi and Kusile's coal-fired power plants is long overdue and particularly relevant now, in light of the massive increase in the estimated costs to completion and interest during construction recently disclosed on page 141 of Eskom's 2015/16 integrated financial report.
The results of an updated LCOE calculation for Medupi and Kusile, using the same methodology as that used in the national Integrated Resource Plan for Electricity IRP2010-2030 and the 2013 Draft IRP Update Report is therefore presented as follows... (more)
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