Utility Review Endangers Biggest Africa Renewable-Power Plan

  • Questions over independent producers’ role may curb investment
  • South Africa’s Eskom reinforces view that nuclear power needed

South African electricity utility Eskom Holdings SOC Ltd. is questioning the role of renewable energy, jeopardizing a program touted as one of the most attractive for wind and solar power producers in the world.

Renewable power isn’t ideal because it can’t be guaranteed when needed at the evening peak of 6 p.m., and the country would be better off relying on coal or nuclear, Eskom Chief Executive Officer Brian Molefe told the Johannesburg-based Sunday Times newspaper. The utility currently produces about 85 percent of South Africa’s power from coal and operates the continent’s only nuclear plant. While the country has approved plans to add as much as 9,600 megawatts of nuclear by 2030, the National Treasury says it will only consent to what is afforable.

Brian Molefe
Brian Molefe
Photographer: Waldo Swiegers/Bloomberg

South Africa’s renewable-energy procurement “has become a template not just for the developing world, but even countries in Europe,” Jason Harlan, CEO of Fieldstone Africa, a Johannesburg-based energy investment bank, said by phone. “There’s a definite chilling effect on long-term interest in South Africa” as a result of Eskom’s position, he said.

Through 194 billion rand ($13.6 billion) of investment in the renewable program, South Africa has reduced the tariffs for solar power to as little as 0.79 rand a kilowatt-hour from 3.29 rand since the first bidding round in 2011, data compiled by Bloomberg show. Enel Green Power SpA, ACWA Power International and Acciona SA are among companies that have built the renewable projects.

A fourth of five bid windows is set to increase the investment amount to more than 255 billion rand, according to the Department of Energy. About 2,145 megawatts of renewables have been connected to the grid, or about 5 percent of Eskom’s total capacity. South Africa has a target of 17,800 megawatts of electricity from cleaner sources by 2030.

Coal Plants

Eskom is building the Medupi and Kusile coal-fired plants that it estimates will cost at least 306 billion rand and will supply about 9,560 megawatts when both are complete. They have run over budget and are years behind schedule.

“The renewable load is not available when needed the most during peak hours," Matshela Koko, Eskom’s group executive for generation, wrote Monday in Business Day newspaper. “For as long as this is the case, South Africa requires a base-load solution in its energy mix.”

Eskom said the average cost of generation in the 2016 financial year was 0.72 rand a kilowatt-hour, including depreciation and amortization. Revenue was 0.76 rand, which included a 0.02 rand environmental levy. The utility hasn’t yet discussed the price of nuclear with the Treasury, according to Molefe.

“If one is really in favor of a green economy, one would actually support nuclear,” he told the Sunday Times.

Finance Minister

The Department of Energy and the Independent Power Producer Procurement office didn’t respond to three calls and six e-mails. The department determines the policy behind the private generation program and Eskom is required to purchase their electricity. Eskom plans to hold a meeting with the energy department, said Khulu Phasiwe, the utility’s spokesman.

Molefe isn’t qualified to make policy statements on the program, Business Day reported Finance Minister Pravin Gordhan as saying. The initiative is a symbol of the attractive investment environment that South Africa has to offer, he was cited as saying.

While Eskom recognizes “the significant potential” of renewable-energy technologies, non-renewable generation must always be available, Koko said. In March 2015, it started commercial operations from its 100-megawatt Sere wind farm.

‘Different Views’

South Africa has also started a gas-to-power program, which is expected to add 3,126 megawatts of capacity from independent producers in 2019 to 2025 and encourage wider use of the fuel. The recent view expressed by Eskom hasn’t completely surprised its planners.

“Serious investors likely will understand that in the early stages of a project there will be differences in view by relevant stakeholders,” Kishan Pillay, director for the Department of Trade and Industry’s industrial development division, said in an e-mailed response to questions. The Gas Industrialization Unit, set up by the government initially to import liquefied natural gas for power plants, “is to assist in facilitating growing policy alignment and coherence,” he said.

Some critics have had a sharper reaction to the utility’s position.

“Mr. Molefe’s decision, which flies in the face of national energy policy, will have serious repercussions for the stability of electricity supply in South Africa and be yet a further hurdle to much-needed job creation,” Gordon MacKay, the opposition Democratic Alliance party’s spokesman, said Tuesday in an e-mailed statement. The DA, which is in power in Cape Town, is seeking permission to allow the city to procure power directly from private producers, he said. “This would introduce much-needed competition to Eskom.”

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