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IPPs do not impact Eskom’s finances negatively: expert

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Independent Power Producers comprise less than 5% of Eskom sales, members of Parliament have heard.

The Portfolio Committee on Public Enterprises was on Wednesday briefed by several stakeholders in the energy industry on measures to solve Eskom’s operational and governance challenges. Among them was UCT Professor Anton Eberhard, who also chaired the Eskom Sustainability Task Team, appointed by the president in December 2018.

Responding to questions from members of Parliament, Eberhard weighed in on concerns about Independent Power Producers, particularly their costs. The first round of renewable energy projects procured in 2011 were expensive, but in subsequent years the costs of successive bid windows have declined.

Eberhard said that the new IPPs were expected to cost around 40c per kilowatt hour. This is cheaper than Eskom’s cost of power, which is around R1.06/kWh, he noted, adding that this could essentially save Eskom money.

Furthermore, IPPs comprise less than 5% of Eskom sales, he said. “So actually, they do not impact Eskom’s finances negatively,” he said.

The only way IPPs could negatively impact Eskom is if they were taking sales away from Eskom – which is not the case because Eskom is not producing enough electricity, he argued. Secondly, IPPs would affect Eskom’s finances if there was no full cost recovery in place. The national energy regulator has always made a tariff determination that covers the full amount Eskom needs to pay IPPs.

“There is a full cost recovery,” Eberhard said.

Considering that IPPs only account for 5% of sales, this cost is essentially spread across a base of 95% of consumers. “Consumers are subsidising that small amount, of extra cost to IPPs,” Eberhard told members of Parliament.

In his state of the nation address, President Cyril Ramaphosa said that the state would procure emergency power from projects that can supply the grid within three to 12 months of approval by making it easier for IPPs to get the certification.

Mineral Resources and Energy Minister Gwede Mantashe told journalists at a briefing in February that his department was reviewing 481 responses from potential power suppliers who responded to a request for information issued by the department in December.

The department has also finalised a section 34 determination, allowing municipalities to procure electricity from independent power producers. The national energy regulator needs to concur with the s34 determination to move the process forward, Fin24 previously reported.

Source: Fin24

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