Renewable energy industry body, the South African Photovoltaic Industry Association (SAPVIA) has welcomed the National Treasury’s proposal to restructure debt-ridden power utility Eskom.
Yesterday Treasury proposed that after the unbundling of troubled power utility Eskom, an independent transmission company be created to buy electricity transparently from independent power producers (IPPs).
It also suggested Eskom sell coal-fired power stations, possibly through a series of auctions.
In his State of the Nation Address earlier in the year, president Cyril Ramaphosa announced that Eskom will be unbundled into three divisions – generation, transmission and distribution – which would fall under an Eskom parent company.
However, the announcement was criticised by labour unions, which saw this as a move to privatise Eskom.
Treasury says Eskom needs to restructure and modernise its business in light of international developments, as well as its own poor technical and commercial performance.
Operational efficiencies
SAPVIA believes the restructuring plans for Eskom will help to improve the operational and structural inefficiencies the utility has faced, and this will be a positive development for the South African economy in general.
The organisation says going forward, such a structure will change the face of the electricity market, allowing more entrants into the electricity space and supporting economic transformation.
SAPVIA points out that to date, 102 projects have been procured through the Renewable Energy Independent Power Producer process.
It explains that these projects have worked with Eskom throughout the process to receive cost estimate letters, negotiate transmission and distribution agreements, complete, test and handover self-build works and supply power to the utility.
Eskom’s credit situation is also not necessarily a major concern to IPPs, as the power purchase agreements are backed by government guarantees, it says, adding that, however, to date, there has been no requirement to resort to these, as Eskom has made payments for power delivered by the IPPs.
Direct and indirect benefits
According to SAPVIA, there are numerous ways in which renewable energy provides direct and indirect benefits to the economy and improve competitiveness.
As stated in the paper, it says: “The IPP programme provides additional electricity to the grid through a diversified energy mix of renewables, coal, cogeneration, and gas from the private sector.
“The IPP programme will also support the provision of electricity at a lower cost. The latest rounds of solar PV and wind IPPs, once they come online, will be able to generate electricity at a lower cost than Eskom’s Medupi and Kusile.”
SAPVIA notes that the average price on Round 4 for wind was 68c/kWh and 82c/kWh for solar while Medupi and Kusile sits at R1.36.
The organisation says renewable energy provides stable energy prices. “While renewable energy projects require substantial upfront investment, their operating costs are lower. This is mainly due to not having to purchase fuel.
“Eliminating fuel costs (which are often linked to market and currency-related factors) lowers the cost of electricity produced.”
It adds that renewables projects and the wider industry create economic development and jobs in manufacturing, installation, engineering, construction and operations, sales, marketing.
“Renewable energy jobs are expected to continue to grow well into the future as we transition into the fourth industrial revolution,” says SAPVIA.
It also points out that renewable energy also provides an additional source of income for rural landowners and farmers. The surrounding communities also benefit from social and economic development, it notes.
BEE drive
On black economic empowerment, SAPVIA says black South African companies such as Thebe, Kagiso/Tiso, Royal Bafokeng, H1, Halusani, Reatile, Phakwe and others own, stakes in projects that have reached financial close.
“Broad-based black participation is also secured across the value chain through community participation, including in engineering, procurement, construction, operations, and maintenance contractors. Local community ownership is managed through trusts which provide dividends for their shareholding in the projects.”
In regards to carbon reduction, SAPVIA notes that renewables produce no greenhouse gas emissions from fossil fuels and reduces some types of air pollution.
“Green energy provides the vehicle for industry and business of SA to obtain and prove carbon footprint reduction via mitigation or offsetting. About 72% of SA emissions is as a direct result of fossil fuels, so by natural attrition so is the footprint of mining, heavy Industry and business.
“SAPVIA welcomes and supports the plan to regularly update the IRP [integrated resource plan] and related plans using the latest information and data regarding economic indicators as well as technology prices. This ensures the IRP has a basis of least cost principle and delivers to the principles laid out in the NDP [National Development Programme] and provide the framework for the much-debated ‘just energy transition.
“In addition to cost considerations, the technology choice in electricity planning should also be influenced by the availability of skills and South Africa’s existing capabilities.”
For example, the organisation says renewable technologies require more low- and semi-skilled workers whereas nuclear technologies require highly-skilled experts and technicians, which are in limited supply locally.
“While we recognise that such planning should be influenced by skills, we also would highlight that the renewables sectors trains and employs many skilled experts and technicians, civil, electrical and mechanical engineers throughout the life of the project.”
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