National Treasury has 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 has also suggested Eskom sell coal-fired power stations, possibly through a series of auctions.
Through these auctions, Treasury says, Eskom would sell the power station itself, all its power station-specific obligations (staff contracts, coal-supply contracts, supplier contracts, environmental obligations, etc), together with a power purchase agreement (PPA) at a predefined, power station-specific tariff.
The PPA would entail new power station owners to supply a specific amount of electricity annually (an electricity budget) over the remaining lifetime of the power station to the Single Buyer Office at Eskom at a predefined tariff.
The revenue this could generate depends on the tariff assumptions, but assuming cost-reflective tariffs, the sale of these assets could raise around R450 billion, says Treasury.
It adds that consideration should also be given to regulation that enables households and firms to sell excess electricity they generate.
SA’s economic strategy
Finance minister Tito Mboweni yesterday called on members of the public to comment on a paper published last night, titled: Economic transformation, inclusive growth and competitiveness: Towards an economic strategy for South Africa.
The paper, prepared by National Treasury, is an attempt to translate the broad outcomes of inclusive growth, economic transformation and competitiveness into specific programmes, and draw on a range of domestic and international literature to support these policy priorities.
In his State of the Nation Address earlier in the year, president Cyril Ramaphosa announced that debt-ridden power utility Eskom would 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.
It points out that alternative models are being explored, such as the separation of generation assets – leaving the state-owned transmission company to buy electricity transparently from IPPs and state-owned power generators.
It believes that restructuring the electricity sector will limit the fiscal and economic risk that Eskom poses and support economic transformation through more entrants into the electricity space.
The IPP programme provides additional electricity to the grid through a diversified energy mix of renewables, coal, cogeneration and gas from the private sector, says Treasury, adding that so far, 102 projects have been procured and R194 billion has been invested.
“Many jobs for South African citizens have been created in addition to localisation and economic empowerment opportunities.
“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,” it says.
It points out that Eskom’s unwillingness to sign independent PPAs with bidders in the past, despite the fact that Eskom can cover IPP costs through the tariff process, has undermined investor confidence.
Enabling the independence of the single buyer’s office (or the transmission company,) will ensure the sustainability of IPPs going forward, it says.
Liberalising electricity supply
Renewable energy industry body, the South African Wind Energy Association (SAWEA), says this move would play a significant role in liberalisation of the electricity supply industry.
“SAWEA believes the independent transmission company will apply fair practices in procurement of power without favour or prejudice,” says Ntombifuthi Ntuli, SAWEA board member.
“The biggest challenge with Eskom being a single buyer office is that Eskom would always prioritise its own generation over independent power producers. We have already experienced this when Eskom refused to sign PPAs for bid window four (BW 4), which resulted in a three-year-long impasse. This period totally hurt the industry, affected investor confidence and delayed R80 billion investment into the South African economy,” Ntuli says.
She points out the tariffs for renewable energy have reduced drastically over the past four bidding rounds.
According to Ntuli, wind energy has dropped by 59% and BW 4 projects averaged at 62c/kwh.
“Such low electricity prices enable South Africa to improve its competitiveness which is a major contributor to economic growth.”
Further, SAWEA calls for a clear regulation on private PPAs. “This should facilitate a transaction between private generators and private off-takers. This should further stimulate economic growth as large consumers of electricity can procure from private generators at competitive rates,” says Ntuli.
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