Eskom in discussion on 37 power purchase contracts

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Eskom says it is in discussions with the National Treasury, Department of Public Energy and Department of Energy to deliberate on the power purchase contracts it is supposed to sign with independent power producers (IPPs).

The renewable energy industry has blamed Eskom of declining to sign power purchase contracts with 37 IPPs, putting investments of roughly R58 billion at peril.

To the frustration of the renewable energy industry, Eskom has upheld it will sign power purchase contracts with independent producers at a speed and scale it can manage to pay for.

The power utility firm has postponed signing the 37 power purchase contracts, intensifying doubt about the fate of the Renewable Energy Independent Power Producer Procurement programme which, until presently, has been welcomed as a model for public-private partnerships.

According to Eskom representative Khulu Phasiwe, how Eskom would recover the costs of purchasing the renewable energy. “President Zuma has said that we must sign the IPPs. There is no dispute about that. But Eskom needs clarity on some aspects,” said Phasiwe .

In his State of the Nation Address earlier this year, Zuma unequivocally said Eskom wouldsign the power purchase agreements, a move that was expected to put the matter to rest.
Phasiwe said there was a necessity to explain how the costs of the IPPs would be accommodated in the Regulatory Clearing Account (RCA) mechanism.

The RCA is a mechanism that equates certain overwhelming costs and revenues assumed in Nersa’s (National Energy Regulator of South Africa) Multi-Year Price Determination (MYPD) to real costs and revenues sustained by Eskom.

Nersa exploits the MYPD methodology to assess Eskom’s applications for tariff rises and to decide Eskom’s revenue necessities.

In August, the North Gauteng High Court set aside a verdict by Nersa concerning Eskom’s (RCA) application for the 2013/14 financial year, the first year of the Third Multi-Year Price Determination (MYPD3) era.

Nersa has appealed against the High Court judgment.
The High Court case has put at risk Eskom’s capability to in retrospect cut back costs for the 2014/15 and 2015/16 fiscal years.
Eskom has before shown that the submissions would total to roughly R19 billion and R22 billion correspondingly.

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