Zuma gives S. Africa green-power deals go-ahead despite cost

South African President Jacob Zuma said the nation’s power utility must sign agreements to buy clean power from private producers, even as the minister overseeing the state company said details of the already-brokered deals still need to be worked out.

Eskom Holdings SOC Ltd., which generates about 90 percent of the country’s electricity, “will sign the outstanding power-purchase agreements for renewable energy, in line with the procured rounds,” Zuma said Thursday in his annual state-of-the-nation speech in Cape Town. The government “is committed to the overall independent power producers’ program.”

Eskom, which burns coal for 90 percent of its electricity, has stalled on signing government-brokered deals to buy green power from independents, who were encouraged to develop capacity after shortages resulted in supply cuts to Africa’s most-industrialized nation. The utility says it no longer requires additional renewable energy, arguing that it’s expensive, isn’t always available during peak demand periods and will push up prices for consumers.

The program has drawn 194 billion rand ($14.5 billion) to new infrastructure, and 2,200 megawatts have been connected to the national grid from 44 projects. Developers are still waiting for Eskom to sign offtake agreements on another 37 projects worth 58 billion rand that will generate 2,354 megawatts.

“The president has spoken on the Eskom issue — however, I think we still have to sit around and discuss the numbers,” Public Enterprises Minister Lynne Brown said in an interview after Zuma’s speech. The utility reports to her department. “This is not just a government-Eskom issue, but also a commercial issue and more importantly a financial sustainability issue for Eskom.”

Surplus Capacity

The utility’s net income declined 10 percent to 9.4 billion rand in the six months ended September, it said in November. Net financing costs climbed 87 percent to 6.5 billion rand, while depreciation expenses increased 31 percent, it said. Power generated by Eskom’s plants fell to the lowest since 2006 in 2015, it said on its website.

Acting Chief Executive Officer Matshela Koko has argued that while new capacity was needed quickly when outages curbed industrial development, the utility now has a surplus of electricity.

Eskom has refused to sign off on an agreement to purchase 250 megawatts of power from two wind projects planned by Irish clean-energy developer Mainstream Renewable Power Ltd., and a deal with Saudi Arabia’s ACWA Power International to supply 100 megawatts of solar energy.

Brown and the utility’s board have given the producer approval to sign the outstanding deals, but the company’s position is that “all energy sources should be pursued at a pace and scale the country can afford,” spokesman Khulu Phasiwe said in an e-mailed response to questions. The country’s energy regulator has provided “the necessary assurances” that Eskom can recover additional costs, he said. The regulator has to approve the company’s request for price increases.

“It is reassuring to know that government remains committed to working together with the private sector to attract investment and drive much-needed job creation in the renewable energy sector,” South African Photovoltaic Industry Association Chairman Davin Chown said in a statement.

There have been reassurances in the past and the agreements remained unsigned, according to Victoria Cuming, a policy analyst at Bloomberg New Energy Finance. “The Cabinet has made similar statements before and nothing happened,” she said. “I took Zuma’s statements with a big grain of salt, given the level of disagreements even within government and with Eskom.”

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