In his state of the nation address, President Jacob Zuma announced: "Eskom will sign the outstanding power purchase agreements for renewable energy in line with the procured rounds." The renewable energy producers cheered, but many others questioned how and when this would come about.
Eskom’s failure to sign is because they are paying too much for the renewable energy. They have to increase the price at which they sell power to pay for the costly renewables, but the National Energy Regulator of SA is reluctant to grant any further increases.
How has this impasse come about? The Department of Energy’s renewable energy independent power producers (IPP) procurement programme has, rightly, been hailed an outstanding success. In five rounds of bidding it has attracted some 6,300MW of capacity, with an investment of about R200bn — and the cost of renewable energy has dropped with each round.
Wind power was R1.36/kWh in the first round; in the fifth it was R0.68 (in April 2014 rand). Photovoltaic power was R3.29; it has fallen to R0.82. Concentrated solar power was R3.20/kWh; it has fallen to R1.62 during the day, rising to R4.37 for power produced at peak periods.
When renewable energy first started being supplied to the grid, it was a very valuable addition. Eskom was short of capacity, and was running open-cycle gas turbines at more than R4/kWh (crude oil was more than $100 a barrel and diesel fuel for the turbines, accordingly, very expensive). The renewable energy industry estimated that it produced a benefit of about R5bn in 2015.
Today, however, the situation is very different. There is a surplus of power; about 600MW are being produced by Medupi with more to come soon, and the pumped storage plant at Ingula is fully operational. The power stations are operating more reliably. In the year to March 2016, Eskom produced for itself some 220tWh of electricity at an average cost of R0.61/kWh; the renewable industry produced 9tWh at a cost of R1.67/kWh.
And this is why Eskom is having difficulty justifying purchase of power from the independents. The Department of Energy contracted with the IPP with no consideration of Eskom. Yet Eskom is now expected to stand a loss of more than R1/kWh for the privilege of taking the power.
An added problem is that renewable energy doesn’t necessarily come when you want it. Wind supplies on average only 31% of its rated capacity and photovoltaics on average 25%. If you are trying to operate a grid, you have to learn to cope with huge surges in the supply if the wind suddenly starts blowing and the clouds disappear. Other generation has to be slowed down to allow space for the renewable energy to be fed into the grid. Conventional generators were designed to be operated smoothly, not in a start/stop mode; cycling them increases the wear and tear, and leads to more downtime and greater maintenance costs.
Of course, one of the reasons the average cost of renewable energy is so high is that what is currently produced comes largely from agreements concluded in the first two rounds of bidding, when the prices were highest. As the renewable energy programme extends, the average price will fall. However, even when all five rounds are operational, renewable energy will still cost about R1.40/kWh (in 2015 rand), and Eskom will be paying slightly less than R0.80/kWh for the privilege of taking it. Eskom has made an offer to purchase renewable energy at R0.61/kWh, but none of the producers are interested — they view their contract with the department as non-negotiable.
There is an obvious method of reducing much of the financial impact. Since April 2011, Eskom has been paying an "environmental levy" of R0.025/kWh for all power produced by burning fossil fuels. In the year ending April 2016, the levy totalled R8.1bn, while Eskom paid the renewable power producers R15.1bn.
The government could, therefore, either remove the levy to lower Eskom’s costs, or use the levy as a subsidy for the renewable power producers to enable them to reduce their costs. This would make the effective renewable energy average price only R0.77/kWh, sufficiently close to Eskom’s R0.61/kWh cost for own production to be almost tolerable.
Ultimately, however, it is clear that renewable energy will increase the cost of power. It is all very well for the producers to claim that they can now produce at prices competitive with newly built coal-fired plants, but when we have enough power we don’t need any new production, renewable or otherwise.
The draft Integrated Resource Plan foresees large increases in the renewable energy supply. It would be wise to focus on growing the economy, and thus growing the demand for power, before we build yet more generation capacity than that already committed.
• Prof Lloyd is with the Energy Institute at Cape Peninsula University of Technology
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