The Past, Present & Upcoming activities around the world. "Events Update" - Joassycan Pro X Royalted Khweenz -
Monday, 17 April 2017
No new date set for IPP signing "Postponed till further notice" #CAP
The renewable energy sector was notified in a short note at 16:25 on Friday that the financial close of 37 outstanding independent power projects (IPPs) would not take place on Tuesday April 11 as planned.
No new date has been set and the only reason forwarded by the Department of Energy’s IPP office was “to allow the new Minister of Energy to consult with stakeholders including the Minister of Public Enterprises.”
This follows President Jacob Zuma’s removal of former energy minister Tina Joemat-Pettersson from cabinet on March 31. She was replaced by Mmamoloko Kubayi. Former finance minister Pravin Gordhan was replaced by Malusi Gigaba.
Eskom spokesperson Khulu Phasiwe, however, said on Monday night that the utility cannot sign the power purchase agreements that are a prerequisite for financial close unless it gets assurances from the government and the energy regulator Nersa about the source of money to pay for the renewable energy.
Joemat-Pettersson set the April 11 deadline for finalising the IPPs. This follows an assurance from Zuma in his state of the nation address that the reluctant Eskom will sign the agreements in line with government policy.
Eskom has publicly ciriticised government’s highly acclaimed IPP programme that has brought investment totaling almost R200 billion, saying it is forced to buy expensive renewable energy while it has a surplus from its own generation that comes at a much lower cost.
Mark van Wyk, head of unlisted investments at Mergence Investment Managers told said on Monday night that he doesn’t know what to tell investors lined up to fund the five outstanding small renewable projects his firms supports.
He says Mergence has successfully financed 12 projects in bid rounds one and two. These went well and the projects are all operational.
Five of the ten bids they supported in the programme for small renewable projects with generation capacity of less than 5MW were selected as preferred bidders. The five projects have a total value of R700 million and Mergence has a funding commitment of R350 million.
Financial close on these projects has now been delayed by at least a year due to Eskom’s reluctance, he says. “It is a concern, because we have committed investors who reserved their capital on good faith. They are earning 5% interest on the reserved funds, while they could have earned 8-9% if the programme went according to schedule,” he says.
“The question is how long do you wait?” he asks. If an investor withdraws now and the issues are resolved tomorrow, he loses all the money, effort and expertise invested to get the project to this point.
He says it is however clear that investors’ patience is running out, especially since there is no clear timeline to financial close.
Van Wyk says the cabinet reshuffle has really had an impact, since Joemat-Pettersson was pushing for the signing on April 11, with the support of Gordhan.
Initially the industry expected full financial close on Tuesday. Early last week they were informed that only some preliminary agreements would be signed, but not the power purchase agreements. On Friday after close of business they learnt that the whole signing has been postponed, but not until when.
“It is not clear what the new ministers of energy and finance’s positions are on renewables or what their mandates from the president are,” he says.
“I don’t know what to tell investors. If they withdraw, it will expose the projects,” he says.
Phasiwe said Eskom has refrained from talking about a deadline for signing the agreements, since it first needs assurances about the source of funds to pay for the renewable energy.
He said Eskom’s ability to recover the money spent on buying renewable energy is restricted due to the court challenge to Nersa’s earlier decision to grant it an interim tariff hike. All interim adjustment applications have been shelved until Eskom and Nersa’s appeals have been finalised.
He said if Eskom spent the same amount on renewables in this financial year as in the previous one, it would be left with a deficit of R10 billion for the year. Signing further commitments would amount to reckless trading, he stated.
Nersa has allowed Eskom R19.6 billion in the current financial year for renewable energy purchases.
According to Mike Levington, CEO of the South African Photovoltaic Industry Association (SAPVIA), that should be more than enough for the cost Eskom will incur in 2017/18 and therefore interim increases are irrelevant.
He said if Eskom signed the agreements relating to the outstanding 37 projects now, the first power purchases would take place at the end of 2018 only. That would be in a new tariff period and Eskom would still be able to make provision for the cost, which is a pass-through in terms of the tariff methodology.