Home South African Independent Power Producers ’shot themselves in the foot’

Independent Power Producers ’shot themselves in the foot’

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The programme was in a quandary after producers indicated they could not continue with current rates that required financial close before the signing of agreements with Eskom next month.

File picture: EPA

INDEPENDENT Power Producers (IPPs), under renewable energy independent power producer procurement programme bid window 5 (REIPPPP BW5), shot themselves in the foot with unsustainable rates, now making it impossible to deliver power to Eskom, leading to the grid’s prolonged load shedding.

Speaking to Business Report over the weekend, South African Independent Power Producers’ Association chairperson Thomas Garner said the programme was in a quandary after producers indicated they could not continue with current rates which required financial close before the signing of agreements with Eskom next month.

Solar and wind energy IPPs reportedly bid 37.5 cents a kilowatt hour to secure business when the going rate should have been between 60 to 80 cents a KWh.

“This is a race to the bottom, not all the projects are viable. It is a struggle to make commercial and financial sense. What is needed is a reverse auction to start the projects afresh, people will lose a lot of money in the process.”

The Independent Power Producer Programme (REIPPP) bidding was done in 2021, and the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP), which has the same difficulties, in 2020/21, comes at a time when the government is desperate to bring more energy onto the grid.

The last two rounds of power procurement in which bids were solicited from the private sector are largely no longer financially viable.

The bidders, which set a tariff for which energy will be bought by Eskom, are based on an estimate of input costs. Once bidders are selected, they are bound by the price they offer.

“There is a huge risk around the supply of equipment, there is a lot of risk around the commercial and financial sense of the projects, there needs to be a reverse auction of the slots. Why did IPPs tender for a lower rate than they could afford?” Garner said.

Eskom declined to comment, with spokesperson Sikonathi Matshanshta referring questions to the IPP office.

“Please direct your questions to the IPP office which procures power from the IPPs. Eskom does not get involved with the negotiations,” Matshantsha said.

The IPP office had not responded to queries sent early on Friday.

Close sources indicated that IPPs in early 2021 tendered for 37.5 cents per kilowatt hour for the supply of energy to the grid instead of between 60 to 80 cents a KWH which would have been sustainable despite the global turmoil.

The Covid-19 downturns, the Russia/Ukraine conflict, the global economic downturn and other factors since then have however affected input costs.

“IPPs took too much risk, now they are holding back progress of the supply chain, the bid bonds will have to be recalled and the process started all over again, it is not sustainable at these levels,” Garner said.

BUSINESS REPORT

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