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Nersa may probe whether Eskom’s refusal to sign renewables PPAs contravened licence

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Nersa may probe whether Eskom’s refusal to sign renewables PPAs contravened licence

11th May 2017

By: Terence Creamer
Creamer Media Editor

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The electricity subcommittee of the National Energy Regulator of South Africa (Nersa) will recommend that the Energy Regulator institute a formal investigation into a complaint that Eskom was flouting the conditions of its licence by refusing to conclude power purchase agreements (PPAs) for 37 renewable-energy projects procured by the Department of Energy.

Spokesperson Charles Hlebela said the next meeting of the Energy Regulator would take place on May 25, and confirmed that, at its meeting on May 3, Nersa's electricity subcommittee had endorsed the probe, following a preliminary investigation. Should it proceed, the subcommittee wants Mbulelo Ncetezo, the regulator member responsible for electricity, to chair the probe.

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The South African Wind Energy Association (Sawea), which lodged a complaint in October, indicated that no timeframe had been provided to it yet, but that it hoped the investigation would move ahead swiftly.

“We have had confirmation from Nersa that an expedited investigation into whether Eskom is in contravention of its licence has now commenced,” Sawea CEO Brenda Martin said in a statement.

The 37 renewables projects, 12 of which are wind projects, are said to carry a combined investment value of R58-billion, as well as the potential to create 13 000 construction jobs.

Eskom’s refusal to sign the contracts has been widely criticised and the impasse was initially expected to be broken in April after President Jacob Zuma confirmed in his State of the Nation address that all outstanding PPAs would be signed.

However, the April 11 signing deadline was postponed after Zuma’s March 31 Cabinet reshuffle, which saw Mmamoloko Kubayi replace Tina Joemat-Pettersson as Energy Minister. The new Energy Minister requested the postponement to enable her to consult with stakeholders, including Public Enterprises Minister Lynne Brown and new Finance Minister Malusi Gigaba.

Martin noted that its complaint at subsequently been joined by the South African Renewable Energy Council (Sarec) and a number of individual independent power producers (IPPs).

She also stressed that Sawea’s primary intention was to achieve financial closure on the outstanding projects, even though any finding of noncompliance by Eskom could result in a fine of 10% of its yearly turnover per day, commencing on the day of receipt of the notice of contravention.

“It remains our hope that Eskom will comply with the legal framework for power purchase, so that penalties do not need to be imposed on Eskom,” Martin said.

Also highlighted was legal opinion, secured by Sarec in January 2017, stating that Eskom had “no choice, once the Energy Minister has made a determination . . . but to purchase renewable energy from IPPs.”

Sawea also confirmed that, in subsequent communications with Nersa, the complaint had been extended to include consideration of the effect of escalations in budget quotes from Eskom to connect the projects to the grid.

The IPP projects selected in April and June of 2015 as part of bid window four of the Renewable Energy Independent Power Producer Procurement Programme paid Eskom for budget quotes, which include engineering design and costing. However, as a result of the subsequent delay, these lapsed and new quotes had to be secured. In some instance, however, the quotes had escalated materially.

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