State wants Eskom to pay less for renewable energy

South Africa is asking independent power producers to lower electricity costs as part of the rescue of Eskom, the insolvent state-owned utility.

Renewable energy project developers will discuss potential solutions ahead of a follow-up engagement with the government on Friday. The independent power producers and coal companies met with state officials last week, which resulted in an agreement “to make a contribution to the economic turnaround with a consideration to cost reduction”, the department of mineral resources said by e-mail.

The meeting was “very positive” and involved a request around working together to lower electricity prices, Terence Govender, chairman of the South African Renewable Energy Council, said on Monday. The group invited developers and lenders of the first three rounds of projects for South Africa’s programme to buy electricity from private renewable producers, for a meeting on Wednesday, he said.

Eskom, seen as the biggest threat to South Africa’s economy with at least R450-billion in debt, is due to get a new CEO by the end of October. The government is also set to release a plan to save the business after already earmarking R128-billion in bailouts over three years to help it meet expenses.

The utility’s primary energy costs increased by 17%, due to higher coal charges and increased production from independent power producers in its most recent financial year. While the renewable IPPs accounted for 4.8% of total production, it made up 22% of total costs, according to an Eskom presentation.

‘You tell us what you can do’

In February, then-energy minister Jeff Radebe said the government had no intention of renegotiating its contracts with the renewable IPPs. That wasn’t specifically raised in the recent meeting either, according to Govender. “The government is saying, ‘you tell us what you can do’,” he said.

Gwede Mantashe, the minister for minerals and energy, and public enterprises minister Pravin Gordhan attended the meeting last week that also considered unemployment and the security and reliability of electricity supply.  — Reported by Paul Burkhardt, (c) 2019 Bloomberg LP