October 10, 2017 Read More →

South Africa’s State Utility Company in ‘Self-Styled Extinction’

Biznews South Africa:

In South Africa, where electricity prices have quadrupled since 2007 and an expensive coal-fired power build-out threatens to drive prices even higher, renewables appear ever more appealing. Unfortunately, for the last two years Eskom has been stonewalling on this front, refusing to sign new renewable energy power purchase agreements, while claiming that renewable energy is too costly.

The analysis below on the issues facing Eskom, South Africa’s national electricity utility, has been extracted from an October 2017 study by the Institute for Energy Economics and Financial Analysis (IEEFA) entitled: “Global Electricity Utilities in Transition: Leaders and Laggards in 11 Case Studies,” by Tim Buckley, IEEFA director of energy finance studies, and Simon Nicholas, IEEFA energy finance analyst, with input from Dr. Grové Steyn of Meridian Economics, and Jesse Burton of the Energy Research Centre, University of Cape Town.

Eskom, South Africa’s unlisted, state-owned electricity company, generates about 95% of the nation’s electricity and about 45% of the electricity generated on the entire continent of Africa. Coal-fired generation produces 90% of South Africa’s electricity.

In recent years, South Africa has run a successful but limited renewable energy procurement program. Renewable energy capacity of 2,2 GW has been completed to date, attracting more than $14bn in investment.

Enel and Engie are among the international investors in South African renewables, and developers are waiting on Eskom to sign further offtake agreements for the next round of approved projects, which total 2.4 GW.

Eskom, unfortunately, has recently stonewalled on this front, refusing to sign the deals while claiming that renewable energy is too costly. The company makes this assertion in spite of the fact that Eskom has benefited financially and operationally from its renewables program.

One result of this intransigence is that an electricity utility has effectively been determining national energy policy. With solar PV and wind now significantly cheaper than new coal-fired generation in South Africa, Eskom may have unspoken motives for blocking additional renewables development.

One clue as to why the utility is resisting is that Eskom has an institutional commitment to a major coal generation build-out in the face of a declining South African electricity market. The utility is building two huge coal-fired plants, Kusile and Medupi, each with 4.8 GW of capacity and at a combined cost to completion estimated at R448bn ($34bn).

Meanwhile, higher electricity prices and sluggish economic growth have resulted in declining electricity demand. In its 2017 financial results, Eskom disclosed a 3.7% drop in electricity sales to the industrial sector and a 5.7% slide in sales to the agricultural sector. Eskom now has more than 5 GW of excess capacity — even before most Medupi and Kusile units become operational.

Expansion of competing renewable energy will further increase the utility’s coal-fired over-capacity, which is slated to grow needlessly as Eskom add another 8 GW of capacity by 2022 when all Medupi and Kusile units come online.

More: Eskom, a laggard in trends, faces self-styled extinction

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