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Finance minister’s stance on independent power producers welcomed

By WWF South Africa on 29 July 2016

WWF South Africa welcomes the Minister of Finance Pravin Gordhan’s stance on energy policy after he reaffirmed government’s commitment to keeping renewable energy in the mix through its renewable energy independent power producers procurement (REIPP) programme. This comes as players in the energy sector have expressed concern over an apparent backtrack by Eskom on the procurement of power from IPPs on cost grounds, with potentially devastating consequences for the country’s renewable energy programme.

Responding to questions in Port Elizabeth, Mr Gordhan told reporters (Business Day, 28 July 2016) that the REIPP programme was still “key state policy” and it was not for Eskom to make policy statements to the contrary.

Saliem Fakir, head of WWF-SA’s Policy and Futures Unit, said “We echo the minister’s caution not to make hasty decisions on South Africa’s energy mix and the grid’s ability to supply the economy, based on short-term economic growth forecasts. Eskom's arguments for not building more renewables because of improved availability of energy supply – for one year – does not take into account future demand, nor the fact that availability factors can decrease in the future. Eskom relies on old plants that have increased shut-down periods as these plants near the end of lives.

Fakir said the argument that the growth in liability cancelled out a non-base load option because there was no economic storage system, was inherently weak. “All new power is affordable if growth in power is aligned with growth in the economy. Treasury manages state guarantees and contingent liabilities and therefore the onus lies with them to determine what that threshold should be.”

Eskom should also be comparing today's renewables with new coal plants, which were three times more expensive, rather than old plants which are due to be decommissioned by 2030.

This aside, Eskom’s complaints that renewables were too costly was contrary to the evidence of the IPP bidding process which showed that costs had come down with each new bid, said Fakir.

“Eskom's argument for nuclear is wholly optimistic given that it cannot build cost-effective new coal plants. It is unlikely to do so with more complex nuclear power plants which have higher safety requirements if it cannot prove itself prudent with coal. Nuclear power may turn out to be an expensive and regrettable choice and Eskom should be and take advantage of more renewables while the costs are coming down,” said Fakir.

“The public needs greater transparency around the costs of all forms of power generation – coal, nuclear or renewables – because it is unclear whether the benefits of cheaper electricity will be passed on to consumers,” he said.

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