IPPs: The case for a diverse energy industry

06 February 2019 | Web Article Number: ME201913416

Commerce & Trade
Government & Municipal
Green Industries & Renewable Energy
Power Generation
IPPs: The case for a diverse energy industry

By Nomkhita Mona

WITH Nersa’s public hearings around the Eskom MYPD 4 application behind us, the power utility is likely to face more scrutiny in the coming weeks.

A controversial aspect of their application – which seeks an increase of 15% per year in tariffs for the next three years – relates to Eskom’s spending for its Independent Power Producer (IPP) programme.

In April last year, Business Day reported that Eskom signed agreements with 27 companies in the energy industry (on top of deals with 53 other companies that had already started operations). According to the article, the latest agreements were expected to create more than 61 000 jobs within the energy industry. Approximately 15% of these opportunities were expected to benefit the Eastern Cape.

The IPPs were also factored into our presentation at the Nersa hearing in the Bay, where we as the Nelson Mandela Bay Business Chamber voiced our strong objections to Eskom’s proposed increases. However, some media reports leading up to the hearing have interpreted these objections as our disapproval of the IPP programme – which is simply not the case.

The environmental benefits of renewable energy have been well-documented since the birth of the industry, but beyond this, the socio-economic benefits are legion as well. A strong renewable energy industry reduces over-reliance on a single energy source, provides thousands of new jobs and brings opportunities for the development of new skills, along with the empowerment of those gaining the skills.

This would be particularly welcome in the Eastern Cape and Nelson Mandela Bay, as the area offers the potential for the consistent generation of renewable energy, and its people are in dire need of job opportunities and sustainable economic development.

Our problem is not with the IPP programme or the companies and communities that benefit from it. In principle, we are pleased that the state supports the introduction and growth of the renewable energy sector, as we view it as a sector of the future. However, our strong opinion is that the state should indeed subsidise the development of such an important sector.

Our only concern around the programme is that individual consumers and businesses will inevitably be left to fund this.

Year after year, Eskom has been applying to Nersa for exorbitant tariff hikes in order to keep the lights on and make up for a crushing deficit. This is at least in part because the power utility is generating more electricity than it can sell, leading to a Catch-22 of sorts: Eskom needs to increase their prices because they aren’t selling enough, making consumers less likely to pay more for the same amount of electricity – instead choosing alternative energy sources – and thereby necessitating Eskom’s next application for tariff increases.

Unless Eskom re-evaluates their approach to managing their assets and increase sales, this model will be unsustainable in the long term. A complete, innovative overhaul is needed to counteract Eskom’s spiral into more and more debt.

If the utility can better manage its assets and review its peak tariff structures, it would go a long way towards taking the responsibility of funding future investments off the consumer’s shoulders. Through this approach, we can move away from a state-owned monopoly and build a sustainable, diverse energy industry with competitive pricing. This, in turn, would encourage further investment and economic growth, and bring a positive ripple effect to each of the consumers that have been carrying the burden of Eskom’s debt for years.

  • Nomkhita Mona is CEO of the Nelson Mandela Bay Business Chamber

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