Renewables procurement in question after nukes judgment
Publish date: 16 May 2017
Issue Number: 507
Diary: Legalbrief Environmental
Although government said this week it will not appeal the recent nuclear ruling setting aside Ministerial determinations around the procurement of nuclear power, the ruling has impacted on the energy sector, with an expert warning it may have implications for renewables procurement, too, writes Legalbrief. The ruling, which set aside the Ministerial determinations designed to facilitate the procurement of nuclear power stations, may also carry risks for the legality of the various independent power producer (IPP) procurement programmes, which are proceeding on the basis of determinations that were likewise not subjected to public consultations. According to a Polity report, this view is expressed in a risk assessment drafted by Craig Morkel, projects director at iKapa Energy, for discussion by the SA Independent Power Producer Procurement Association (SAIPPA). Morkel, who is projects director at iKapa Energy, wrote the piece in his personal capacity. He believes it may be necessary for the Department of Energy and Nersa to take remedial action to align the existing determinations with the outcome of the nuclear case. ‘We can't allow the IPP baby to be thrown out with the nuclear bathwater,’ Morkel quipped.
The upshot of the ruling is that a new nuclear deal is on the cards. According to a News24 report, Energy Minister Mmamoloko Kubayi confirmed her department would embark on a new process. Kubayi said she would not appeal the Western Cape High Court judgment that set aside the previous nuclear deal. She said she had consulted with the department’s legal team and officials before deciding to start the process from scratch. ‘Whether we do nuclear today or tomorrow, there’s a need for nuclear (power stations) in the country. We will make sure that we diversify (and) have renewables and nuclear,’ she is quoted as saying. Kubayi also announced – as part of rectifying nuclear procurement processes – that intergovernmental agreements signed in 1995 with the US, China, South Korea, Russia and France would be reviewed. New agreements with these countries will be signed next month and a new process that will ultimately lead to a new nuclear deal will be undertaken. Kubayi said public engagements and stakeholder engagements, including with the National Energy Regulator SA, would also form part of the new nuclear procurement process. Costs and timeframes of the new nuclear deal will be established after consultations.
Meanwhile, national energy regulator Nersa has launched a formal investigation into Eskom’s refusal to sign at least 37 outstanding power purchase agreements (PPAs) with IPPs. According to a Moneyweb report, this follows a complaint by the SA Wind Energy Association (SAWEA) lodged in October last year. Moneyweb previously reported that an 11 April deadline set by former Energy Minister Tina Joemat-Pettersson for the signing was cancelled when a new Energy Minister was appointed in President Jacob Zuma’s Cabinet reshuffle. No new deadline was set. The projects represent an investment of R50bn. The power purchase agreements are a prerequisite for financial close, which means construction cannot start and the whole process stalls. Eskom has delayed signing the agreements by more than a year already and caused concern that international investors might withdraw from the programme. In its complaint, SAWEA lists the laws, ministerial regulations and licences that empower the Energy Minister to procure new generation capacity and energy from IPPs and to instruct Eskom to enter into the resulting power purchase agreements as the buyer. ‘As far as we are aware, the legal framework does not grant Eskom any discretion in this regard,’ SAWEA says.
Eskom CE Brian Molefe has promised to put the utility’s plans to close four power stations on hold. A Cape Times report notes that Molefe yesterday (Monday) told staffers at Eskom’s Megawatt headquarters in Johannesburg that he would review the decision announced by Eskom in March that it would shut down the Friel, Komati, Hendrina and Camden power stations, all in Mpumalanga, to accommodate IPPs. The Energy Department launched the renewable energy independent power producer procurement (Reippp) programme in 2011, which called for 3 725 megwatts of renewable energy technologies. Capacity under signed agreements is expected to be in commercial operation by the end of 2018. Eskom spokesperson Khulu Phasiwe said the power utility would await the conclusion of the discussion between the Department of Energy, Treasury and Public Enterprises on the way forward for the IPP programme. Brenda Martin, chairperson of the SA Renewable Energy Council, said it was unfortunate that little had changed from Molefe’s tone towards the PPAs, and it appeared that he maintained his previous stance that the PPAs must not be signed. ‘It is crucial that Eskom sign outstanding PPAs in order to sustain the policy momentum of Reippp, as it will ensure that the declining price path and related value chain effects can be sustained in the national interest,’ Martin said.