IPP Contract Extensions with Eskom

Eskom is requesting more power from independent power producers ahead of the winter months.
Published: Wed 14 May 2014

Independent power producers, contracted by South Africa’s Eskom, are being called upon to sell more electricity to the state-owned power utility this winter to avoid unnecessary outages.

According to the National Energy Regulator of South Africa (NERSA), eight Independent Power Producers and two municipal generators are being contracted to deliver 851.2 MW of electricity to Eskom at specified contract values. The agreements are all extensions of existing contracts with Eskom.

Independent Power Producers have been budgeted for

Eskom has apparently set aside approximately R1.2 billion for power purchases from Independent Power Producers for June, July and August-the coldest months of the year.

Eskom says that in addition to Independent Power Producers participating in Eskom’s short-term power purchase programme (STPPP) and municipal agreement extensions, there might be more extensions of agreements with other Independent Power Producers.

Eskom has 60 signed Power Purchase Agreements with a total capacity of 4 280MW. However, some of the capacity is not operational.

Eskom spent R3.266 million on power purchase programmes in the financial year to March, a significant increase from R2.94m spent in the last financial year, but almost comparable to R3.13m spent in 2012.

Short Term Power Purchase Agreements-enough to keep lights on?

Unfortunately, South Africans may still face outages as these contract extensions may not be enough to prevent power supply shortages. The reason for this? Most of the capacity signed is still under construction.

Eskom’s Short Term Power Purchase Programme was terminated in December as the utility did not have the financial means to extend the existing contracts.

But, Eskom extended the programme in March, while seeking approval to do so, in order to avoid the reoccurrence of supply shortages that plunged the country into rotational load shedding earlier that month.

Apparently these contract extensions will not have an impact on future tariffs, as the expenses associated with buying that power will be dealt with in the Regulatory Clearing Account (RCA).

This account is created at the beginning of each year and is used to debit or credit the difference between the primary energy costs, approved in Eskom’s tariff application, and the actual cost the utility incurred in that year.

Eskom’s Demand Response programmes

Although Eskom can continue to buy electricity from Independent Power Producers, the utility says it will also engage its customers in terms of demand reduction through the utility’s standard demand response programmes.

Eskom’s demand response programme has been entrenched within Eskom’s System Operator and has been an “invaluable resource” in ensuring continuity of supply and general network stability since 2006, explains Eskom’s spokesperson, “Customers have contributed significantly on the Eskom demand response programme since inception. Currently there is over 1000 MW’s of demand response being managed on a day to day basis through the programme.”

Engerati asked whether the programme has been successful thus far and their spokesperson advised that customers, who are currently enrolled on the programme, are contributing significantly. However, there is still a need for greater market participation from other customers, explains the spokesperson.

Surprisingly, the demand response is only available to industrial customers.