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News Analysis: Development - Utility blamed for South African delays

Sluggishness by South Africa's state-owned electricity utility in guaranteeing power purchase deals threatens to delay or even block a new generation of wind farms in the country.

South Africa's public energy monopoly, Eskom, is trying to raise long-term finance to finalise a new generation of power purchase agreements (PPAs) that will make a raft of new wind projects viable.

But delays in raising the finance mean a number of potential independent power producers (IPPs) are still waiting for contracts. Some IPPs have now cast doubt on whether they will complete their projects on time.

Mainstream Renewable Power SA, a joint venture between Irish company Mainstream Renewable Power and South African-based Genesis Eco-Energy, warns of a likely delay in construction of its $135 million wind farm near Jeffrey's Bay in the eastern Cape.

The delay of the project, set to have 50 wind turbines, is being caused by slow progress in Eskom's bid to raise long-term financing necessary to guarantee the PPAs, says Davin Chown, Mainstream Renewable Power SA's director. A number of regulatory obstacles also remain, Chown adds.

Eskom is yet to meet existing financial targets that include raising development and commercial loans from the international community. "This must be sorted out because time is running out," Chown says.

With no immediate long-term PPAs in place, another South African IPP, Ipsa, last August did renew its short-term PPA with Eskom to supply power from its gas power plant.

For renewable energy IPPs, short-term PPAs are readily available under Eskom's medium-term power purchase programme. But producers are pushing for a long-term PPA because their investment returns are achieved over many years. Some projects need a stable 25-year deal to be sure of posting a surplus.

This year, Eskom had said it was planning to ring-fence revenues for IPPs with a long-term plan to set up an independent market operator. The operator is expected to take up the $1.5 billion set aside by the National Energy Regulator of South Africa to buy electricity from IPPs through 2013.

"There is, however, no timeline for the set-up of the independent operator, which is currently mired in government bureaucracy and, without this, limited progress can be made towards bringing IPPs into South Africa's power sector," admits Kannan Lakmeeharan, managing director of Eskom's system operations and planning division.

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