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South Africa

Analysis - Fingers crossed after SA regulator loan refusal

SOUTH AFRICA: South Africa's wind sector is hoping the country's wind tender contracts will be honoured after the regulator refused utility Eskom the steep tariff hike it requested in part to finance the renewable energy procurement programme (REIPPP).

Klipheuwel wind-farm. Eskom Generation's pilot wind-farm facility at Klipheuwel in the Western Cape, South Africa
Klipheuwel wind-farm. Eskom Generation's pilot wind-farm facility at Klipheuwel in the Western Cape, South Africa

Eskom originally applied to raise tariffs by an average of 16% per year over the next five years. This was made up of 13% to cover its operating costs and 3% to build a gas-peaker plant and support the first phase of the REIPPP, including 1.85GW of wind capacity due online by 2017.

Instead, energy regulator Nersa allowed Eskom an increase of just 8% a year over the period. This will see prices rise from the current ZAR 0.61 ($0.066) to ZAR0.89 ($0.096) per kilowatt hour in 2018, and presumably require Eskom to tighten its belt. The decision "will present a challenge for Eskom", said spokesperson Hillary Joffe, although details of how the utility intends to cut costs are not yet available.

However, the indications are that at least the first phase of the REIPPP will be secure. Nersa says Eskom applied for ZAR 58 billion ($6.3 billion) to cover the programme, which the regulator approved in full.

"The wind energy industry remains confident that all contracts under the REIPPP will be honoured," said Johan van den Berg, CEO of the South African Wind Energy Association (SAWEA).

SAWEA expects projects from the first bidding round with power purchase agreements (PPAs) already in place will be unaffected. However, there are some slight concerns for projects selected in the second tender round, which have not yet signed PPAs, and for the third bidding round due on 19 August.

The government is also yet to confirm in writing a second phase under the REIPPP including 1.47GW of wind scheduled for 2020. However, SAWEA says it is confident the government will honour the additional allocation.

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