South Africa Seeks to Reopen Costly Renewables Deals to Help Eskom

JOHANNESBURG – South Africa wants to talk to independent power producers (IPPs) about lowering the price Eskom pays for electricity from older renewable energy projects, a senior minister told Reuters, as the state utility struggles to emerge from a financial crisis.

Eskom supplies more than 90 percent of South Africa’s power but is drowning in debt after a decade of decline. It implemented power cuts for five consecutive days last week because of breakdowns at its creaking fleet of mainly coal-fired power stations.

Labour unions and some conservative sections of the ruling African National Congress blame Eskom’s financial woes on 20-year agreements it signed to purchase power from renewable energy projects launched in 2011 and 2012.

The power prices Eskom pays for later renewables projects are considerably lower because technology and finance costs in the renewable energy sector fell by the time they were agreed.

“The simple assurance is that this is not about scrapping a contract. This is about exploring possibilities that are created by the rapid fall in costs in the renewable sector, whether that’s solar or wind,” Public Enterprises Minister Pravin Gordhan said in an interview.

“There are players in the renewables industry who are saying let’s talk.”

Gordhan said he wanted to reassure IPPs that the South African government would be careful about how it handled any negotiations over power prices.

“We are a law-abiding country. … We need to look after the interests of everyone concerned,” he said.

Gordhan, an important ally of President Cyril Ramaphosa, said the government wanted to “balance out” prices agreed during bid windows one and two of the country’s renewable energy programme – launched in 2011 and 2012 – with lower prices in later bid windows.

Ramaphosa – who is trying to appease critics before a parliamentary election in May – has promised to support Eskom’s balance sheet and split the utility to make it more efficient.

But some analysts say bolder steps are needed to rescue the power firm, the largest on the African continent.

Eskom expects to make annual losses of around 20 billion rand ($1.4 billion) this year and next and does not earn enough to service its 419 billion rand debt mountain.

(Reporting by Alexander Winning; Editing by Mark Potter)