Independent power producers: why they aren’t helping Eskom

Eskom has proved to be a huge disappointment post-1994, with the latest wave of power cuts reminding the nation of its management deficiencies. The recent ‘blame it on the rain’ excuse reminded me a bit of the buck passing we have been hearing about in the Oscar Pistorius trial this week.

But, Eskom isn’t South Africa’s only electricity hope. There are independent power producers. So why, then, aren’t they stepping in to pick up on an obvious business gap?

Doug Kuni, head of the South African Independent Power Producers Association, touches on the regulatory obstacles, on the CNBC Power Lunch show with Alec Hogg (publisher of Biznews) and Gugulethu Mfuphi. Don’t get your hopes up that the independents are going to be able to play a major role in solving South Africa’s power crisis any time soon. – JC 

To watch this CNBC Power Lunch Video click hereDoug Kuni

ALEC HOGG:  Perhaps it’s time to look at how Independent Power Producers can assist the company’s electricity crisis.  Well that, at least, is what Andrew Etzinger from Eskom told us on Monday.  He reckons by the end of next year, five percent of our power in this country is going to be produced by independents and the government is hoping that it will get to 30 percent.  Doug Kuni, Managing Director of the South African Independent Power Producers Association, joins us.  Doug, I see that you were very involved with the IPSA operation listed on the JSE – the Newcastle development.  Did you spend much time in my old hometown?

DOUG KUNI:  Yes Alec, good afternoon.  I was head of IPSA Group’s PLC operations in South Africa and we built the plant at the Carbochem complex and in fact, took it through to commissioning and full licensing.  It is a plant, which is producing power and feeding into the grid at the moment.

ALEC HOGG:  And making money?


DOUG KUNI:  Yes, they must be making money.  I left them a few years ago, but the plant is still operational.


ALEC HOGG:  What is it that you’re doing now?  Do you represent IPSA and other independent parties?  Andrew tells us there are 30 of you now.

DOUG KUNI:  No, I left IPSA in 2009, and I’m an independent consultant to industrials and mining companies at this stage.  The work I do for the association is a labour of love, but it keeps me occupied.

ALEC HOGG:  So you do represent them through the association.  That’s what I was getting at.

DOUG KUNI:  Yes.

ALEC HOGG:  Is it right?  Are there 30 independent power producers in South Africa?

DOUG KUNI:  Well, if you consider all the renewable energy companies and the other developers who are gearing up for the procurement program from the Department of Energy, then there are probably in excess of 30 in the marketplace.

ALEC HOGG:  And that five percent figure that Andrew gave us for next year…  Is that an accurate figure – that the independents are going to be producing of our power supplies?

DOUG KUNI:  I think the figure that Andrew gave you is probably in terms of the procurement program, which the DOE is running – or the Treasury is running on behalf of the DOE – so most of the renewable energy projects, which have run and have been awarded, are part of that figure.  In addition to that, there’s a new procurement program coming out this year, probably two, or three from the DOE, and that will add to the IPP bar.

GUGULETHU MFUPHI:  Surely, there’s a problem here because we’re not seeing all the energy they produce being rolled onto the current supply in the country.  What’s holding us back?

DOUG KUNI:  I think it’s important that we get the focus on what the issues are.  The Medupi Power Plant was supposed to have started producing power in June 2011.  It has not done that, so since June 2011, each year we’ve been down on about 800, because each unit is 800 megawatts.  The result: June 2011 – 800, June 2012 – another 800, June 2013 – another 800, and June 2014 – perhaps another 800, so all of this power that should be in the system is not there.

ALEC HOGG:  So that’s 3200 megawatts

DOUG KUNI:  That is a big chunk of power and we’re beginning to feel the effects of it.

ALEC HOGG:  It’s – what – eight percent of our total power production.

DOUG KUNI:  Well, each percent is probably in the order of about 400 megawatts, if you consider we have an installed capacity of 40,000

ALEC HOGG:  So you’re telling us that we’re 3200 megawatts behind, and the independent power producers haven’t been able to make up that shortfall.

DOUG KUNI:  Well, the procurement programme to procure base load power is only coming out this year and I think there is a huge flaw in the IRP 2010 update.  One cannot ignore the deficit of power that has not come from Medupi and Kusile.  Now, the issue is we don’t know when their power is coming on.  We can’t say with certainty that it’s coming on at the end of this year, the middle of next year, or the end of next year.  This means that our approach in treating the deficit, which has remained the same – is flawed.  We have to do something on an emergency basis. There are least 3000 megawatts, which need to be procured very fast in the power system if we are to meet the deficit and keep a stable power supply system on the go.

ALEC HOGG:  Is it there?  Are those 3000 megawatts available at a price?

DOUG KUNI:  It is not immediately available.  It has to be procured.  The procurement process has a lead time, and a certain procurement process – if you’re looking at five power stations, it will take you four to five years before the power is available.  There are other forms of power generation, which cane done in a much shorter space of time, but that’s not addressed in any procurement program that I know of, apart from the cogeneration, which is expected to come from the procurement program, probably around March/April this year.

ALEC HOGG:  So there’s a problem.  Is that what you’re saying?

DOUG KUNI:  It’s a small component of the total required.

ALEC HOGG:  Is there a problem in legislation?  I thought you’d be coming here saying ‘of course.  We can get all the power we want, but let’s just pay for it’.

DOUG KUNI:  That is a regulatory issue.  The current module being operated at the moment, is that the DEO is the procurer of the POWER.  IPPs cannot come into the marketplace, build private power plants, and sell to the market.  There isn’t a market and that is determined by the regulatory environment.

ALEC HOGG:  Why?

DOUG KUNI:  Eskom has been the single supplier and the monopoly supplier ever since it was formed.  There is little political will to change that now.  Once you’ve heard about the ISMO Bill, the Second Amendment, the Electricity Regulation Act, and the Amendment to the Electricity Regulator ACT: these are all that were before parliament.

ALEC HOGG:  We know the public service doesn’t deliver.  We look at SAA, the SABC, and Eskom.  Really, how much more evidence is required?  Are you going to keep banging on that door, Doug?

DOUG KUNI:  Well, I do all the time.  The evidence that we have at the moment is the deficit of power we have in the system.  We cannot continue indefinitely with the deficit.  The system begins to break down irretrievably if we continue.

ALEC HOGG:  That’s a good point.  Dough Kuni is from the Independent South African Independent Power Producer Association.

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