Eskom lets Ipsa flick the switch

Posted On Monday, 21 June 2010 02:00 Published by eProp Commercial Property News
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Independent power producer Ipsa will restart operations for Eskom in Newcastle.

EskomON January 24 2008, the share price of independent power producer Ipsa jumped a massive 33%.

This was the day that the South African government declared a national emergency in order to avert nationwide electricity blackouts.

Just as some entrepreneurs saw a lucrative business opportunity by stocking up on diesel powered generators, investors wanted a piece of Ipsa.

With SA facing the chilling prospect of rolling nationwide electricity blackouts, there could not be a better place to put your money.

On that day — a day many South Africans would rather forget — Ipsa inked a co- operation agreement with the government-owned Central Energy Fund for a key role as private sector power plant developer to an energy project earmarked for the Coega Industrial Development Zone outside Port Elizabeth.

The company was going to install gas turbines for a 521MW open-cycle gas turbine plant in the area. A few months later, the company had taken a £15,5m Standard Bank loan, mainly to pay TurboCare, the supplier of the turbines.

But it did not take long for the optimism to fizzle out. Things went pear shaped for the company and its shareholders.

In October 2008, the company announced that it was selling the four turbines after it became clear that the Coega project would be delayed.

Although the group has since had a series of negotiations with interested parties, it has met with limited success.

Ipsa could sell one of the turbines to Independent Power Corporation (IPC), a company controlled by Ipsa CEO Peter Earl. Ipsa last year said IPC could buy one or more of the turbines for use in combined cycle projects that it was developing in the Middle East and Asia.

It did not help Ipsa’s cause that the jewel in its crown — an 18MW gas-fired power plant in Newcastle, KwaZulu-Natal — was gathering dust because Eskom could not enter into long-term power-purchase agreements with producers of independent power. The group has not hidden its frustration with Eskom.

In fact, it stopped short of accusing the utility of being responsible for its financial woes.

The company felt Eskom did not keep its word in the implementation of the medium term power purchase programme, a programme to address SA’s electricity supply needs by giving private sector companies an opportunity to contribute to power generation in SA.

Former Ipsa chairman Stephen Hargrave did not mince his words.

“The company shares the frustration of shareholders that the agreement has taken so long to materialise.

“I can only assure shareholders that this is not the result of any lack of effort on the part of management, who have been working nonstop to finalise matters with Eskom.

“It must be acknowledged that for Eskom, the Newcastle project is much less important than it is for Ipsa.”

While the plant lay idle, Ipsa was incurring huge operating costs. “We find ourselves in a position of having to pay for gas we are not consuming while our generators sit there with nothing to do,” Mr Hargrave said.

Eskom had put its foot down, saying it could not commit to long-term power purchase agreements when there was uncertainty over its funding.

This changed after National Energy Regulator of SA determined earlier this year that Eskom could spend R2,3bn buying power from the private sector during this financial year, R4,3bn next year and R5,8bn in 2012. The certainty over money is what has spurred Eskom to conclude power-purchase agreements with several companies, including Ipsa.

The group announced last week that it wanted to restart the Newcastle plant after it concluded a short-term power purchase agreement with Eskom.

This is a boost to other potential independent power producers who may have been hesitant to produce electricity because of the hurdles about power purchase agreements.

Last modified on Wednesday, 30 October 2013 18:57

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