Pursuing private-sector participation

Eskom remains committed to developing the electricity supply industry by facilitating the integration of independent power producers (IPPs) into the national grid and buying electricity from IPPs for national distribution. IPPs play an important role in ensuring security of supply at a time when Eskom’s generating capacity is closely matched by electricity demand

Eskom interfaces with IPPs through two organisational units. Firstly Eskom’s grid access unit manages the end-to-end network service relationship with generators and IPPs connecting to Eskom’s grid. Its other key role is to facilitate grid access by ensuring the process is efficient and all commercial options for IPPs are available in a transparent and non-discriminatory manner.

Secondly, the buyer is housed in the energy planning and market development unit, which enters into power purchase agreements with IPPs. This unit also assists the Department of Energy (DoE) with the country’s integrated resource plan.

Operating highlights

The first project under the RE-IPP was connected to the grid on 27 September 2013 and the first IPP was commissioned on
15 November 2013
Eskom has successfully facilitated the connection of 21 renewable energy independent power producer (RE-IPP) projects with a capacity of 1 076MW to the grid. Of these a total of 467.3MW is currently available to the system
The DoE approved an additional 1 457MW pursuant to the third bid submission. No contracts have yet been signed for this capacity
A further 1 005MW of capacity was signed under the DoE Peaker programme

Future focus areas

Assisting the DoE with applications for the fourth round of the RE-IPP programme
Securing funding, land and environmental permissions for the transmission strengthening project in preparation for more IPPs being added to the grid

Key performance indicators for IPP capacity

Indicator and unit
IPP purchases, GWh 4 152   3 671   3 516   4 107    

Installing and purchasing IPP capacity

Eskom has a range of short-, medium- and long-term contracts with IPPs. Short- and medium-term energy purchases from IPPs are primarily intended to help widen the supply-and demand margin so that Eskom can perform maintenance (refer to “Keeping the lights on” on pages 106 to 109). Long-term IPP purchases focus on renewable and gas-based energies to reduce South Africa’s carbon footprint and diversify the energy mix while strengthening the country’s energy industry.

Eskom operates around 359 337km of power lines across South Africa
Eskom operates around 359 337km of power lines across South Africa

Short/medium term

The medium-term power purchase programme (MTPPP) involves Eskom purchasing baseload capacity from private generators. The programme was initiated in 2008
The wholesale electricity pricing system programme (WEPS) involves Eskom entering into annual contracts to purchase electricity at wholesale prices from co-generators outside of the ambit of the MTPPP and short-term contracts
The short-term power purchase programme (STPPP), which involves Eskom contracting private generating capacity on a short-term basis
Municipal base-load contracts with City Power and the City of Tshwane. Eskom contracted 585MW of generating capacity from Kelvin, Rooiwal and Pretoria West power stations. Electricity was purchased at rates comparable to the MTPPP. NERSA did not approve any further costs for purchases from municipal generators during MYPD 3, so these contracts were not extended after they expired at the end of December 2013

Long term

The DoE peaker programme is a long-term Department of Energy (DoE) initiative that involves purchasing power from the independently-owned Avon and Dedisa power plant (OCGTs), which are under construction. Eskom signed power purchase agreements with the service provider that owns both stations during the year. Dedisa is expected to be commissioned in 2015, and Avon is scheduled for 2016
The renewable energy independent power producer procurement (RE-IPP) programme is a long-term DoE initiative that was launched on 3 August 2011 and commits Eskom to signing power purchase agreements for renewable energy from IPPs

Total energy procured from all IPPs for the year amounted to 3 671GWh at a cost of R3 266 million (average cost of 88c/kWh), which is R721 million higher than the NERSA decision for 2013/14.

The following table provides a comparison of the amount of energy purchased in 2013/14 and the cost per type of IPP contract.

Actual energy procured through IPP programmes in 2013/14

IPP purchases
Actual energy purchased
Actual cost
Actual cost
MTPPP 1 478   1 217.5   82  
STPPP 931   815.6   88  
WEPS 139   72.3   52  
Municipal base loads 873   771.9   88  
RE-IPP 250   350.5   140  
Adjustment   38.3    
Totals/averages 3 671   3 266.1   88  

In April 2014, the Department of Energy announced that:

A fourth round of bidding for the renewable energy IPP programme would close in August 2014
The number and capacity of renewable energy IPPs to be contracted through the third round of the programme might be extended
The process to procure 800MW of co-generation power and 2 500MW of coal generation power from IPPs was underway
The revised solar water heater programme model would start using locally produced heaters in the 2014/15 financial year