Cape Town: Finalizes 70 MW Independent Power Purchase Agreements

• Cape Town has signed two 20-year power purchase agreements to acquire 70MW of solar power from independent producers.
• These R8 billion agreements are projected to save the city 19-21% compared to Eskom tariffs, with price increases linked to CPI.
• Eskom reported a R30 billion profit but a 6% sales decline, facing challenges from competition and R111 billion in municipal debt.
• The Minister of Electricity and Energy is exploring measures to enhance Eskom's competitiveness in a transforming market.
• A new market transformation paper proposes a competitive wholesale electricity market, potentially requiring regulation to prevent Eskom dominance.

The city anticipates saving between 19% and 21% on power purchases compared to current Eskom tariffs.

The City of Cape Town has taken a significant step towards energy independence, finalizing two 20-year power purchase agreements with independent solar power producers. These landmark deals, announced by Mayor Geordin Hill-Lewis, will see the city acquire 70 megawatts (MW) of electricity at a cost estimated at R8 billion, representing a notable departure from its reliance on Eskom.

Under these agreements, the city anticipates saving between 19% and 21% on power purchases compared to current Eskom tariffs. The power, generated by Jempec Energy and Make a Difference, will be integrated into Cape Town's grid in the Atlantis and Philippi areas. A key feature of these contracts is that future price increases will be tied to the Consumer Price Index (CPI), offering greater predictability compared to Eskom's historical tariff adjustments. This move underscores the city's commitment to mitigating the impact of rising electricity costs on its residents, with Mayor Hill-Lewis emphasizing the need to move away from expensive Eskom power.

Cape Town has consistently prioritized securing electricity from alternative providers, recognizing that electricity constitutes its largest single input cost. The city has also distinguished itself as the first in South Africa to procure power directly from the open market, marking a pivotal shift in the national energy landscape.

While Cape Town forges ahead with independent power, Eskom faces a complex financial environment marked by both increased profitability and declining sales. The national utility reported a profit of R30 billion for the year ended March, a substantial increase from R14 billion in the previous year. However, this was accompanied by a 6% decline in sales, attributed in part to heightened competition, the growing adoption of household solar power, and the loss of industrial clients such as ferrochrome smelters.

Eskom's financial stability is further jeopardized by substantial municipal debt, which reached R111 billion by the end of March, an 18% increase from the 2025 financial year. The utility had previously written off cumulative debt amounting to R4.2 billion in March 2026. According to Eskom's results presentation, municipal non-payment poses the most significant threat to its financial sustainability, with warnings that this debt could escalate to R300 billion by 2030 if left unaddressed. This contrasts sharply with the city of Cape Town, which is actively diversifying its electricity sources while many other municipalities struggle with outstanding payments.

The unpredictability of Eskom's tariff increases has also been a point of contention. Data from Codera Analytics indicates that Eskom's aggregate standard tariffs have surged by nearly 15% annually since 2008, significantly outpacing the average CPI inflation of approximately 5.8% over the same period. This disparity highlights the financial relief and stability that Cape Town's new CPI-linked agreements aim to provide.

The broader South African energy sector is undergoing a profound transformation, with national discussions focusing on fostering a more competitive electricity market. Minister of Electricity and Energy, Kgosientsho Ramokgopa, has advocated for drastic measures to enable Eskom to compete effectively against private sector entities. Among his proposals is the idea of "liberating" Eskom from certain restrictions imposed by the Public Finance Management Act (PFMA).

Concurrently, the recently gazetted Electricity Sector Market Transformation paper outlines a vision for a competitive wholesale market where both private power generators and Eskom would vie equally to supply bulk buyers. This framework suggests the potential need for regulatory oversight to ensure that Eskom does not unduly dominate or distort this emerging wholesale market. The growing trend towards renewable and independent power projects, exemplified by Cape Town's recent agreements, presents both a challenge and an opportunity for Eskom as it navigates this evolving landscape and strives to reduce its substantial R300 billion debt.

Source: Original reporting via BusinessTech