• Critical mass

    After the shock of more load shedding, the need to reform South Africa’s power utility Eskom has become even more pressing

    Critical mass

    ‘The big thing we’re all waiting for is the Integrated Resource Plan [IRP],’ says Niall Kramer, CEO of the South African Oil and Gas Alliance. This is the master plan that allocates sources of generation to direct expansion of electricity supply. It is intended to be a ‘rolling plan’, updated perhaps every two years – but this has not happened since 2010.

    ‘The industry has been demanding a new plan for some years now,’ says Kramer. The first draft of the current IRP, drafted largely by experts from the Council for Scientific and Industrial Research (CSIR), was released for public comment in August 2018. It was notable for eliminating nuclear-power development completely from the future (2030) scenario, as well as a massive cut-back in coal generation in favour of solar PV and gas, in particular.

    However, progress on the IRP has been slow. Although public comment closed on 26 October 2018, a revised document was only submitted to the National Economic Development and Labour Council (Nedlac) in March 2019. There, it is the subject of a bargaining process between government and the representatives of a labour constituency (that is known to be agitated about the scaling back of coal generation, with its implications for jobs in coal mining and transport) and a business constituency, desperate for policy certainty.

    ‘The plan – now known as IRP 2019 – has already changed [since] it went into Nedlac,’ says Kramer. ‘The first draft suggested 16% generation capacity from gas by 2030; that’s been cut to 12%.’ But he doesn’t find the change too worrying as long as a speedy finalisation of the document is achieved. ‘The direction is good [but] the pace is not good enough,’ he says.

    South Africa’s renewable energy has already proven its mettle during the most recent round of load shedding

    University of Cape Town energy specialist Anton Eberhard, who was appointed to President Cyril Ramaphosa’s Eskom sustainability task team late last year, agrees that a rapid resolution to the IRP is necessary. ‘While the updated IRP 2019 electricity plan will not be perfect and it will be criticised by some, it makes sense to get it out as soon as possible so that urgently needed new power procurements and investments can begin,’ he tweeted in March.

    Eberhard points out that there is a spectre looming behind all energy decisions – ‘the deteriorating availability of Eskom power stations and the urgent need for new investment to maintain the sector’. He pinpoints two major issues on which decisions are needed.

    ‘We are likely to see the next renewable procurement window brought forward,’ he says, adding that we’re also waiting for ‘more space for distributed energy sources’. This second point is a reference to small-scale embedded generation (SSEG) – which allows entities such as mines, factories and farms to generate their own electricity and sell the surplus back into the grid. But this requires regulatory decisions.

    The problems facing electricity parastatal Eskom have finally come home to roost in recent months. From mid-November 2018, the utility began a new round of load shedding due to inadequate energy availability.

    Werksmans Attorneys director Happy Masondo attributes the problem squarely to Eskom’s own shortcomings. Whereas with previous rounds of load shedding, most notably in 2007/08, the utility could blame inadequate governmental planning, this time around ‘it is Eskom’s failure and/or neglect of the upkeep of the ageing power stations that plunged us into darkness’, she says. ‘It would appear that at this time, every single one of South Africa’s 12 largest and most important power stations broke down. This resulted in 17 371 MW or 38% of Eskom’s total generating capacity being offline,’ says Masondo. ‘The South African public was lulled into a false sense of security by Eskom’s new build programme,’ she adds. But in 2019, it became apparent that the gigantic new (4 764 MW) Medupi and (4 800 MW) Kusile power stations were performing far below expected capacity.

    In February, Public Enterprises Minister Pravin Gordhan described the two power stations as ‘badly designed and constructed’. Yet it wasn’t only the public that had been ‘lulled into a false sense of security’. At the time, Ramaphosa said the latest round of load shedding came as ‘quite a shock’. Angry that ‘we have reached this stage of dysfuctionality’, he added that ‘a new business model was required for Eskom, to ‘minimise the risk … as a nation, like other countries have done, and unless we do so, we are continuously going to be facing this type of risk’.

    Despite a new board (appointed last year) and the sustainability task team, the problem is Eskom’s enormous government-guaranteed debt. The utility owes ZAR419 billion and simply does not sell enough power to cover its interest payments and running costs. Even the ZAR69 billion injection from the national fiscus was insufficient and, in April, a further ZAR5 billion had to be quickly found to enable Eskom to meet current debt obligations.

    ‘Eskom is in deep trouble. It used to keep a cash buffer of ZAR20 billion but that has gone,’ says Eberhard. He adds that the parastatal utility ‘is barely surviving month-to-month, dependent on government bailouts and draw-downs from development finance institution loans. It’s time for government to get serious with financial and organisational restructuring’.

    The headline approach to that restructuring programme was announced in Ramaphosa’s State of the Nation Address in February. It is to revive a two-decade-old plan to split Eskom into three separate utilities, namely generation, transmission and distribution. Such a programme has been mooted before, most notably in 2011 when it reached draft legislation stage, but has always foundered on Eskom’s footdragging. Perhaps this time around, with support from the presidency and Ramaphosa’s own people now running the Eskom board, it will have greater success.

    There are many doors that need to be opened to restore energy security in South Africa. Eberhard argues that ‘there is no single silver bullet’ that will restore the situation. Commenting on some of the high-level findings of the Eskom sustainability task team in April, he says that at least three strategies have to be pursued in parallel.

    Firstly, Eskom – in the immediate future – has to rehire the skills it needs and reinstate strong technical leadership throughout its operations, especially at power station-manager level. Then it has to actually use this capacity to deal with its maintenance backlog. Secondly, the independent power producer (IPP) process has to be accelerated to bring renewable capacity on-stream. This requires a new determination from Minister of Energy Jeff Radebe. Finally, it is imperative to ‘free up the system for generation [by] units of less than 100 MW’ – and that includes SSEG. But clarity is needed on the regulatory system being enacted with agonising slowness by the National Electricity Regulator of South Africa (Nersa).

    South Africa’s renewable energy programme has already proven its mettle. A study by the CSIR, released in late April, shows that 2 300 MW of the available renewables fleet was available in March, which rendered the system less constrained than it would have been otherwise. In other words, the load shedding would have been worse without the renewables that have been procured since 2011. Radebe has said that although a further procurement window will be opened after Cabinet has approved the IRP, he is willing to consider an additional short-term action plan and is also willing to sign deviation orders to hasten the passage of IPPs through government red tape.

    The minister has also signed orders aimed at freeing up SSEGs from Nersa bottlenecks. The regulator stipulates that SSEG plants of 1 MW to 10 MW capacity require a licence. But, until recently, applicants needed to seek permission from the Energy Minister for deviation (from the IRP) in order to apply for the licence, further enmeshing them in red tape. However, Radebe has instructed Nersa to consider licence applications without the need for deviation permission.

    The South African Independent Power Producer Association estimates that up to 3 500 MW of SSEG capacity is been constrained by regulatory issues. GreenCape, a public-private partnership that supports the green economy, estimates that the SSEG market for solar PV alone could be worth ZAR75 billion by 2035. More than linking those already generating electricity privately, this is an incentive for other players – perhaps even local authorities – to enter the game.

    The ball is squarely in government’s court when it comes to regaining energy security for South Africa. The president and his energy minister have to face down the vested interests clustered especially around the coal industry and prioritise strategies to secure electricity generation. With the shock of load shedding fresh in their minds, there is every chance they will do so.

    By David Christianson
    Images: Gallo/Getty Images