Does South Africa Really Need a Second Eskom?

Opinion

Mantashe wanted a new structure that would focus on new build projects and would report directly to him, i.e. the Department of Mineral Resources and Energy (DMRE). He told the Sunday Times that: “It will be a generation company because transmission will be an independent company which does wheeling and a marketplace for energy.”

Although the idea of a second Eskom has been dismissed offhand by many talking heads who see it as just another conduit for prebends, clientelism, rent-seeking and all that, I think we need to take a deep breath and examine this idea on its merits.

Last year, Eskom CEO André de Ruyter announced the creation of the National Transmission Company South Africa SOC Limited (NTCSA) as well as a loan of R39.9-billion to help the transmission get off the ground. Now, something has to be done to give this vehicle enough product to transport. The Integrated Resource Plan’s present — and soon-to-be-updated iterations — show that the government is trying to get new build projects from a multitude of sources rather than just one place.

The idea of new power utilities competing against each other is not new. In fact, it has become one of Minister Mantashe’s favourite topics as the government contends with Eskom’s challenges. In 2020 Mantashe was interviewed by EE Business Intelligence’s Chris Yelland, during which he said the following on electricity supply restructuring:

“I took time over the last two months to look into a few models for transmission. I was attracted to the Dutch and the Chinese models, which are both quite similar. The Dutch model emphasises the central role of the transmission grid, which is the marketplace and wheeler of energy from the generator to the consumer. I discovered that the Chinese have totally liberalised generation and distribution, but tightened control over the transmission. They generate all over the country, but everything goes through transmission, which is state-owned.”

During the interview, he also said the following on municipalities: “Cape Town, Johannesburg, Bloemfontein and other municipalities used to have their own power stations. So, when we refine the rules and regulations, it is not from an empty space. There is precedent.”

On customers, he said: “But let me say quite clearly: We do see customers as part of the solution. The brief of government is not the protection of Eskom. It is to ensure that there is security of energy supply to society.”

Mantashe has since repeated similar messages on more than a dozen fora and so it is a bit surprising that some really big media are only picking it up now.

What I believe is that we should be taking a closer look at the following questions among others.

Firstly, is it a good idea to have companies competing against each other in the same sector? The idea is not necessarily bad. Not exactly the same situation here but in the water sector, we already have something similar with the water boards: Rand Water, Umgeni Water, Sedibeng Water, Overberg Water and so on.

Imagine municipalities and private entities generating their own power. More power plants will ensure stability and the fact that the system cannot collapse entirely at the same time; unions going on strike in one plant will not cripple the entire system (although of course, it is possible for cross-company coordination to happen) and a lot more skills training and hands-on learning is going to take place, something that the country is crying out for.

Secondly, how do we get the workforce and start-up capital for these new companies to operate? This is really the tricky part and I can tell you that it is not going to be easy in a difficult post-Covid, post-Russian invasion of Ukraine context. There are power stations being built absolutely everywhere. Germany is working around the clock to set up LNG terminals for stockpiles; there are new nuclear projects planned for Egypt, United Arab Emirates, Turkey, Netherlands etc.

To illustrate the skills challenge, Eskom’s chief nuclear officer, Riedewaan Bakardien, has resigned to join a Canadian nuclear company. Everybody is after the same thing and it will take a lot of ingenuity to navigate through this context.

Thirdly, will the “new Eskoms” help us get energy soon? Large power plants do not come cheap — and they take years to complete.

Take for example the Thabametsi and Khanyisa coal power projects, selected within the first bid window of the coal-baseload IPP procurement programme. UCT’s Energy Research Centre (ERC) calculated that the two plants would cost South Africa an additional R19.68-billion in present value terms over their lifetimes. We are talking about 630MW for Thabametsi and between 300MW and 600MW for Khanyisa. Then you have to look at skilled workers, input costs, environmental impact assessment studies, etc.

If you extrapolate those costs, it becomes clear why many companies have not yet tried to set up 100MW companies after the recent gazetting of amendments to Schedule 2 of the Electricity Regulation Act. There is a lot of heavy lifting involved, one that often makes sense only to the Sovereign, i.e. the state, because of the mandate to supply affordable, good quality uninterrupted power to all South Africans, of course.

Renewable power plants are also expensive, but less so. Let’s take a few examples: The 100MW Kathu solar park cost about R12-billion, SolarReserve’s 96MW Jasper plant cost R2.3-billion while Solar Capital’s 175MW De Aar 1 & 2 cost R6.8-billion in today’s rands.

Renewable power plants also take relatively little time to set up: Kathu, De Aar 1 & 2 and Jasper all took less than four years to build. Take for example the Jasper project. They have this to say on their website regarding how long it took for them to set up: “Notice to proceed was issued on 17 June 2013, and construction began immediately thereafter. After a 16-month construction period and two months of early operating power, the project began its operations on the 17th of December 2014.”

That’s incredibly fast! Jasper has created 40 permanent jobs and revenue generated in 2020 was R485,966,690 million.

This brings us right back to where we started. The idea of having many power companies is not bad in itself — if these entities are not all grouped together in the end. A constellation of dispersed production units is where we are already headed and in fact, the government must play a role here in order to avoid poor communities being cast adrift. What is important is to clearly define where the money is going to come from and how long it will take to bring these new projects into the system.

Minister Mantashe probably prefers fossil-based production due to its ability to absorb many workers and structure entire towns and cities around a major locomotive. However, South Africa needs energy today.

Instead of trying to convince Minister Mantashe that we can bring more energy quicker and faster, we just need more people and entities to keep going: apartment complexes, cooperatives, municipalities, stokvels, etc. Let us cover the parking lots with solar panels, let farmers go into agrivoltaics, let municipalities put solar panels on traffic lights, let more people consider the idea of coming together and setting up their own small-scale systems, etc.

Small IPPs, families and companies have shown us that we can power past fossils and rolling blackouts within a short time. There are logistics issues with renewables because countries like China are struggling with capacity. Again, if the state declares some sort of emergency, it can do what it did with IPPs: send its own people to pick up supplies from manufacturers wherever they are on the planet.

In fact, let us go one better: let us accelerate the pace of producing our own solar energy components here in Africa.

This is my Mandela Day wish for 2022. Forget the technical debates and focus on what is possible now, today!

Author: Dr Roland Ngam

Dr Roland Ngam is programme manager for climate justice and socioecological transformation at the Rosa Luxemburg Foundation, Southern Africa.The views expressed are not necessarily those of the Rosa Luxemburg Foundation.

 

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