Minister of Energy, Jeff Radebe Explains Decommissioning of Ageing Coal Fired Power Stations

• Renewable energy and private sector involvement in generation is an ANC policy.
• Intention of creating at least 300 000 green jobs by 2020
• IPPs do not reflect as contingent liability on Eskom’s balance sheet and therefore have no negative impact on Eskom.
• Eskom’s decision to decommission ageing coal fired power stations is an economic decision with no relevance to the REIPP programme.

The global energy landscape is changing rapidly towards the use of environmentally sustainable and affordable energy technologies. South Africa must adapt to this new 21st century environment, acknowledging the need to include a carefully planned transition to smooth the impact, however also ensuring the survival of the planet for generations to come.

The Facts

In 2010, when South Africa was experiencing severe electricity shortages, the government decided to pursue alternative power generation options while Eskom was focused on completing the Medupi and Kusile coal-fired plants.

Renewable energy and private sector involvement in generation is an ANC policy. This policy was adopted by the 52nd ANC National Conference at Polokwane in December 2007, and reaffirmed by the 53rd ANC National Conference at Mangaung in December 2012.

During the 17th Conference of the Parties, or COP17, in Durban in 2011, the Renewable Energy Independent Power Producer (REIPP) programme was introduced to implement the objectives of the Integrated Resource Plan (IRP 2010-2030).

Furthermore, it is supported by labour, business and civil society by signing the Green Economy Accord in November 2011, which highlighted the need to stimulate the green economy for a sustainable future with the intention of creating at least 300 000 green jobs by 2020.

Despite recent reports, and as confirmed by Eskom chairman Jabu Mabuza, Eskom incurs no cost which cannot be recovered through the cost recovery mechanism. The independent power producers (IPPs) fund their own projects and bear all risks, including the loss of revenue should their plants be delayed or not perform as expected. Eskom does not pay the IPPs until they deliver electricity to the grid.

This is different from the traditional Eskom model in which the consumer pays prior to the “first spade hitting the ground”. Furthermore, IPPs do not reflect as contingent liability on Eskom’s balance sheet and therefore have no negative impact on Eskom. In fact, it gives Eskom certainty regarding an escalation per annum and cost recovery.

As at March this year, 62 projects with a combined capacity of 3 776 megawatts connected to the grid, contributing to the balancing of the system and saving the country from load-shedding during a shortage in coal supply.

The cost of renewable energy decreased more than 67% to R0.62/kWh for wind and solar, and attracted R201.8 billion in investment. The last bid window was majority owned by South Africans, with black ownership increasing to more than 37%, while securing positions across the full value chain, which includes engineering, construction, operations and maintenance.

For the first time poor rural communities are owners of projects and can expect dividends projected to be around R29.3 billion over 20 years. IPPs created 35 702 full-time equivalent jobs for youth, women and citizens from surrounding communities and have spent R766 million to date on education, health, social welfare and enterprise development. Since 2012, about 600 bursaries were awarded to students to further their studies, provided support to local schools and support to small farmers. This support will increase to R27 billion over 20 years.

The programme supports the commitments made by the country under the Paris Agreement, thus far having contributed substantially to climate change objectives – or example the reduction of 22.5 million tonnes of carbon dioxide and saving 26.6 million kilolitres of water.

The Fallacies

The IRP 2010 mentions 10 920MW coal-fired power plants that need to be decommissioned in phases over 15 years to be replaced by 14 914MW of new coal-fired plants, including Medupi and Kusile. Coal-fired power plants are designed for a lifespan of between 35 to 40 years, and the decommissioning of the ageing Eskom coal-fired plants was contemplated years before the REIPP Programme.

As a plant reaches the end of its lifetime, the performance decreases and it becomes expensive, especially if it is not well maintained. The plants to be decommissioned have a further challenge with coal mines coming to the end of their production lives.

Eskom’s decision to decommission is an economic decision with no relevance to the REIPP programme. Coal is being transported with trucks to some of the plants, which is inefficient and costly. This contributes to damage to the road infrastructure while also increasing the risk of road accidents.

The updated IRP will balance South Africa’s future supply and demand while ensuring the most affordable energy mix to the consumer. In order to grow the economy, the country needs predictable and affordable electricity prices. The country’s indigent households are already struggling with high electricity prices.

The price of electricity is increasing more than inflation annually, and this has a negative impact on the economy. Businesses are forced to reduce costs, including the costs of personnel. The National Union of Metalworkers of SA argues that Eskom produces electricity at R0.42/kWh and buys power from IPPs at R2.22/kWh while selling at R0.85/kWh. This is inaccurate as not all Eskom generators produce electricity at R0.42/kWh.

The electricity price announced by the National Energy Regulator of SA includes the cost of buying from the IPPs, which invalidates the above argument. Given the country’s history, a just transition in the energy sector is particularly important due to the high levels of poverty, unemployment and inequality, as well as the dominance of coal. The REIPP Programme has the ability to contribute to the transition agenda.

Author: Mr Jeff Radebe, Minister of Energy.