South Africa may introduce IPP Office for new transmission capacity procurement

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  • South Africa’s Minister in the Presidency for Electricity, Dr Kgosientsho Ramokgopa, speaking during an update on the implementation of the Energy Action Plan on Tuesday, said that “tremendous progress” is being done to ensure that solutions are found for transmission.
  • He has also previously stated that there is no intention of relinquishing state ownership of the grid. Read more

“As the President said last week, the Minister in the Presidency responsible for Electricity is now given the responsibility to ensure that we are able to go into the market to procure or to access the financing in relation to the transmission side.

“We have been doing an extraordinary amount of work. The team was [at the World Economic Forum annual meeting]in Davos. Part of those conversations was to enter into bilateral discussions with some of the potential financiers.

“We have…financing. That is private sector willing to come into the space of transmission. We had conversations…with the heads of missions that are represented here in the country and they did confirm that availability of that financing,” he said.

Ramokgopa assured that although private sector participation is being encouraged in the transmission space, the South African government will remain the owner of the grid through the Eskom owned and newly established National Transmission Company of South Africa.

“What we have been doing is to find an architecture and legal configuration on how best we are going to access [funding]and one of the areas that is receiving attention is the possibility of us putting together…something that is akin to the IPP [Independent Power Producer Procurement] office on the generation side…an Independent Transmission Project office.

“[This is] to ensure that we are able to procure with speed, agility, applying some degree of innovation and ensure that we are able to access that liquidity that’s sitting with the private sector without relinquishing state ownership of the grid,” he said.

The minister acknowledged that transmission expansion is facing challenges. However, he emphasised that government is tackling these challenges.

“The challenges on the transmission side are almost equivalent to the ones on the generation side and in fact, if they are not tackled immediately they are likely to be even more catastrophic compared to the challenges on the generation side because those are likely to undermine our ability to maintain the integrity of the system.

“We are not waiting for the crisis to confront us. We are going to address that situation immediately. This is in support of Eskom’s work…consistent with their transmission development plan which advocates for the expansion of the network,” he said.

Author’s comments

South Africa’s transmission infrastructure is designed mainly around base-load coal-fired power generation. To accommodate new generation capacity, the bulk of which will come from renewables, the country will need to quickly ramp up transmission infrastructure (transmission lines, transformer capacity and energy storage) to accommodate variable loads and ensure grid stability.

In October last year, in an address to transmission EPC’s, the Managing director of Eskoms’ new Transmission Company, Mr Segomoco Scheppers, said that the country needed to add more than 1500 km of new transmission lines annually over the next ten years. This is to ensure transmission capacity to accommodate more than 50 GW of new generation power which will mainly come from intermittent renewable energy (wind and solar projects).

Currently, Eskom’s transmission division is adding 300 km of new power lines annually. Scheppers confirmed that in the last ten years, only 4 347 km of new powerlines were added.

Another challenge is transformer capacity. Scheppers confirmed that more than 122 600 MVA transformation capacity would have to be added, representing 77% of Eskom’s current installed base of just over 160 000 MVA. In the last ten years, only 19 060 MVA has been added to the grid infrastructure.

Link to Eskom’s national transmission plan HERE

At the same presentation, Naresh Singh, Transmission Project General Manager, explained that transmission procurement processes at Eskom “have become bureaucratic, lethargic, non-value creating and ineffective”.

To overcome this, Scheppers announced that an EPC model would be used in tandem with Eskom’s more traditional procurement models.

The model would involve either Eskom Transmission or an owner’s engineer completing the front-end engineering design and overseeing the procurement of a single EPC contractor, which would be expected to complete the detailed design, procure the necessary material, and construct and commission the solution, before handing it over as a fully functional and compliant asset to the transmission division.

Against this background, one must consider that very little progress will be made until the  new National Transmission Company (NTC), recently unbundled from its parent, Eskom, gains traction.  Eskom recently appointed a twelve member board for the NTC. None of the board members have any direct experience in national transmission infrastructure planning, construction or procurement. Read more

Treasury bailout is for debt not transmission

In April this year, South Africa’s National Treasury announced an R254 billion Eskom Debt Relief Bill (bailout). They explained the terms of the bill are aimed at strengthening the utility’s balance sheet, enabling it to restructure and undertake the investment and maintenance needed to support the security of the electricity supply. Debt relief can only be used to settle debt and interest payments. Eskom’s debt has risen to R439 billion, up 10% year on year. The utility is effectively paying interest on its interest. Read more

The key features of the taxpayer bailout arrangement include government providing Eskom with advances of R78 billion in 2023/24, R66 billion in 2024/25 and R40 billion in 2025/26. These advances will cover capital and interest payments as they fall due and may only be used for that purpose. In 2025/26, the government will directly take over up to R70 billion of Eskom’s loan portfolio.

 Now a major shareholder of Eskom, the Treasury has appointed an international consortium with extensive experience in the operations of coal-fired power stations to review all plants in Eskom’s coal fleet and advice on operational improvements. The review has been concluded but not made public.

By 2026, taxpayers’ money nearing R495 billion in Eskom bailouts. Read more

Sabotage of transmission infrastructure

To compound the impending transmission crisis further, the local, regional and national transmission infrastructure in South Africa is subject to major incidents of sabotage. Last year, Mandela Bay Municipality experienced 23 major electricity substation outages over seven days. Electricity pylons were recently destroyed in the Metro of Tshwane.

I would encourage power generation project developers in all technologies in South Africa to conduct a professional grid study before spending millions on development works. A transmission crisis looms large.

Author: Bryan Groenendaal

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