Eskom must revise business model and be innovative

THE Organisation Undoing Tax Abuse (OUTA) welcomes the Department of Energy’s Integrated Resource Plan (IRP) 2018 which has not only shelved the nuclear deal, but also paved the way for renewable energy.

The revised IRP 2018 was gazetted on Monday by the Department of Energy with 60 days for public comment.

It is a 12-year plan to 2030, which envisages additional generation capacity by 2030 of 1 000MW coal, 2 500MW of hydro, 5 670MW of photovoltaic, 8 100MW from wind and 8 100MW from gas. Very little, if any, of this appears to be from Eskom.

Although there are some scenarios outlined to 2050, the lack of a clear long-term vision reduces South Africa to “firefighting” solutions, says Ronald Chauke, OUTA’s portfolio manager for Energy, who believes a 20-year plan would have been ideal.

“This is a temporary solution which will leave South Africa lagging behind.”

The need for a longer-term plan is illustrated by the long build-time for new projects. For example, Eskom started building Medupi in 2007 and Kusile in 2008 yet, IRP 2018 suggests that these plants will only be completed in 2020 and 2022, respectively.

The plan hints at a much-reduced role for Eskom. Eskom’s current installed generation capacity is 48 000MW and the installed capacity of municipal, private and independent power producing (IPP) generators is 4 389MW. Eskom thus currently provides about 92% of the power. Besides, the current 12600MW coal plants to be retired (decommissioned) from now to 2030. The Draft IRP states that the decommissioning of Eskom plants (totalling 28GW by 2040 and 35GW by 2050) will translate into less than 30% of energy supplied from coal by 2040 and less than 20% by 2050. This draft suggests that the department of energy is slowly dimming the lights on Eskom and making way for other supply sources.

OUTA welcomes the move as it is aimed at ensuring that cheaper and cleaner renewables, as sources of energy, will replace coal in line with international developments, hence government should prepare itself and strengthen the regulatory regime and its policy response to these rapid technological developments.

“It is becoming inevitable that Eskom must revise its business model to diversify its portfolio and be innovative to have new revenue generation streams for it to be resilient. This implies that the utility should also consider to partner with IPPs in the planning to build new renewable plants as an investor in these new projects if it wants to survive, hence the utility must adopt a commercial business enterprise culture, not wait for government to tell it what to do,” says Chauke.

In simple terms, the more electricity is generated from renewable sources, the cheaper the price will be in future.

The new build is due to be sourced from IPPs and international projects.

The 1 000MW of coal is based on the IPP projects Thabametsi (557MW) and Khanyisa (336MW), which were criticised earlier this year in a report by UCT’s Energy Research Centre as they were expected to cost an unaffordable R19.68bn and not necessary to meet demand.

While the IRP aims to ensure 15% of SA’s energy comes from gas, it does not clearly state where the gas generation will come from. Even more concerning is the minister’s reference to bilateral gas supply agreements with Mozambique, Namibia and Tanzania as South Africa has no oversight jurisdiction over this. Furthermore, the costs of these agreements are unclear.

In addition, OUTA is flagging the 2500MW of hydro power due to come in from the DRC’s Inga project, which effectively collapsed after the World Bank pulled out two years ago, citing an unacceptably increased risk of state capture in the project.

According to a World Bank report on the project in May 2018, Inga 3 was to provide 4800MW of hydropower on the Congo River, with South Africa taking up 2500MW of this. South Africa’s involvement was supposed to increase the bankability of the project.

A treaty on the DRC-SA electricity trade on Inga was signed in October 2013, during president Jacob Zuma’s presidency. Ronald Chauke OUTA Portfolio Manager for Energy