What Eskom says is ‘most pleasing’ about Ramaphosa’s new energy reforms

 ·27 Jul 2022

Eskom will on an urgent basis in the next three months accelerate efforts to add new generation capacity to its faltering grid.

The intervention was among a raft of energy security plans for the country announced by president Cyril Ramaphosa during an address to the nation on Monday evening.

They come after the country has in the past five weeks experienced hours-long intermittent electricity outages as the power utility was unable to meet demand due to various challenges.

The president said: “As an immediate measure, surplus capacity will be bought from existing independent power producers. These are power plants which built more capacity than was required and can now supply this excess power to Eskom.”

As part of addressing the shortage of megawatts, Eskom will purchase additional energy from existing private generators such as mines, paper mills, shopping centres and other private entities that have surplus power.

“A number of our neighbouring countries in Southern Africa, such as Botswana and Zambia, have more electricity capacity than they require. Eskom will now import power from these countries through the Southern African Power Pool arrangement.

“Eskom will also use interim power solutions, such as mobile generators, to supplement current generation capacity for a limited period. Eskom will implement a programme that encourages efficient energy use by consumers to reduce demand at peak times.”

The set of additional actions the president announced are aimed at improving the performance of Eskom’s existing fleet of power stations.

Secondly, he said, the actions would accelerate the procurement of new generation capacity.

“Thirdly, [they] are intended to massively increase private investment in generation capacity. Fourthly, [they] are designed to enable businesses and households to invest in rooftop solar; and, finally, [they] are directed at fundamentally transforming the electricity sector and positioning it for future sustainability,” he said.

Eskom responds

Eskom said in a note on Wednesday that it welcomes the announcement of further reforms and is in full support of measures announced by the president to address the long-running electricity crisis.

“These reforms will go a long way towards easing the power generation constraints the country has been grappling with for some 14 years. The reforms will accelerate the end of load shedding and will expand and grow the electricity generation industry in South Africa through structural changes,” it said.

“Particularly pleasing to Eskom is that the government has made these moves to empower Eskom to speedily acquire additional generation capacity from existing independent power producers(IPP) with excess capacity, to acquire spares and equipment from original equipment manufacturers (OEMs) and indeed the resources to increase the funding of the maintenance budget.”

To this end, Eskom said it is engaged in efforts with all interested stakeholders to introduce the necessary skills where it has gaps. Eskom said it has already reached out to the National Society of Black Engineers to ascertain if members of the NSBE are interested in assisting Eskom to bolster its skills.

Eskom said it is placing significant emphasis on recovering its Energy Availability Factor (EAF), especially at its coal plants, where performance has been disappointing.

“The measures announced by the president will enable Eskom to intensify its maintenance efforts to drive improvements in EAF. Eskom’s efforts to acquire battery energy storage systems (BESS) are already at an advanced stage, with further tranches of BESS roll-out to follow imminently.

“Furthermore, as the president announced, Eskom has already released land with grid connections for long-term leases by independent power producers, with more to follow in the near future.”

It said that the measures announced by the president, particularly reforms removing limits to private sector investments in electricity generation capacity, will help unlock investments and help create jobs during the construction of the projects while helping to lower the cost of electricity in the long term.

“Eskom has significantly shortened the time required for IPPs to obtain cost estimate letters and budget quotes for grid access and is committed to optimising this process even further.”

Ockert Doyer, lead portfolio manager, Sanlam Investments Sustainable Infrastructure Fund, said that after more than a decade without a reliable electricity supply, South Africa desperately needed a plan that was bold enough to close the electricity gap.

“We welcome this plan. The alternative – declaring an energy emergency – would have been a substantially weaker solution. In the execution of this plan, the President will have to get various government departments and Ministers to work together and play their part. By declaring an emergency, all parliamentary oversight and procurement procedures could have been sidestepped.”

Doyer noted that the current shortfall in electricity supply is around 6,000MW. “If we take the decommissioning schedule of Eskom’s coal plant into consideration, new dispatchable capacity of around 20,000MW will have to be added to the grid over the next 10 years.”

“It is now up to the various government departments to remove any unnecessary blockages and for the private sector to put their money where their mouths are,” he said.

The portfolio lead said there seems to be wide support for the proposed changes. “And that is important because these changes will fundamentally alter the energy landscape in SA. In ten years’ time, the energy sector will be unrecognisable from the current arrangement, so broad support was needed.”

5-point energy plan:

1. Improving the performance Eskom’s existing fleet of power stations

This will be achieved by increasing the budget that Eskom has to perform much-needed maintenance as well as procurement of skills from the private sector.

This is a key requirement – although new private sector generation will replace Eskom’s ageing coal fire powerplant over a 15 to 25-year time horizon, the country is still very much dependent on the output from the Eskom fleet.

2. Accelerate the procurement of new generation capacity:

By doubling Bid Window 5 of the Renewable Energy Independent Power Producer’s Programme, an additional 2 600MW can be connected to the grid within the next 18 to 24 months.

Also, by reviewing the mix of energy sources, timing and volume as outlined in the current version Integrated Resource Plan, new procurement can be expedited substantially.

3. Increase private investment in generation capacity

About a year ago, Pres Ramaphosa announced that the licensing requirement for independent power producers would be lifted from 1MW to 100MW. This was seen as a big step forward, but many market commentators asked why the 100MW cap was even needed.

If the private sector could put a large-scale project together and raise the funding for it, why not allow more than 100MW? And it was exactly what was announced – there would be no licensing requirement, regardless of the size of the project.

Although projects will still need a host of permits, it was also announced that these permitting requirements will be streamlined in order to reduce waiting times.

4. Enable businesses and households to invest in rooftop solar

This is quite a substantial change. Effectively, Eskom will establish a ‘Feed-in-Tariff’ scheme so that individuals or entities that have installed solar panels or other energy generation facilities would be able to sell excess energy into the national grid.

This should incentivise many small-scale private solar projects to be completed. This will reduce the strain on the Eskom grid and provide additional energy to the grid.

5. Finally, fundamentally transforming the electricity sector and positioning it for future sustainability

Here the president alluded to the restructuring of Eskom into three separate legal entities and the fact that a solution for Eskom’s balance sheet woes would be announced at the mid-term Budget speech in October.

After many decades of Eskom being the sole producer, transmission entity and distributor of energy, we will see a fundamental transformation of these role players, with more private sector participation and a competitive energy market.

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