Eskom @100 Part Two – ESI-Africa.com

Eskom @100 Part Two - ESI-Africa.com

Eskom @100 Part Two - ESI-Africa.com

In Part One of the story of Africa’s oldest utility, we looked at Eskom’s first 80 years. Now we delve into the tumultuous last 20 years, covering 2000 to 2023, which is the year marking Eskom’s centenary.

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While the first eight decades of Eskom’s history are a tale of technological transformation, effective grid expansion and at one time the world’s cheapest electricity, the last two decades have been more challenging.

Being one of the continent’s first electricity utilities has put it at the forefront of innovation – not only technologically but also for solving more recent 21st-century problems like creating last-mile energy access, dealing with the unbundling question and figuring out what an African philosophy of managing a utility looks like.

Eskom is a bellwether for Africa’s electricity utilities who want to pre-empt what their next big problems are going to be.

Creating Africa’s fifth-best electrification rate spawned a new set of problems at the end of the 1990s. Eskom’s herculean effort saw it go from 300,000 new energy access points in 1993 to half a million in 1997 and then 1,75 million in 1999.

In 2000, Eskom had 24 power stations providing 41,298MW, supplying more than half of the electricity generated across Africa, earning R23,569 million in electricity sales and showing a R18.7 billion profit after tax. The population was roughly 46.81 million, peak demand on the system reached 29,188MW, and the utility had electrified 2,391,684 homes.

But, Eskom’s 84.39% electricity access rate in 2020 (as per macrotrends.net) was a 0.61% decline from 2019, reflecting the latest drag on Africa’s electrification efforts – COVID-19. According to the IEA’s Energy Progress Report, the pandemic’s financial impact has made basic electricity services unaffordable to 30 million more people, primarily in Africa.

Today it has a dispatchable capacity of 484GW, but an energy availability factor (EAF) sitting around under 50% and a net loss after tax of R62 billion (despite an operating profit of R204 billion, its gross debt and borrowing of R396 billion overshadow all figures). Without implementing loadshedding, the country would go dark, and things don’t look promising. A net loss after tax of R20.1 billion is forecast for 2022, thanks to declining sales volumes, increased maintenance spending and a higher spend on Open Cycle Gas Turbine fuel oil because of the low EAF and capacity constraints.

To distribute or not

Providing electricity to distribute across 278 municipalities with varying levels of financial competence, expertise and wherewithal, has created a myriad of problems, not least of which is a very high level of debt. Arrear municipal debt escalated by a further R9.5 billion from 2021 to 2022, to bring it to R44.8 billion. “Non-adherence to payment agreements continues to contribute to the increase in arrear municipal debt,” reads Eskom’s Group annual results for the year ending March 2022.

As far back as the early 1980s, recommendations proposed that Eskom’s tariffs be more differentiated and cost-effective. This is a remonstration offered by utilities around Africa. Still, a fair tariff must be clarified, reflecting what customers can pay versus a utility’s need to recoup its cost and make enough money to build new power plants. Note that South Africa uses foreign capital to fund infrastructure expansion. It costs money to borrow, and reputation counts when looking for favourable financial terms.

Since the 1990s, Eskom has suggested municipalities de-link electricity costs and supply from other services and start charging cost-reflective tariffs. But, electricity is a lucrative generator of much-needed income and municipalities account for around 40% of Eskom’s sales, so the talks are ongoing.

Reaping the benefits of the Renewable Energy Independent Power Producers Procurement Programme (REI4P)

Talks that worked well, then stalled but have recently been picked up again are negotiations around the REI4P, which aims to bring additional MWs onto the Eskom-operated grid through private sector investment in solar, wind, biomass and small hydro projects.

Taking guidance from the Integrated Resource Plan, the Department of Mineral Resources and Energy (DMRE) dictates when to build new generation capacity, not Eskom. While the utility falls under the purview of the Department of Public Enterprises, it has made no bones about needing at least between 4,000 and 6,000MW to be added to the grid to make up for ailing (and soonto- be-decommissioned) coal-fired power stations and the country’s increasing energy demand.

The design of auctions (or bid windows) under REI4P is to bring renewable energy onto the grid via private bidders who organise their financing and then build, own and operate the power plants as Independent Power Producers through (usually) 20-year PPAs with Eskom.

The auction rounds started in August 2011 with an RFP, with the first contracts signed on 5 November 2012. So far, REI4P has procured 11,904MW of renewable energy since inception, with 6,106MW online and the rest to follow. A 2014 World Bank report – Republic of South Africa Review of the South Africa Renewable Energy IPP Process – points out that between 2012 and 2014, SA ranked among the top countries globally regarding RE IPP investments, thanks to the programme.

In the first three bid rounds alone, a total of 64 projects were awarded to the private sector, with the first online by November 2013. Through the REI4P, a commitment of $15 billion of private sector investment materialised. Electricity prices dropped over the three bidding phases, with the average solar PV tariffs decreasing by 68% and wind by 42% over two-and-a-half years.

But then REIP4 stalled

A fourth round of bidding was set to commence in August 2014, but by 2016 no projects had yet been signed – problems ranged from a weaker currency to arguments over the need for baseload power rather than intermittent RE. The predecessor to the DMRE, the Department of Energy, had selected 13 preferred bidders by April 2015, plus another 13 in June 2015, but none had reached financial close by 2016. Finally, in April 2018, the then South African energy minister signed up 27 projects under REIP4 bid windows 3.5 and 4 to add 2,3000MW of electricity to the national grid.

A further 2,600MW of capacity was planned through Bid Window 5, to come online in early 2024, and the department doubled Bid Window 6’s generation from 2,600MW to 5,200MW.

Then, by mid-July 2022, the country hit stage six loadshedding. President Cyril Ramaphosa announced the introduction of various measures to “diversify generation by allowing parties other than Eskom to generate electricity”.

The President said the interventions were aimed at:

  • improving Eskom’s existing fleet of power stations
  • accelerating procurement of new generation capacity
  • massively increasing private sector investment in generation capacity
  • enabling businesses and households to invest in rooftop solar
  • fundamentally changing the electricity sector and positioning it for future sustainability.

Loosening Eskom’s vertically integrated status

While Eskom is embracing the idea of wheeling, municipalities need help to develop a standardised wheeling tariff, method of billing and framework for an agreement between the off-taker, electricity provider and distributor of electrons.

Though the wheels of bureaucracy do turn slowly, plans have been set in motion to unbundle Eskom into three separate companies handling Transmission, Distribution and Generation. This change could increase wheeling contracts and decrease the need for loadshedding. Only time will tell.

Eskom’s announcement in mid-October 2022 that it would be leasing land to clean energy producers through competitive auctions for the private sector to generate electricity for its consumption or sale to a third party marks the unbundling of the powerhouse through the preparation of new revenue streams.

It signed contracts with four energy providers and anticipates the first electricity will become available within 24 to 36 months. Eventually, up to 30,000ha can be made a vailable for similar projects.

Land leasing could create a buyer’s market for the planned Eskom-owned transmission company. At the same time, it solves two challenges for renewable energy developers who would love to get into the generation game. Firstly, landowners are only sometimes willing sellers, so reaching agreements can take months of negotiation, making the availability to build a new power plant a big ask.

Then there’s the unavailability of grid access, which is becoming the big gest bottleneck for creating new energy projects. Most transmission networks cluster around the location of existing large thermal power plants. However, the infrastructure cannot surpass its current load capacity even with an extensive network.

Now, where do I connect?

Beyond projects planned for commission in 2022, no additional capacity is available for renewable energy projects to connect to the Northern Cape grid. The country’s Southern Supply Areas – the Western Cape, the Eastern Cape, the Hydra Cluster, Free State, North West, and the Northern Cape – are now limited to approximately 12.7GW of generation capacity.

According to Eskom, around 53GW of new additional generation capacity from renewable energy sources will be needed over the next decade to ensure energy security in South Africa. That figure includes the country’s current generational capacity deficit of 4,000 to 6,000MW.

This number is a significant revision from the Transmission Development Plan of 2021, which based its assumptions for new generational capacity on the Integrated Resource Plan of 2019. That figure proposed that around 30GW of new capacity would be needed by 2030.

Accommodating the new figure and assuming the removal of obstacles to implementing the roll-out plan, 14,200km of extra-high voltage lines and 170 additional transformers would have to be added to the transmission infrastructure by 2032.

The way forward and the Just Energy Transition Partnership (JETP)

Whether Eskom wants to or not, like the rest of the world’s utilities, it has to let go of coal as its baseload source of generating power. At COP26 in 2021, South Africa became the first developing nation to sign a JETP agreement with the US, UK, EU, France and Germany, promising $8.5 billion to effect an energy transition.

While there initially needed to be more clarity on the investment format (which is slowly being revealed as more concessional and grant financing than a new donation) or how spending will occur, there has been some headway on planning.

As talks progress, the partnership is more about opening the way for long-term, ambitious and systemic climate actions through various instruments that support flexible and rapid implementation in ways that build confidence in a just energy transition.

Work is progressing to address transmission network strengthening and adding a private sector pipeline of RE projects to create the basis for the JETP Investment Plan.

Eskom, for its part, is starting to put actual projects into play after holding extensive engagements with employees, labour unions, affected communities and stakeholders about the looming energy transition and developing a JET Strategy “which places equal importance on the ‘transition to lower carbon technologies’, and the ability to do so in a manner that is ‘just’ and sustainable”.

The utility has identified distributed storage as an alternative to support renewable energy expansion in SA and has started creating battery energy storage systems (BESS).

Eskom, in mid-December 2022, started construction on its first 8MW BESS in KwaZulu-Natal. This construction is part of Phase 1 of Eskom’s BESS project, which includes the installation of approximately 199MW additional capacity, with 833MWh storage of distributed battery storage plants at eight Eskom distribution substation sites throughout the country. This first phase also includes about 2MW of solar PV capacity, and Eskom has already released a tender for its next 35MW solar+ BESS. Phase 2 of the project includes the installation of a further 144MW of storage capacity, equivalent to 616MWh, at four Eskom distribution sites and one transmission site. The solar PV capacity in this phase will be 58MW, while all Phase 1 sites plan to commission by 30 June 2023 and Phase 2 by December 2024.

Eskom shut down Komati Power Station at the end of October 2022, its first coal-fired power station to go down as per legislated requirement, having reached the end of its lifespan. Another global first, the building will be given a new life as part of the Eskom Komati Repowering and Repurposing Project. Eskom transferred most of the Komati employees to other power stations and insists no employees will lose their jobs due to the closure.

In addition to establishing a training facility with the help of the SA Renewable Energy Technology Centre (SARETEC) and the Global Energy Alliance for People and Planet (GEAPP), the Eskom Komati Repowering and Repurposing Project will eventually feature a 150MW solar farm, 70MW wind farm, 15MW BESS and a containerised micro-grid assembly factory on site.

Funding for the project comes from the World Bank, which is watching the project closely as it could serve as a global reference for transitioning fossil-fuel assets. Over the next five years, Hendrina, Camden, and Grootvlei coal power stations will decommission. Together those three plants represent around 4,700MW.

Despite its high CEO turnover (ten in the past ten years and counting, as the latest CEO departed in March 2023), people still want to work at Eskom. At the time of going to print, the utility is about to use crowdsourcing to source the expertise it needs to get itself out of the dark and back in the black.

The catalyst for the proposed database is that several organisations and individuals have been sending offers and submissions to Eskom. This includes experienced engineers and technical experts who expressed interest in helping Eskom keep the lights on for another 100 years.

Get the latest developments on Eskom‘s journey. ESI

Source: https://www.esi-africa.com/magazine-article/eskom-100-part-two/

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