Renewable energy finally takes centre stage

As monopoly power producer Eskom struggles to keep the lights on, President Cyril Ramaphosa has reaffirmed the various processes currently underway to deal with the energy crisis caused by the debt-laden state-owned entity.

Presenting his fourth State of the Nation Address (Sona) on Thursday evening, Ramaphosa outlined the long list of efforts and policy interventions that will have to take place speedily in order to tackle the constrained energy supply that has only worsened over the past 10 years, leaving the country in a protracted state of load shedding.

“The load shedding of the last few months has had a debilitating effect on our country,” said Ramaphosa.

“It has severely set back our efforts to rebuild the economy and to create jobs.”

Eskom has made it clear that load shedding will be a sustained reality for South Africans in order for the utility to implement a “philosophy maintenance” programme where the power utility takes selected power stations off the grid for prolonged periods to conduct maintenance in line with the original manufacturer guidelines. Over the years Eskom has deferred intensive maintenance of its ageing fleet of power plants, resulting in a breakdown of units that are not functioning at capacity.

While Ramaphosa told South Africans that they would need to accept that load shedding will be necessary for Eskom to conduct its maintenance, the president reiterated a number of measures that he said would be taken to “rapidly and significantly” increase generation capacity outside of Eskom.

Open up the industry

The president announced that Minister of Mineral Resources and Energy Gwede Mantashe will issue Section 34 determinations shortly in order to speed up the implementation of the Integrated Resource Plan and open access to additional power supply from independent power producers (IPPs).

Ramaphosa said the state will also negotiate supplementary power purchase agreements with existing solar and wind plants to secure additional capacity and initiate the process to procure power for projects that can supply the grid within three to 12 months of being approved.

In a move that will appease industrial and commercial energy-intensive users, Ramaphosa called on the National Energy Regulator of South Africa to speed up the process of approving licences for ‘own use’ electricity generation of over one megatt (MW).

“It should be noted there is no limit to installed capacity above 1MW,” he said.

Municipalities that want to purchase their power from IPPs will be allowed to do so – if they are in good financial standing.

Wits University economist Dr Kenneth Creamer says Ramaphosa’s Sona indicated clearly that the president is well informed on what steps need to be taken in order to tackle the country’s energy crisis.

“It is significant that President Ramaphosa used the Sona to announce that Bid Window 5 of the renewable energy programme will be opened without delay and that government will work with producers to accelerate the completion of Bid Window 4 projects,” says Creamer.

Tease it out 

He adds that not only does the renewable energy programme have the potential to supplement the energy supply gap in a short space of time, “the increase in renewable energy will assist in creating jobs and has the potential to stimulate upstream and downstream industries, including new, low-carbon green industries.

However, Dr Sean Muller, senior lecturer at the University of Johannesburg School of Economics, highlighted that government would have to implement these measures in a careful and considered manner that takes into account the links between Eskom’s financial and operational issues.

For instance, the measures announced by Ramaphosa lean towards mainly giving in to the demands of stakeholders with private sector interests.

Decentralised electricity generation and licences for high levels of private generation capacity may be positive for the mining industry, municipalities and renewable energy players who want to get on the grid, but this could have financial implications for Eskom.

“If municipalities start buying electricity from IPPs and not through Eskom then Eskom’s revenues are likely to go down,” says Muller.

Eskom currently sits with a R450 billion debt burden that it is struggling to service, and R318 billion of the debt is state-guaranteed. The utility made a R20 billion loss in the 2018/2019 financial year and predicts another loss for 2019/2020.

Another item that could be affected is the proposal by labour federation Cosatu calling for Eskom to be relieved of R250 billion of its debt. Social partners have been in discussions over the past two weeks trying to determine the best framework for mobilising funds towards this. Cosatu’s initial proposal placed a heavy interest in using state worker pension money managed by the Public Investment Corporation – but this has faced too much contestation.

The final agreement or social compact between government, business and labour will, according to Ramaphosa, ensure that “it does not put workers’ pensions at risk and does not compromise the integrity of the financial system”.

Muller says the proposal is perhaps the best option the country has for resolving the financial problem at Eskom, but at the same time “the unions should be reluctant in putting workers’ pension in if effectively that money is going to be used to [give] private sector interests what they want”.

“It’s not that I necessarily think that the current structure of the energy structure is the right one but it is the one that we have now,” he adds.

“Eskom is essentially a public liability which needs to be saved for that reason, and I am not sure that just creating a bit of a free-for-all where people can generate power to the extent that they want to and municipalities can buy from whoever they want to is a great way to go.”

Muller says that following Sona government now has to table a plan that explicitly addresses these issues in detail and connects them.

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