Extending life of ageing coal-fired stations – anti-renewables policy incoherence could cost trillions

(Source: Eskom)

By Mark Swilling

11 Apr 2023

Will the Cabinet approve Kgosientsho Ramokgopa’s preference for extending the life of our increasingly costly, ageing and polluting coal-fired power stations?

A week of turmoil, policy flip-flops and a return to higher levels of load shedding could have ended differently — it could have ended with a clear-cut plan by the minister of electricity to reassure a jittery nation that a practical solution is on hand. He could have built on the President’s July 2022 strategic breakthrough that prioritised the energy transition from a coal-based economy to a renewables-based economy.

Instead, in his long press conference on Thursday, the minister of electricity made bold and costly statements about extending the life of SA’s fleet of ageing coal-fired power stations. He made it clear this was just an option and that the Cabinet would make the final decision. But it was clear from his tone and emphasis that his preference is to extend the life of our ageing fleet of coal-fired power stations. We need to assess the implications of this option, which he will present to the Cabinet.

If the Cabinet agrees with his position, then this will mean contradicting the following policies:

The Cabinet-approved Integrated Resource Plan (IRP) 2019 (which has clear target dates for closing power stations);

The Cabinet-approved National Infrastructure Plan 2050(NIP 2050) that he himself championed as head of Infrastructure SA and which is fairly clear about the role of renewables;

The central thrust of the Energy Action Plan (EAP), which includes approvals for 30GW of renewables with no reference to extending the life of coal-fired power plants;

The Cabinet-approved Nationally Determined Contribution to global climate agreements; and

The Budget Speech by the minister of finance that envisages no future investments in generation and a shift towards investing in transmission.

Ramokgopa’s clear preference for extending the life of the plants could jeopardise the R130-billion investment by international donors that was factored into the Cabinet-approved Just Energy Transition Investment Plan (JET-IP) that envisages an investment programme of R1.5-trillion over the next five years.

This plan envisages replacing costly coal-fired power plants with much cheaper renewable energy infrastructures. Further, if the Cabinet agrees with Ramokgopa’s conclusions, this would send a signal that South Africa plans on being excluded from international markets that are introducing carbon-border taxes aimed, in particular, at preventing the import of goods from carbon-intensive economies like South Africa.

After promulgating and then withdrawing the reporting exemption for Eskom, and then lifting the State of Disaster after a review that revealed it was not needed (repeatedly confirmed by Ramokgopa), one wondered if policy incoherence could get any worse. Well, it has.

Ramokgopa’s preferred option means disregarding Cabinet-approved policies which has, in turn, triggered intense consternation among local and international investors who take a long-term view based on the certainties provided by solid Cabinet-approved policy frameworks. Based only on a walkabout and unsupported by the detailed technical studies that exist, we must now believe that the machines can be fixed and made to last.

Civil society rage

Unsurprisingly, his statements have also ignited veld fires of civil society rage and experienced energy experts are rolling their eyes in dismay. South African journalists cannot be fooled — the media is unlikely to buy the story that extending the life of ageing coal-fired power stations is a realistic option. Yes, they will admit, it’s good PR for winning an election in a country desperate to end load shedding, but the solution is technically and financially questionable.

Like many others before him who have tried to fix our abused and broken fleet of power stations, Ramokgopa knows he will need a lot more funding to achieve this. He says he will go to the Cabinet with a budget to motivate further funding to Eskom for capital expenditure on generation and cost-plus mines.

To overcome resistance to providing more support to Eskom, he repeatedly insisted this means seeing this investment as in the best interests of South Africa, and not fixing Eskom’s balance sheet. This flatly contradicts the Budget Speech. National Treasury has already committed R254-billion to assist Eskom. Why would they agree to more? Where would the money come from?

For Ramokgopa, increasing the debt-to-GDP ratio is a good bet because load shedding will be reduced, economic growth will pick up and tax revenues will rise accordingly. Sure, but what if load shedding does not reduce after all this money is spent and we are in greater debt than before? This is what National Treasury could well ask.

He did, however, echo the call in the Budget Speech to concession out power stations to obviate the need for the state to fund the capex. Even if there were takers for these decrepit and corrupt power plants, the chances of the Tripartite Alliance approving this before an election are zero because it will be branded as privatisation. Which kicks that option far into 2024 and beyond, at the earliest.

Most serious of all is this: it is now a proven fact that the Levelised Cost of Energy (LCOE) supplied by newly built renewable energy plants is lower than the cost of keeping our old inefficient coal-fired power plants running beyond their dead-stop dates (especially at low EAFs). This has far-reaching implications that Ramokgopa seems unaware of.

First, there is plenty of funding available for renewables at a very low cost per KWh. There is virtually no funding available for investing in coal, especially ageing polluting coal-fired power plants — and if there is, it will be very costly.

Second, according to the Energy Action Plan, there is 30GW of renewables in the pipeline, and if the rooftop solar strategy works, another 7.5GW could be available to households and businesses who will not then require this amount from the grid. Ten gigawatts will end load shedding, which is likely to happen in two years (especially if rooftop solar continues to grow as fast as it is now).

The investments in fixing the machines that Ramokgopa is talking about will be massive and will only yield real results in three to five years’ time at best (even if the funds could be secured from the 2024 Budget). By then, the 30GW will be well on the way to ensuring SA has energy security, and as a decarbonising economy, we will be welcomed with open arms by carbon-sensitive international markets.

This will be achieved at a much lower cost (without increasing the fiscal burden) with higher economic benefits (growth in exports) than what investments in an ageing and collapsing fleet of polluting coal-fired power stations could ever achieve. If the Cabinet approved this option, surely this would constitute wasteful expenditure on a truly grand scale?

Minimum Emissions Standards

Ramokgopa’s strategy will also come up against the legal requirement that all power plants must conform to the Minimum Emissions Standards (MES) that have now been enforced via various court rulings. All power stations are now required by law to comply with the 2020 MES by 31 March 2025, including those that were given permission to postpone implementation.

Ramokgopa is aware of this, and suggests postponing compliance while investing in pollution mitigation measures — but it is easy to see that his preference is to value growth over the environment. The only way around this constraint in order to avoid closing the plants or spending huge amounts of capex to make them MES-compliant is by changing the law. Changing environmental laws in South Africa can take years.

It is clear that Ramokgopa has chosen to emphasise a false choice between compliance with climate targets as expressed in the Cabinet-approved NDC and keeping the lights on by extending the life of our fleet of polluting ageing coal-fired power stations. This, however, is no longer the real choice when it comes to energy security in the 21st century, which should be the overriding all-important goal as articulated by the President in his July 2022 statement and by the minister of finance in his Budget Speech. When it comes to energy security, all that really matters is the LCOE and reliability.

The choice, therefore, is between expensive energy and cheap energy.

All the scientifically respected technical reports and published data confirm that renewables are the cheapest option when it comes to energy security. This does not mean relying purely on variable solar and wind energy, as some who want to discredit renewables suggest. It means relying on a combination of technologies that translate wind and solar radiation into electricity (made from minerals and metals that South Africa has in abundance), backed up by batteries (either lithium or vanadium) and gas (ideally, green hydrogen, but until this is commercially viable, natural gas). Not only is this the cheapest and most reliable way to keep the lights on, but it will trigger a mining boom for commodities needed to manufacture the infrastructures and this will also guarantee carbon tax-exempt export markets for our mining and manufactured products.

Oh yes, and by the way, there is a bonus — we come out smelling like roses in the international environmental forums where we have already signed binding agreements.

There is another problem that Ramokgopa’s plan does not seem to recognise. If you really want to fix any of our underperforming power plants (whether old or new-ish), this means taking them off the grid for several months at a time.

Given that all the plants are being pushed to their limits to keep the lights on, taking them offline to thoroughly overhaul and rehabilitate will worsen load shedding. The only way to really fix those power stations that are worth fixing is by making sure there is a lot more generation capacity on the grid to take up the slack. When there is new generation capacity on the grid, then you have the space to take plants offline to rehabilitate and overhaul them without worsening load shedding. And, of course, the only way to bring new generation capacity onto the grid affordably and quickly is with renewables. This is what the Energy Action Plan clearly recognises. Eskom’s load shedding projections for the rest of 2023 confirm this argument.

(Source: Eskom)

It is very clear from this table that Eskom’s “likely risk scenario” is red for the remainder of 2023. This means a minimum of Stage 2 load shedding under the best of conditions for the rest of the year, which are unlikely. This confirms that there is no space to take any of the machines offline for months at a time to properly repair, rehabilitate and overhaul them (which, by the way, assumes you can readily obtain the spare parts for such old machines — a problematic assumption, of course).

Contrary to the view that renewables and coal-fired power generation are opposites, renewables can actually complement Ramokgopa’s strategy to fix the machines. He must know this, because large-scale investments in renewables are already under way and described in the Energy Action Plan. Many would have been more positive about his statements if this reality was given more emphasis.

When it comes to contradicting Cabinet-approved policies, the following is worth noting:

IRP 2019: this policy document contains a table that clearly maps the decommissioning targets:

According to this Cabinet-approved plan, 11GW — 25% of our total installed capacity — must be decommissioned by 2030 and replaced with renewables. This is not where Ramokgopa’s strategy will take us.

(b) NIP 2050: “By 2050, energy supply should be enabling, and not a constraint, of economic growth and development. The energy mix must be bolder on sustainability and in achieving least cost. This will require reduced reliance on coal and growing reliance on renewable energy, especially solar and wind which are the least-cost technology, and where SA has significant comparative advantage.”

Once again, this statement from NIP 2050 is not what Ramokgopa is talking about. Although he did briefly state that renewables are the future, his strategy for the short- and medium-term is definitely not a least-cost option.

(c) Energy Action Plan: “Our long-term objective is to end load shedding altogether and achieve energy security by adding as much new generation capacity to the grid as possible, as quickly as possible.” The new generation capacity referred to here is renewable energy. There is no reference in the Energy Action Plan to extending the life of coal-fired power plants beyond the planned decommissioning dates in the IRP.

(d) NDC: South Africa’s well-respected and credible NDC was updated with a fixed target range for greenhouse gas emissions levels of between 398-510 MtCO2e by 2025, and 350-420 MtCO2e by 2030, compared to 398 and 614 MtCO2e between 2025 and 2030 as communicated in the first NDC. This more ambitious target cannot be achieved by extending the life of coal-fired power stations, especially if this means changing the law to avoid compliance with MES. Without changing the law, Ramokgopa’s strategy will be illegal.

(e) Budget Speech: As one of the conditions for the R254-billion injection to settle debt, the minister of finance stated: “Requiring Eskom to prioritise capital expenditure in transmission and distribution during the debt-relief period.” This statement is incompatible with Ramokgopa’s focus on investing in generation, including seeking additional funding from the fiscus. Granted, the speech does say that Eskom can invest in generation with his permission. But will this be granted? If so, on what basis? And could such a decision be contested in court, especially in light of the court’s enforcement of adherence to MES? Even without a court decision, the lengthy proceedings will push out the timelines by years.

(f) JET-IP: If asked whether the South African economy would benefit from an increase in FDI by $8.5-billion at a time of negative GDP-per-capita growth, Ramokgopa would undoubtedly say yes. But by suggesting an option that flatly contradicts the carefully thought-out provisions of the JET-IP, including references to accelerated decommissioning of coal-fired power, Ramokgopa has put this much-needed inflow of FDI in jeopardy.

Since the President’s July 2022 statement, many local and global funders started gearing up to mobilise the R1.5-trillion needed to really kickstart the South African energy transition. Despite the well-known political differences between key political players, they were nevertheless deeply encouraged by the NIP 2030, JET-IP, the Budget Speech, the Energy Action Plan (backed up by the National Electricity Crisis Committee) and the influence of the Presidential Climate Commission. Sure, everyone knows that fixing those machines that are fixable and/or concessioning them out is part of the strategic mix. And sure, everyone knows South Africa will be burning coal for the next three decades, albeit less and less over time.

But Ramokgopa’s strategic preference for reviving the coal economy goes well beyond this tactical position. Unsurprisingly, because this perspective comes from the minister in the Presidency responsible for electricity, confidence across the board has been shaken. As Ramokgopa said, it is now up to the Cabinet to review the options. We can only hope that well-considered approved policies and financial realities will determine the final outcome. DM

Mark Swilling is the programme coordinator at the Centre for Sustainability Transitions, Stellenbosch University.

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