Escaping the load shedding crisis created the strategic focus needed to implement solutions that have achieved the goal in a relatively short space of time. But did we need to wait for a crisis before we were galvanised into action?
Load shedding has come to an end for the following combination of reasons. First, the energy availability factor (EAF) of Eskom’s fleet of coal-fired power stations has risen to over 60%.
Second, a substantial amount of renewable energy has become available via the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP), the lifting of the cap on embedded generation and the rooftop solar revolution.
Third, the demand for electricity supplied via the national transmission grid is now equal to what it was 20 years ago due to a combination of removal of demand made possible by the increased dependence on renewable energy and, of course, a low level of economic growth.
Back in mid-2022 when the President announced the Energy Action Plan (EAP) in reaction to another bout of Level 6 load shedding, I was one of those who predicted load shedding would be stopped by the end of 2024 if the above combination of conditions came together.
Soon after launching the EAP in 2022, the President made two other moves that changed the ballgame: first, at the request of business he appointed the National Electricity Crisis Committee (Neccom) to coordinate emergency responses; and second, he appointed Kgosientsho Ramokgopa as Minister of Electricity in the Office of the Presidency which removed Gwede Mantashe as the chief obstacle to load shedding solutions.
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There is little doubt in my mind that in years to come we will look back on the 2022-2024 period and acknowledge how central Minister Ramokgopa was in making sure that load shedding came to an end when it did.
Whereas Mantashe insisted that load shedding could be ended if Andre de Ruiter gave up his treasonous refusal to allow Eskom to simply switch on what Mantashe assumed were perfectly capable power stations, Ramokgopa immediately acknowledged there was a real problem after his now famous whirlwind visit to all of them, and gave weekly updates about what was being done to find solutions.
In February 2023, the Minister of Finance announced in his Budget Speech that a R254-billion debt relief plan for Eskom would be implemented on condition the funding was used to settle debt and no new debt was to be secured for generation. Without the need to service all its debt from revenues, Eskom was able to use more of its own revenue to improve maintenance and repair, and to allocate a sizeable chunk of cash to the hitherto cash-starved transmission division to upscale investments in the grid.
What helped Eskom is the increased output from renewables (plus the role played by pumped storage) which, in turn, gave Eskom the space it needed to close down plants for long enough to do proper repairs and maintenance.
But because the debt relief programme effectively marked the end of Eskom’s role as the exclusive developer of South Africa’s energy generation infrastructure and given that most of its power stations needed to be closed down over the next few decades, this also marked the beginning of the slow shrinkage of Eskom generation and the emergence of a new centre of gravity in the energy industry – the transmission business, or put simply, the buying and selling of energy.
The ballgame changed at the end of 2022 when Minister Mantashe announced the results for Bid Window 6. This bid window was supposed to procure 5,200 MW, including 3,200 MW from onshore wind and 1,000 MW from solar photovoltaic (PV) projects. However, only five solar PV projects were approved, making available a total of 860MW. The reason for this disappointing outcome was the lack of spare grid capacity.
In 2023, Minister Ramokgopa sprung into action. At a summit on the transmission grid held at the JSE in September 2023, he admitted it was a problem that transmission was not part of the EAP. He then made sure the transmission challenge was included in the EAP and he got Neccom to set up a working group on transmission. The days of transmission as the Cinderella of the South African energy industry had come to an end.
The NTCSA and investment under way
On 1 July 2024, the National Transmission Company of South Africa was launched as the unbundled entity that would take over the overall governance of the national transmission grid.
With transmission assets of R80-billion on its balance sheet and a shared responsibility for a portion of the Eskom debt, the NTCSA is effectively a publicly owned start-up that is mandated to implement the Transmission Development Plan (TDP) that was publicly launched on 30 October.
Surprisingly, few people realise that the TDP provides for the largest capital investment programme since 1994. It provides for the investment of R390-billion to build 14,400km of powerlines and 210 major sub-stations.
This, in turn, will re-align the grid in ways that will make it possible to connect the required quantity of renewable energy generation capacity and associated battery and gas backup capacity that South Africa will need if it wants to grow an increasingly diversified economy.
Furthermore, the grid transmission build programme is not just a means for enabling energy security over the long run – it is of such a scale that it could become the driver of upstream industrialisation by creating huge demand for, for example, steel fabricated products that could revive the ailing steel industry and save thousands of jobs. The Steel Masterplan Steering Committee is working on a plan to achieve exactly this.
Read more: SA’s grid transformation — Eskom’s R112bn plan for electricity ‘freeways’ as future generation heads to Cape provinces
The only factory in Africa that makes large sub-stations, SGB-Smit Power Matla (Pty) Ltd, caught fire recently and is in business rescue – everything needs to be done to salvage this situation as soon as possible, including Standard Bank which is the funder of this business and which should act primarily in the public interest to ensure a positive outcome.
Another example is vanadium – we could follow the Chinese by investing in vanadium batteries and not lithium batteries to support the grid as the energy transition progresses. This will make it possible to exploit our vast vanadium resources instead of importing what we don’t have, ie lithium.
Besides the widespread ignorance about the role of the NTCSA and, more importantly, the developmental impact of the TDP, there is also widespread ignorance about the extent of our renewable energy investments in recent years. In many ways, in response to the shock impact of load shedding, we have actually overshot even the most optimistic projections about what is needed.
Let the numbers speak:
- 6,430MW is already connected to the grid – this was procured via the REIPPPP since 2011, and is estimated to have generated over R200-billion of investments, mostly from South African financial institutions;
- 5,790MW distributed generation – this is the total quantity of rooftop solar by mid-2024, up from less than 1,000 MW in March 2022, mobilising an investment of more than R80-billion by commercial banks which provided the loans households and businesses needed to procure their rooftop solar systems;
- The director-general in the Presidency announced in May 2024 that there is 22,500MW of renewable energy projects in the pipeline (mainly embedded generation and new Bid Windows) – let’s assume 80% will actually be successful.
The result is as follows: 6.43GW + 5.79GW + 22.5 x 0.8 = 30GW of capacity that is either installed or actually in the pipeline and therefore committed to the transmission grid.
From an investment perspective, none of this can happen without battery and gas backup to stabilise the grid and balance out the inherent variability of solar and wind power.
The Battery Energy Storage Independent Power Producer Procurement Programme (BESIPPPP) is aimed at procuring the battery backup capacity that will be needed to help stabilise the transmission grid, with the first project awarded to Scatec on a build-own-operate basis worth R3-billion.
This is why it is naïve to refer only to wind and solar energy, without also referring to gas (which will hopefully be green hydrogen in future as the prices drop down to $1.5-$2 per kg) and batteries (preferably made from our own vanadium). Batteries are needed for rapid responses over periods measured in hours, and gas is needed to deal with longer periods measured in days.
Coming back to what we are building: in addition to the 30GW referred to above, we should expect another approximately 4GW of rooftop solar to be added before 2030 in response to electricity price hikes rather than load shedding.
We should also take into account the recently introduced practice known within the industry as “curtailment”. Put simply: in an area like the Northern Cape, the grid is only constrained for at most a few hours a day. It makes no sense to prevent new generation capacity in the Northern Cape if this is the extent of the constraint.
The solution lies in curtailing supply when the grid is congested, or when supply exceeds demand which is starting to happen. This creates space to increase total generation capacity so that more of the grid capacity can be used more of the time.
This works best if there is more battery storage in place to store energy until it is needed – which is happening. It is estimated that curtailment could create the space to bring online an additional 3.47GW of wind and more than 2GW of PV. There are many shovel-ready projects in these areas to make this happen.
This all adds up to 37GW which is either in the pipeline or under construction or already constructed. What is significant is that all this capacity becomes active well before 2030.
A key precondition is that the NTCSA can accelerate the implementation of the TDP. Last year Eskom’s transmission division (now the NTCSA) built only 74km of power lines. This needs to be ramped up to 1,400km per annum. Even if this ambitious target is not fully met, it is safe to assume that the building of sufficient grid capacity plus effective curtailment will make this 37GW of new generation capacity possible by 2030.
What really matters is this: even the most optimistic (of the more realistic) models in recent years have not predicted we will hit 35GW before 2030. The targets for 2030 have ranged from 30GW to 40GW if we want to (a) meet our climate obligations as articulated in our Nationally Determined Contribution, and (b) ensure energy security on an affordable basis as articulated in the TDP, the draft Integrated Resource Plan and EAP. If nothing happens to reverse all this, this will be a significant achievement.
Coal power prices
The interesting question is what all this means for Eskom’s generation business as transmission and eventually distribution are unbundled into separate publicly owned entities. Under the leadership of a new board and executive team, Eskom is looking in much better shape, not least because it has a constructive relationship with the Minister of Electricity and Energy.
In May 2024, Eskom announced delays in the closure of some old coal-fired power plants, including Camden, Grootvlei and Hendrina, until 2030. According to the IRP 2019 that was launched by Minister Mantashe in 2019, these three plants (with an average age of 52-57 years and average EAFs in the low 50s) were destined for decommissioning between 2023 and 2027.
The Eskom CEO told the Presidential Climate Commission (PCC) in May 2024 that the life extension of these plants would cost R90-billion. We can also conservatively assume that on average the operating cost of these old plants is R1,000/MWh. This is double the estimated cost per MWh of renewable energy projects approved in Bid Window 5. This raises two crucial questions.
First, to what extent has the decision to extend the life of the old power stations contributed to the 36% tariff increase proposed by Eskom? Given the life extension cost of R90-billion as presented to the PCC and the high operating cost of R1000/MWh (which is higher than what is recovered via present tariffs), it is not unreasonable to conclude that the life extension decision has contributed to the tariff hikes.
Read more: Delaying coal power plant shutdowns could push costs to R90bn, warns Eskom CEO
Second, given the argument above that 37GW of new generation capacity will be online by 2030 and that the necessary grid transmission capacity will be in place to make this happen, it follows that as this new combined capacity comes online over the next six years, how will this be correlated with the gradual decommissioning of these three old power stations, plus Tutuka (which is a 3.5GW coal-fired power plant that is also the most corrupt and therefore most inefficient).
Delaying decommissioning to satisfy the vested interests in the coal sector will continue to push up the tariffs while at the same time, more curtailment will be required as supply starts to exceed demand. In this light, decommissioning earlier rather than later is the cheaper option. With an average EAF of 60% which is gradually moving upwards, this becomes a safer option over time.
The answers to the above questions will be determined by the rate of economic growth. If growth rates start escalating, that will increase demand for electricity which, in turn, will increase the pressure on NTCSA to ensure grid transmission capacity keeps up with the demand to connect affordable renewable energy to the grid.
Higher growth rates will be used to justify life extensions of coal-fired power stations. The sweet spot may lie in higher economic growth rates supported by a balance between supply and demand of electricity underpinned by the accelerated decommissioning of (initially older and also more corrupt) power plants over time to reduce upward pressures on prices that, in turn, will support higher growth rates.
Interestingly, instead of managing a shrinking coal-fired power business, Eskom surprised the market this year by announcing that it intends to move into the renewable energy business.
The first project is a 75MW solar photovoltaic project at the Lethabo Power Station in the Free State. Eskom released a tender for the design, engineering, construction, commissioning, and maintenance of this plant in April. This marks the start of a new role for the Eskom Generation business over the long-term future.
Funding options: Boot vs BOT
Much, of course, depends on whether the annual targets of the Transmission Development Plan can be achieved. Now that the NTCSA is up and running, it has the budget to approve the projects described in the TDP.
It will achieve this using the tried and tested method of procuring private sector contractors to do the work – otherwise known as the Engineering-Procurement-Construction (EPC) approach.
After the NTCSA has done the design work, it issues a Request for Proposal, a winning bidder is selected, the EPC contractor builds according to spec with progress payments along the way, and the NTCSA takes ownership after commissioning and manages the operations and maintenance over the next 20-30 years. NTCSA funding can come from a combination of loans, revenue and the national budget.
A variation on the theme is known as EPC-plus-finance, ie exactly the same as the EPC approach, except the EPC contractor raises the finance against its own balance sheet for the working capital during the build phase (2-3 years), and gets paid on commissioning and transfer (what the NTCSA refers to publicly as the ‘build-transfer’ option).
As publicly announced on several occasions, in collaboration with NTCSA and Ministry of Energy and Electricity, the National Treasury is piloting a carefully designed build-own-operate-transfer (Boot) project, that will be procured via the Independent Power Producers Office that has managed the procurement of renewable energy via the REIPPPP to date.
The Boot approach means the private contractor raises the finance, builds the asset, owns what is built, operates for 20-30 years under strict conditions, and then transfers to the NTCSA. This is similar to the REIPPPP projects, except transfer happens at the end. The aim is to test how best to involve the private sector in transmission.
The newly established Ministry of Energy and Electricity has publicly endorsed the Boot approach, and in particular, it supports increased private sector participation in what they refer to as Independent Transmission Projects (ITPs).
This was also the strong message of the Minister of Finance in his Medium Term Budget Policy speech in October when he referred to Build-Operate-Transfer (BOT) as a method for drawing the private sector into the funding of public infrastructure – a method that was successfully used to build toll roads.
The BOT approach works exactly like the Boot approach, except that the private contractor does not own the asset – ownership would remain with NTCSA. The difference between Boot and BOT is significant – the former includes private ownership for most of the life of the asset which some constituencies might resist, whereas the latter means public ownership is not compromised.
ERA Act reforms
While all the complexities referred to thus far are unfolding – and in the process creating many growth-stimulating investment opportunities – an even greater task will be the implementation of the Electricity Regulation Amendment Act (ERA Act) which was signed into law by the President on 16 August 2024.
Most South Africans have not realised that this Act will lead to the most fundamental transformation of the hitherto state-run electricity system since the nationalisation of the Victoria Falls and Transvaal Power Company in 1948. The ERA Act will, in short, put in place a regulatory framework that can best be referred to as a state-guided market-driven system.
Four reforms are envisaged:
- Establishment of an independent Transmission System Operator (TSO): the Act mandates the creation of a Transmission System Operator SOC Ltd as an independent entity within five years. In the interim, the National Transmission Company of South Africa will function as the TSO. This means the NTCSA manages the national grid transmission system (System Operator based in Germiston) and the Grid Code (a set of technical standards).
- Open market platform for competitive electricity trading: the Act provides for the development of an open market platform that facilitates competitive wholesale and retail electricity trading, promoting a more dynamic and competitive energy market. For this to happen the NTCSA must establish a market code that will govern how a multiplicity of generators and users of electricity buy and sell electricity from one another.
- Enhanced regulatory oversight: the National Energy Regulator of South Africa (Nersa) is empowered to oversee the transition to a competitive electricity market, ensuring regulatory compliance and market integrity.
- Infrastructure development and capacity expansion: the Act outlines provisions for additional electricity generation and transmission capacity and infrastructure, aiming to meet the growing energy demands and support economic development. The NTCSA is responsible for the transmission infrastructure component, while generation capacity will be built by a range of Independent Power Producers, various kinds of large companies (mines, hospitals, shopping malls, big farms), Eskom (since April), some municipalities, an increasing number of socially owned relatively small-scale renewable energy projects and, if rooftop solar is included, a vast range of households and businesses.
In summary, escaping load shedding created the strategic focus needed to implement solutions that have achieved the goal in a relatively short space of time. This has boosted confidence across the board and created a much-needed sense that “we can resolve our problems if we work together”.
It has done a lot to restore confidence in government, although not sufficient to benefit the ANC at the polls. It has also created a role model for other sectors – at a National Planning Commission-convened workshop on the water crisis on Friday, 29 November, there was frequent reference to “learning from how we resolved the energy crisis”.
We need, however, to ask why we need to wait for a crisis before we are galvanised into action. Maybe the real lesson is that we have proven to ourselves that we can find pragmatic and incremental ways of working that are problem-driven and solution-oriented if we are prepared to put aside past preconceptions about the most appropriate roles for the state versus the private sector versus civil society.
These state-centric or market-centric fundamentalisms are from a bygone era. The hard art of partnering to handle complexity is the new name of the game. It requires of us all to have strong stomachs to handle the strain, clear heads to see the challenges ahead and big hearts for building trust. DM