What did Gordhan’s Eskom plan really mean?

NEWS ANALYSIS

Tuesday’s presentation by Public Enterprises Minister Pravin Gordhan of a special paper that outlines the future path to be taken by crisis-hit state power utility Eskom has left more questions than answers.

Despite the impressive slides and diagrams contained in a 56-page presentation — titled Roadmap for Eskom in a Reformed Electricity Supply Industry — and showing a growing understanding of the complex energy sector, Gordhan failed to shed enough light on two critical areas hampering Eskom: its electricity generation business, and what will happen to resolve the parastatal’s disastrous financial situation.

READ MORE: SA’s electricity issues are fixable but we need political will

The special paper — which Gordhan was at pains to explain has no real administrative significance — provides a good indicator of the government’s view on several big issues in the electricity sector.

These include the latest national energy blueprint — the Integrated Resource Plan (IRP) — and the state’s intention to transition past fossil fuels to cleaner and alternative sources of energy, as well as bring finality to whether the state-owned enterprise will be broken up.

The minister also emphasised that the government was fully cognisant of what transition means for communities that have built their entire lives around coal, saying they were committed to a “just transition”.
That effectively means that whatever is broken, lost or displaced by the new energy mix will be replaced through the creation of new industries — like wind and solar factories — and reskilling of workers.

This, Gordhan added, would go as far as government piloting the just transition concept as soon as Eskom started mothballing old stations.
That would involve looking at alternate uses for the decommissioned plant infrastructure, such as for storage and constructing renewable plants in close proximity to make use of the transmission equipment.

That equipment is a huge advantage of building renewable energy in an area like Mpumalanga, where there is existing power lines, as opposed to somewhere like the Northern Cape, where extra infrastructure has to be brought in.

READ MORE: Power stations truck up Eskom’s image

“The key point is that together with labour and the mining community we want to start a pilot programme in one of these areas so that we understand what a just transition for workers and communities actually means in practice,” he said.

But, largely, the paper still fails to answer critical questions raised by labour in recent months, including that privatisation and the extent thereof.

Though part of his plan does mention the utilisation of outside and private sources for generation, Gordhan was surprisingly silent on whether any of the three entities reporting into Eskom Holdings would be partly sold to private equity partners.

His silence, or failure to provide clear direction on this question, leaves a gap for purveyors of fake news and alarmist to drive a further conspiratorial chasm between him and labour – which will already be feeling hard done by the plan to sell Eskom Finance Company, the only vehicle that made it possible for some employees to own property.

On Monday, on the eve of Gordhan’s announcement, the National Union of Mineworkers (NUM) said it planned to march to the ANC’s headquarters to demand attention be put on the planned Eskom reforms, which the union has said it understands to mean job losses.

The jury is still out about whether it will be enough to show ratings agencies that there is a plan to fix Eskom and its massive debt. One of those agencies is set to give its opinion at the end of this week.

READ MORE: Will Moody’s downgrade Mboweni?

There are also real concerns that the utility’s power generation unit, Eskom’s biggest risk both as a going concern and also as the biggest potential flashpoint with the unions, is the one Gordhan conceded needed a whole lot more detailed thought.

This is even more crucial given the fact that four government departments, Eskom’s own board, development finance institutions, as well as academics and energy experts appointed by the President Cyril Ramaphosa, collaborated and still could not come up with a coherent plan for generation.

Could this mean we have a shortage of generation experts in the country?

The rest of Gordhan’s plan can be summarised into areas of concern, including:

Consistency with the Integrated Resource Plan (IRP)

On this, Gordhan reiterated that “Eskom’s journey into the future is dependent on the IRP approved by Energy Minister Gwede Mantashe and the Cabinet”. This is essentially the energy mix that South Africa is intent on using for the next 10 years. Following the IRP, the use of coal coal will decline from 37 149 MW to 33 364 MW between now and 2030, while renewables will go up to 38 090 MW in the same period.

Unbundling: The method behind the mad scheme

Gordhan’s focus on transmission as a separate entity underpins the importance to be played by this soon to be created subsidiary of Eskom Holdings.

This company, whose new board will be announced as soon as next week, is expected to officially exist by the end of next March and will be responsible for the 45 000-odd kilometre network through which Eskom delivers electricity, Gorhdan said.

The 6 000-person workforce will source/procure power, on a daily basis from Eskom generation, renewables, and the private sector. Gordhan said the entity will enter into agreements to buy electricity and also agreements to sell on the other end and will operate in a transparent manner according to a least-cost merit order. Transmission will also be empowered to introduce additional markets, and products, outside of the traditional distribution.

Generation: The black sheep

Generation’s entire fleet — including nuclear, pumped storage and diesel — will be broken up into three clusters . Each one will each act as business and compete against each other to produce electricity to sell. It has not yet been clarified how they will compete, as Gordhan said these modalities are still being worked on.

But Gordhan did say: “What generation lacks as a monopoly is competition and as a result of the lack of competition we do not get the most effective pricing coming out of generation itself.”

“Experiences in Vietnam and other parts of the world have shown that this kind of internal competition will be good for business, good for consumers, and will create greater efficiencies into the generation process as well.”

He added that Eskom will be participating in developing its own renewable plants, and through distribution, the country will have the benefit of local sources of energy such as waste to energy and rooftop solar which can be plugged into grid.

Reversing the effects of state capture

Besides the billions of rands lost through the wide scale project that captured the state, Eskom lost a lot of skills, Gordhan said.

But he added: “You can’t blame so-called state capture for everything … There were other areas for example the design of the Medupi and Kusile.”

The key moving forward is to improve generation and increase Eskom’s Energy Availability Factor — the amount of its maximum capacity that is working on average — to around 80%. This will give it a buffer for things like maintenance and for when plants go down unexpectedly.

Finances and radical cost saving initiatives

While the minister thought it prudent to let Finance Minister Tito Mboweni take the lead on new announcements with regards to Eskom’s debt and any further packages, he did reveal that the government would be engaging Eskom’s lenders about the new business model, operations, and cost savings.

Gordhan also said talks were continuing between government and seven companies that are currently making more than 100% profit from their coal supply contracts.

“We believe that this being one of the biggest cost items for Eskom, there could be substantial savings and the mining community must make a contribution.”

“Similarly in diesel and in terms of the first three rounds of renewables … All of those areas are open to discussion and negotiation, including the procurement of parts from the original equipment manufacturers,” Gordhan said.

He also reiterated Ramaphosa’s position that all stakeholders, from municipalities and even the residents of Soweto, are expected to pay for electricity.

On leadership

Starting next week, Eskom will be making a number of announcements, from the new transmission board that will oversee the creation of the separate transmission subsidiary, to supplementing the current Eskom board with more capacity, and the announcement of a new chief executive.

Gordhan said the Eskom board had concluded its process and forwarded a name for ratification. All that is needed now is to pass it through Cabinet.

Minimum emission standards

Goedhan said that for Eskom to retro-fit technology that makes them less polluting to all its power stations would cost in the region of R200-billion “we don’t have”.

“Eskom has started the process of incrementally starting to install some of this technology and other measures need to be taken in order to meet these minimum emissions standards.”

These technologies take harmful pollutants out of what is released from power plants. Last year, Eskom said these pollutants kill 333 people a year.

source: https://mg.co.za/article/2019-10-29-what-did-gordhans-eskom-plan-really-mean/

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