- A lot of credible financial institutions want to support Eskom's just energy transition, says CEO Andre de Ruyter.
- The CEO said that Eskom is currently considering a plan of concessional financing, on provision that the power utility reduces its carbon footprint.
- De Ruyter says Eskom has also been engaging with communities who would be affected by the energy transition.
Eskom CEO Andre de Ruyter says that green financing could possibly help address Eskom's debt woes.
The chief executive on Thursday was speaking during a briefing on the quarterly state of the system. The power utility has been struggling with operational and financial challenges. It has had to implement load shedding, as a number of its units undergo much needed reliability or long-term maintenance, and it foresees the risk of load shedding to persist over the near term until the maintenance programme is completed by the winter of 2021.
Weighing in on its R480 billion debt burden, De Ruyter said that through the unbundling, Eskom envisions having the bulk of the debt carried by the generation entity with the transmission and distribution entities each carrying a quarter. This decision, however, still requires a lot of work – as Eskom needs to ensure that it will not default on existing loan covenants.
During a question-and-answer session on the potential for green financing for the power utility going forward, De Ruyter said that green financiers were willing to support Eskom's just energy transition, which would include renewable energy generation. "The appetite to support Eskom in these endeavours, certainly is there." He however noted there is a reluctance of green financiers to extend loans to a company with a high carbon footprint as Eskom has.
"We are in the process of developing a solution - we are talking to a number of players in the space which will probably involve making available concessional financing, discounted financing to help us with our debt burden and interest burden," said De Ruyter. The financing would be made available against Eskom reducing its carbon footprint, he explained.
Currently Eskom is not able to pursue a very large renewable new build campaign - which is why it is attracting private capital to make these investments. "We have to use this opportunity of reducing our carbon footprint to be enable us to address the R480 billion worth of debt we have got."
This is similar to a recommendation of a blended climate-linked finance facility made by the Eskom Sustainability Task Team, which was appointed by President Cyril Ramaphosa in 2018, Fin24 previously reported.
Eskom is in the process of finalising the appointment of financial advisers to assist with the green financing solution. Eskom has put out an enquiry to the market with the view to appoint a panel of financial advisers, one of the requirements for appointment would be experience in the field of green financing, De Ruyter explained.
The financial advisers would help to restructure the green financing transaction, which would be complex given Eskom's situation. De Ruyter said these expertise are needed because there are only a few international precedents available – which cannot necessarily be applied to Eskom's situation. "We have a very large coal fleet that is going to remain in operation for an extended period of time. We are not going to transition en masse in a very short space of time to renewable energy. We have some complexities that will need to be addressed."
Head of capital markets research at Intellidex Peter Attard Montalto noted that green financing would not really reduce the size of Eskom's debt burden, but would rather be a cheaper form of financing. "It does not solve the problem at the end of the day. It (the debt) will be cheaper but it will have to be paid t th end of the day," he said.
De Ruyter explained that the transition to renewable energy did not only make sense in response to climate change, but also as a business case given that the cost of renewable energy technologies had reduced substantially.
However, De Ruyter noted that the transition must be just. "We have to look after the citizens involved in the coal mining value chain- that they are not left in the lurch," said De Ruyter.
Eskom has been engaging with communities on the matter.
"The first round was a bit rocky, but the second round has been far more positive as the communities are starting to appreciate the fact that there a future after the power station goes into retirement," said De Ruyter.
He added that the Just Energy Transition Office established earlier this year has done extensive system modelling to understand the requirements of the system going forward.
"We are in the process of developing financial and business plans to underpin the required investments. We are continuously engaging with developmental financing institutions keen to assist us," said De Ruyter.