The future of South Africa’s energy sector development and security has sparked a battle of ideas over big infrastructure like coal and nuclear versus nimble power producers of solar, wind and gas energy. Fin24’s Matthew le Cordeur unpacks.
Eskom appears to be waging a battle of ideas over the future of South Africa’s energy resources, with Eskom executives often pitting the power utility against respected energy thought leaders like EE Publishers MD Chris Yelland and UCT professor Anton Eberhard.
The context of this battle comes amid five major developments in the energy sector:
1. Coal: Eskom’s baseload coal power stations that deliver most of South Africa’s electricity will slowly come off line in the next few decades, eventually leaving the delayed Medupi and Kusile power plants - and other midlife stations - as the main producers of coal-based energy. Coal is losing steam amid UN resolutions that will punish CO2 intensive South Africa if it does not reduce its emissions.
2. Nuclear: South Africa has two nuclear reactors at Koeberg (1.8GW), but government and Eskom want to add another six to eight reactors (9.6 GW) in the Eastern Cape and/or near Koeberg. While proponents believe this will solve the baseload replacement problem with non-CO2 emitting power, economists believe the cheap-dream that nuclear once promised has soured, while environmentalists continue their protests regarding radioactive waste and spillage caused by accidents.
3. Renewable Energy: The darling of the private sector, economists and environmentalists, South Africa’s renewable energy programme has brought R195bn in direct investment in the last decade and added 2 145 MW to the grid. Eskom has been forced by the Department of Energy (DoE) to sign long-term contracts with these independent power producers and has now put its foot down, saying it won’t accept any new project without its say-so. The DoE has set the target for renewable energy at 3 725 MW, so Eskom’s decision will be fiercely contested.
4. Gas: The DoE’s draft Gas Utilisation Master Plan and ministerial determination to date is 3 126 MW of baseload and/or mid-merit energy generation capacity from gas-fired power generation. This target could increase, according to the minister of DoE. SA is creating a unit to import liquefied natural gas for power plants and will seek to tap regional natural gas. Major gas discoveries in Mozambique have added fuel to the gas-ignited fire, while prospecting for fracking (another source of gas reserves) in various parts of South Africa is receiving stiff opposition from civil society groups and is a longer-term option depending on the economics. READ: Will gas be SA’s saviour?
5. Hydropower: The World Bank announced on Tuesday that it was suspending its funding for the Democratic Republic of Congo’s $14bn Inga 3 project, which forms part of the eight-stage Grand Inga project that would produce a record 44 GW at an estimated cost of $50bn to $80bn. Eskom is supposed to be a major anchor for this project. Experts like Yelland see this is a "wonderful pipe dream".
Why policy uncertainty can be avoided
What determines the direction South Africa should take regarding these five pillars of energy is contained in a document titled the Integrated Resource Plan (2010), a policy document that requires being updated every two years. Alarmingly, this document has yet to see a formal update. Business Day deputy editor Carol Paton explains why: “Should the cost of nuclear energy come in too high compared to other technologies, then the nuclear build programme, which is championed by President Jacob Zuma, could be blown out of the water.”
Caught in a state of policy limbo, the battle for ideas over South Africa’s energy makeup continues without any clarity. What forms the debate revolves around big versus small, centralised versus distributed, government versus private sector, secretive versus transparent.
Big build projects have a bad reputation
Government-run big build programmes like Medupi, Kusile and the DRC’s grand Inga project have all been beset with major cost and time overruns, as well as allegations of corruption. In Western Europe and the US, big nuclear projects under construction are experiencing similar issues, with French power utility EDF getting flak over its UK-based Hinkley Point C project, amongst others.
While Eskom is trumpeting the meeting of new deadlines for Medupi and Kusile, critics lambaste it for ignoring the fact that it is years behind schedule. The 4 764 MW Medupi coal-fired power station has been under construction since 2007, while the 4 800 MW Kusile coal-fired power station has been under construction since 2008. Only one unit – at Medupi – is operational. Eskom hopes both power stations will be completed by 2022.
Zuma’s close ties to Russia sparked allegations – including a legal case that is underway – that the government was embarking on a nuclear deal with Rosatom that would make the Arms Deal seem like child’s play. The deal could cost up to R1.5trn, a sum that gets pro-nuclear experts hot under the collar. They believe it will cost far less, provide ample new jobs and deliver secure energy for generations to come.
A different narrative of clean energy
The entrepreneurial energy projects that focus on solar, wind and gas have generated a uniquely different narrative - projects are delivered on time and within budget with little allegations of corruption. However, utilities like Eskom and nuclear proponents say the public is being conned into believing the green hype and that, in fact, governments like Germany are over-subsiding renewables, which will cause huge spikes in electricity costs if nuclear and coal are eventually turned off.
Globally, the fourth industrial revolution has caused a reaction where citizens are trying to liberate themselves from big business and governments to give power back to the ordinary person. The unpleasant narrative and personalities that have come with this and Brexit and the Trump movements have links to these thought-patterns.
While they come with their negative economic and political repercussions, some of the underlying thinking behind the movements focuses on how technology and new innovations can create the possibility of more private players linking together to provide better services than big government and big business, which is increasingly seen as out of touch and corrupt.
In addition, the fourth industrial revolution means we can't predict energy trends, so "decisions of the least regret" for economic purposes should be encouraged, Yelland told Fin24.
Battle of ideas intensifies
Eskom CEO Brian Molefe, who recently completed a course in nuclear energy for utility executives at MIT in the US, is a nuclear evangelist. His fierce criticism and attacks on Yelland, who is a respected analyst of South Africa’s energy policies, was questioned this week in a story by Moneyweb’s Antoinette Slabbert.
According to her report, Molefe told a conference this month that Eskom spokesperson Khulu Phasiwe had taken him to task for threatening Yelland the way he did. Molefe “seems determined to personalise things, perhaps in order to deflect attention from the real issues,” Yelland told Slabbert. Molefe has criticised Yelland for saying Eskom’s ability to prevent load shedding had more to do with lowering demand than Eskom becoming a more functional power utility. Yelland also got on the wrong side of Molefe when he publicly opposed Eskom’s Nersa application for a tariff increase last year.
Then there is Matshela Koko, Eskom group executive for generation, who appears to be in charge of rebuttals against Eberhard’s Business Day thought leader stories. Koko criticised Eberhard – cabinet’s special advisor on energy – again this week, saying he “should tell the public what the real costs of the renewable (independent power producer) IPP programme are”.
Eberhard – a strong proponent of increasing IPPs and breaking up Eskom’s monopoly – was criticising Eskom for its decision to prevent signing any more IPP power purchase agreements.
“Eskom’s opposition to competitive IPPs is not unexpected,” he wrote. “That is what dominant incumbent utilities do. But clearly it is not in the public interest when the costs of Eskom’s new power stations have doubled and their completion has been delayed by many years. We forget too easily that these delays resulted in power cuts and a curtailment of economic growth.
“It is not naïve to believe SA’s electricity sector can, and will, be restructured. I’ve seen it happen in many countries. Perhaps, SA’s fiscal position will have to deteriorate further before we accept we can no longer fully fund our public utilities — we’ve pumped R83bn into Eskom since 2008 — and that a greater openness to private investment is inevitable. It would be better to start that reform process now, before we are once again in crisis.”
“However, one can understand Eskom and Koko's dilemma," Yelland explained. "For instance, renewable energy IPPs require gas IPPs to fill in the gaps for baseload power, as insufficient advances in power storage have been achieved to date. The cost of solar, wind and gas power technologies should therefore be considered in combination when analysing costs," suggests Yelland. "In addition, Eskom needs to invest heavily in the grid to accommodate the influx of new IPPs.”
Will battle of ideas turn to civil protest?
In conclusion, if the outdated IRP plan is ignored or updated to benefit big business and big government without consulting the public, then the battle of ideas will likely intensify into a movement spearheaded by civil society groups like Outa, Safcei, Greenpeace and political and labour federation opponents. This will certainly be the case should the nuclear programme go ahead with or without this IRP update.
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