Eskom structure must change for investors to back our energy vision - De Ruyter, Gordhan

Eskom CEO Andre de Ruyter in January, 2020.
Eskom CEO Andre de Ruyter in January, 2020.
Gallo Images/Business Day/Freddy Mavunda
  • Eskom CEO Andre de Ruyter said energy sector reforms would have to be considered as renewable energy gains prominence and old power stations get decommissioned.
  • De Ruyter said the international investment community showed a strong appetite to invest in South Africa, but reforms were needed at Eskom to secure commitment.
  • Minister Pravin Gordhan said government was working to move South Africa in the next five years to a capacitated and efficient energy sector.


 

Eskom CEO Andre de Ruyter said on Thursday that the power utility received indications of a strong investment appetite from investors for South Africa's future energy plans, but that these investments could only be secured if South Africa proved it was serious about restructuring Eskom.

De Ruyter was speaking at a webinar organised by Nedbank, the University of Witwatersrand, and EE Business Intelligence, entitled "An Independent Transmission Grid System and Market Operator (ITSMO) in SA".

Eskom has been beset with an array of financial and operational challenges, from its R480 billion debt problem to it having experienced its worst year of load shedding on record in 2020. Eskom has sapped financial resources from the fiscus for years as its troubles pose a major economic risk.

President Cyril Ramaphosa announced in his 2019 State of The Nation Address that the power utility would be unbundled and broken down into three entities, one responsible for generation, another for transmission and a third for distribution.

De Ruyter said while the unbundling of Eskom continues its course, the model of an independent transmission system and market operator would have to be considered as renewable energy gains prominence and more old power stations get decommissioned with time.

"With 10 000 MW to be retired, there will be a capacity gap for energy at the end of the decade. We need capacity that we can bring onto the grid reliably and cost effectively. Renewable energy will have to have a place in our portfolio if we are serious about reliable energy," said De Ruyter.

Investment appetite

De Ruyter said the international investment community demonstrated a strong appetite to invest in supporting energy development in South Africa, but that systemic reforms needed to be made in Eskom and the broader energy sector to secure real commitment.

"To enable this degree of investment, we have to pursue the restructure of Eskom. If we don't demonstrate this, there will always be concern of a potential bias. We need to develop the independent transmission system and market operator model for this reason," De Ruyter said.

He said Eskom would need R100 billion to expand and strengthen its transmission grid and build 8000 km of new transmission lines, adding that this will creates an opportunity to "use this energy revolution to create new demand in South Africa".

"There is significant transition on green financing and entities have written to us to support us in these exercises like decarbonisation of the grid and others. We will be able to access this financing to decarbonise the grid as required," he said.

De Ruyter said the legal separation of the transmission business at Eskom will be done by the end of next year and "the train has left the station" regarding the "irreversible" unbundling of the power utility.

Minister of Public Enterprises Pravin Gordhan said government was working to move South Africa in the next five years to an energy sector where there is abundant electricity, reliable electricity and appropriate pricing.

"Investment in our economy will have to be local and international as we look at new and old industries for the future. We have to look at whether we have efficient use of electricity in the South African economy. We need technology that is attuned to the energy use as well as supply," said Gordhan.

Gordhan said energy technology is currently lagging and that a new model was needed to place Eskom on a reliable and sustainable footing and "execute the transition to clean technology in the real world".

"An independent transmission and operator model must be looked at. Within generation, competition will be key to driving costs down and improving efficiencies. And independent market operator and investment in the grid system will be critical factors as well," Gordhan said.

Energy expert and professor from the University of Cape Town's Graduate School of Business Anton Eberhard said 106 countries have unbundled the energy entities, including South Africa’s BRICS partners, Brazil, Russia, India and China, while Eskom's operational model remained stuck in the past.

"The restructure of Eskom is perhaps the most profound step in improving Eskom’s prospects since Eskom was established and will meet our energy needs efficiently and sustainably," said Eberhard.

Eberhardt said South Africa needed 27 000 MW of new investment into the system in the near future, and the Independent Transmission Grid System and Market Operator model was a sound approach to making this possible.

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