Actions needed to put Eskom on the road to recovery

Eskom’s proposed plan to ‘buy’ the time it needs to do proper maintenance on its ageing fleet – by providing significantly less power through ever-present load shedding, hopefully at a low stage – could, if implemented, give the utility a chance to fix itself.

Read: Finally, a credible plan to fix Eskom

However, it will take more than time to fix South Africa’s power supply situation.

There is an urgent need for constructive, pragmatic efforts, free of ideological constraints and dogma, to end generation capacity shortages in South Africa.

Government can deliver quick wins by providing sound policy positions and messaging, with an emphasis on reducing unnecessary policy and regulatory constraints. This should be supported by consistent political, economic and pricing signals to enable electricity customers and the market to respond to capacity constraints, and to be part of the solution, alongside the government’s efforts.

Policy

Going forward, government must provide clear, unambiguous and reliable policy positions and statements, indicating its commitment to the energy mix detailed in the Integrated Resource Plan for electricity (IRP) 2019.

Distracting and confusing talk of new nuclear, clean coal and other technologies that aren’t aligned with or included in the IRP to 2030 should stop.

There must also be clear policy commitment to an independent, state-owned transmission company with power planning, procurement, contracting and system operation functions, that ensures non-discriminatory access to the grid on level playing fields by incumbent Eskom generators and new generation entrants.

There should be a clear policy commitment to a diversified, competitive generation sector, comprising a number of Eskom generators, public-private partnerships, municipal generators, independent power producers (IPPs), and embedded generators on customers’ premises.

Government policy should encourage and provide political, economic and pricing signals to encourage and incentivise market-orientated responses to generation capacity shortages, alongside government’s current centralised approach to procurement of new generation capacity.

Deregulation

Significant efforts must be taken to reform the archaic, painfully slow central-planning, command-and-control approach to generation capacity procurement.

This approach firstly involves promulgating a national IRP for electricity with stakeholder engagement and public participation processes throughout SA. This is followed by Section 34 capacity determinations by the energy minister, with the ‘concurrence’ of the National Energy Regulator of South Africa after a further public participation process. Finally, after a cost-benefit study and the green light from National Treasury, procurements must meet the complex procurement requirements of the Public Finance Management Act, and other environmental, regulatory and licensing hurdles along the way.

In addition, the stifling regulatory red-tape, technical barriers and complex registration and licensing processes associated with embedded generation on customers’ premises need to be eliminated, or at least streamlined and minimised.

These include requirements applicable to:

• Domestic and small commercial installations up to 100 kilowatt (kW),
• Commercial and agricultural installations of 100kW to 1 megawatt (MW) and higher, and
• Industrial installations (e.g. at Sasol, mines and other energy-intensive users) over 10MW. 

Planning

There must also be a clear, consistent and reliable national energy planning framework that publishes an Integrated Energy Plan for SA annually, as required by the National Energy Act, 2008.

The Department of Mineral Resources and Energy needs to start the next cycle of the IRP planning process within the next 12 months, following a transparent, evidence-based approach, with the principle focus being least-cost generation choices that provide the necessary security of supply.

These national energy and electricity plans should indicate and signal broad, least-cost pathways towards meeting SA’s energy needs.

They should not be a tool for a command-and-control approach to energy and electricity planning and implementation.

The plans should be non-prescriptive and flexible, and should be updated regularly to account for changing electricity supply and demand, economic assumptions, technology prices, and the realities of changing market responses.

Eskom needs to urgently rework its hopelessly inadequate Medium-Term Generation System Adequacy Outlook report, also following a transparent process, to indicate the least-cost generation choices that provide the necessary security of supply in the short- to medium term (next five years).

In the above planning process, note that the characterisation of new generation capacity needed as baseload, mid-merit or peaking capacity is outdated, inappropriate and misaligned with the need for least-cost energy (currently wind and solar photovoltaic), and least-cost flexible generation capacity (currently gas-to-power and battery energy storage systems).

Energy and electricity planning should include plans for a just energy transition, to diversify away from the heavy over-dependence on coal for power generation and to decarbonise the economy.

The plans should include geospatial considerations for distributed power generation, economic development and reindustrialisation in distressed mining areas where suitable existing infrastructure, skills and grid connections exist.

Generation plant performance

Of course, everything possible must be done to stabilise and improve the dismal performance and energy availability factor of Eskom’s fleet of coal-fired power stations, which have declined alarmingly over the last four years. At the same time, the delayed commercial operation and poor operating performance of generation units at Eskom’s new Medupi and Kusile power stations has to be addressed.

However, there is a need to be realistic, and to moderate expectations of what can actually be achieved in practice.

There are diminishing returns for routine maintenance on ageing, clapped-out, coal-fired power generation plants. Many of these power plants have been damaged by overloading for extended periods, skipping mid-life refurbishment and repeated deferral of routine maintenance.

A rational cut-off point for retiring or decommissioning old, inefficient, end-of-life, non-environmentally compliant generation plant needs to be applied. This should be based on levels of availability and unplanned breakdowns, costs of environmental compliance, costs of ongoing maintenance, and the economic viability of continued operations.                                                   

Procurement of new capacity

Politicians, ministers, officials, Eskom board members and executives who think that the solutions to energy and capacity constraints in South Africa are to be found in playing Tetris with generation unit maintenance completely misunderstand the current state of play.

What is most urgently required now is the procurement of new, least-cost energy from wind and solar photovoltaic renewable energy plants, backed up by least-cost new, flexible generation capacity from gas-to-power plants and battery energy storage systems.

New Section 34 ministerial determinations based on IRP 2019 are urgently required, and the IPP Office needs to restart the procurement of utility-scale wind and solar farms within identified renewable energy development zones, as well as gas-to-power and battery energy storage capacity, without delay.

To expedite and facilitate renewable energy power plants in the depressed former mining areas – the Mpumalanga coalfields, the North-West Province platinum fields and the Free State goldfields –  utility-scale wind, solar photovoltaic and battery energy storage plants planned for installation on disturbed mining land should be exempted from any restrictive regulatory requirements of the National Environmental Management Act. 

End the single-buyer model

Government and Nersa should immediately drop their opposition as respondents in the court application brought by the City of Cape Town seeking the right to supplement its electricity needs by building its own gas-to-power and renewable energy power plants, and/or procuring electricity directly from IPPs.

This would signal a major policy change that central government now supports the efforts of the SA Local Government Association and several metros to take greater responsibility for their own energy needs.

This would allow municipalities to generate electricity themselves, as they did before the establishment of the Eskom monopoly.

It would also bring an end to the antiquated ‘single-buyer model’ for electricity, where Eskom is designated as the sole buyer of electricity intended for resale in South Africa.

Excess wind and solar energy 

Government and Eskom should negotiate reduced energy rates for supply of any additional excess energy that wind and solar IPPs can deliver from their existing power plants upon signal from the system operator, in order to minimise the cost of diesel incurred by Eskom through the operation of expensive, diesel-driven open-cycle gas turbines.

In addition, government and Eskom should negotiate with wind and solar IPPs to extend the capacity of their existing power plants, and to install battery energy storage systems that can be charged by this extended capacity and/or from any surplus energy from the grid and from IPPs that may otherwise be curtailed.

Embedded generation and battery energy storage

Everything possible should be done to facilitate the rapid uptake of embedded generation on customers’ premises through expediting the finalisation of the long-delayed South African Bureau of Standards mandatory safety standards, and removal of unnecessary bureaucratic regulatory processes and red tape.

Government needs to support sector-driven initiatives for training, accreditation and certification of installers, such as the South African Photovoltaic Industry Association Green Card initiative; provide positive messaging and encourage customers to become part of the solution through tax breaks and other incentives.

Similarly, everything possible should be done to unlock the policy, regulatory, registration, licensing and technical barriers currently inhibiting the installation of battery energy storage systems on customers’ premises and within the transmission and distribution grids.

It’s also important to develop and simplify appropriate regulations and standards specifically applicable to battery energy storage systems, as opposed to applying complex, inappropriate generation regulations and licensing requirements to these systems.

Demand response 

Government, Eskom and municipal electricity distributors should focus on providing signals … that encourage load shifting, energy efficiency, solar hot water geysers, embedded generation, industrial co-generation and demand market participation. 

Large customers should be incentivised to switch off non-essential load and/or to shift load supplied from the grid to their own back-up generators on receipt of a signal from the system operator, and compensated accordingly, to minimise the economic impact of unserved energy on the general economy through load shedding.

Similarly, domestic and small commercial customers should be incentivised to install ripple control or radio control receivers to switch off non-essential loads on receipt of signals from the system operator.

Domestic and small commercial customers should also be incentivised to install smart time-of-use meters with load control facilities so they can shift load from working day and peak periods to off-peak periods.

Things to avoid

Government and Eskom should avoid counterproductive efforts to try and renegotiate renewable energy IPP tariffs that have already been contracted under the public procurement processes of the Renewable Energy Independent Power Producer Procurement programme. Such renegotiation would have very significant downside implications for future renewable energy procurements that far outweigh any possible cost benefits for the earlier procurement rounds.

Government and Eskom should also avoid any temptation to procure extremely expensive emergency energy from ‘power ships’ and other unconventional and inappropriate so-called ‘solutions’ that aren’t part of IRP 2019 in the years to 2030.

Time shouldn’t be wasted on other ‘solutions’ for the years to 2030 that aren’t yet developed, proven, economically viable and/or appropriate. These include small modular nuclear reactors, underground coal gasification, carbon capture and storage, ‘clean coal’ technologies, and fracking in the Karoo.

Finally, the reopening of debate on the merits of a new coal and/or new nuclear build programme that are misaligned and in conflict with the energy mix detailed in IRP 2019 for the years to 2030, just sends confused, mixed messages on energy policy, regulation and procurement, and should be avoided.

Chris Yelland is managing director of EE Business Intelligence.