Eskom’s choice: Environmental compliance at R300bn or closure of 16 000MW

Cash-strapped and debt-burdened, Eskom has now been slapped with an obligation to comply with emission standards costed at R300 billion.

It is either that or the immediate closing down of 16 000 megawatts (MW) of coal and liquid fuel-fired generation capacity – which is equal to more than half the generation capacity Eskom had available during the evening peak on December 13.

“This would have a significant impact on the economy and employment, particularly in Mpumalanga and Lephalale, and delay the country’s plans for a just energy transition toward a cleaner electricity supply,” Eskom says.

The only other hope is an appeal that will be decided in January.

Eskom said in a statement it is appealing various rulings of the Department Of Forestry, Fisheries And Environment (DFFE).

The department declined Eskom’s applications for the postponement of compliance deadlines at Matla, Duvha, Matimba, Medupi and Lethabo power stations.

Applications for Majuba, Tutuka, Kendal and Kriel were partially granted.

Those for the coal-fired Grootvlei, Arnot, Hendrina, Camden, Komati and peaking stations Acacia and Port Rex were granted. These are the oldest power stations, due to close down by 2030. Komati will be the first to close down its last unit late next year and will be completely closed before 2025, Eskom says. Acacia and Port Rex will reach the end of their 50-year life in 2026/’27.

Eskom says during 2019 and 2020 it applied for the postponement or suspension of the minimum emission standards (MES) regulations under the National Environmental Management: Air Quality Act or the setting of alternative limits at 16 of its power stations.

Read: Eskom: How does it stack up in the pollution stakes?

The applications followed extensive public participation and were based on, among others, the following reasons:

1. Eskom’s planned emission reduction plan includes investing in technology retrofits to reduce emissions, the progressive closure of older stations, and the move to a cleaner energy mix. These initiatives will result in a substantial reduction of emissions going forward. Particulate matter (PM), nitrogen oxides (NOx) and sulphur dioxide (SO₂) will reduce by 58%, 46% and 66% respectively by 2035. Carbon dioxide emissions will decrease by 50% by 2035. These plans are in line with Eskom’s Just Energy Transition (JET) strategy and government’s policy objectives in terms of greenhouse gas reduction.
2. The cost of full compliance to the MES is estimated at over R300 billion, and will not add any additional capacity to the national grid. If funding were available, and if it were possible to execute all the compliance projects in time to meet the requirements, these projects would add at least 10% to the existing electricity tariff.
3. There are “very significant” additional water requirements associated with installing emission reduction technology for SO₂, which would increase Eskom’s present water demand by some 20%. This increase in water demand is not considered appropriate in a water-stressed country such as South Africa.
4. There are significant practicality challenges to implementing the required upgrades within the legal timeframes without causing national electricity capacity issues.
5. The ambient (as opposed to point source) air quality in the affected regions must be improved to limit the impact of air quality on the health of communities; however, other than for PM, the SO₂ and NOx ambient air quality standards are generally complied with. Decisions on the MES application should therefore preferably consider the full range of sustainable development issues rather than focus on stack/point source emissions.
6. The DFFE made its rulings at the end of October and communicated them to Eskom on November 4.

The disclosure by Eskom of this predicament now, a month later, comes on the eve of the announcement of Eskom’s financial results for the first six months of the current financial year and against the background of a controversial tariff application.

Eskom maintains that it applied for a tariff increase of 20.5% from March 1, but energy regulator Nersa says it could be much more.

According to Eskom its tariffs are not cost-reflective, and even with the 20.5% increase it will be left with a R29 billion deficit.

It has been filling the funding gap with loans, but its debt burden of around R400 billion is already far more than it can service.

Independent energy expert Lungile Mashele said at a recent webinar hosted by EE Business Intelligence that lenders are concerned about Eskom’s deteriorating technical performance and tariff turmoil as clashes with Nersa regularly end up in court.

Read: Nersa concedes failing to put electricity tariff methodology in place

The utility says it is engaging with the DFFE, the Department of Public Enterprises, the Department of Mineral Resources and Energy “and others” on the way forward.

None of @Eskom_SA’s coal power stations meet statutory minimum emission standards. The Dept of Env is now cracking down. With a DSCR of 0.28, the utility doesn’t have the cash to comply. Eskom’s technical, financial, environmental challenges intensify https://t.co/4sRcNTDNhl

— Anton Eberhard (@AntonEberhard) December 14, 2021