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Eskom is not too big to fail – it has already failed. The issue now is how we deal with this. There is an urgent need for constructive, pragmatic efforts, free of ideological constraints and dogma, to end generation capacity shortages and loadshedding in South Africa in the short- and medium-term.
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 customers of electricity and the market to respond to generation capacity constraints, and to be part of the solution, alongside the efforts of government.
Policy
Going forward, government needs to 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. Further distracting and confusing talk of new nuclear, clean coal and other technologies that are not aligned with or included in the IRP for the years to 2030 should stop.
There also needs to be a 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 as well as 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 (PPPs), 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 and painfully slow, central-planning, command-and-control approach to generation capacity procurement.
This outdated approach firstly involves the promulgation of a national IRP for electricity with stakeholder engagement and public participation processes throughout the country. This is then followed by Section 34 capacity determinations by the minister of energy, with the “concurrence” of the National Energy Regulator of South Africa (NERSA) 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 (PFMA), as well as other environmental, regulatory and licencing 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 kW, commercial and agricultural installations of 100 kW to 1 MW and higher, and industrial installations (e.g. at Sasol, mines and other energy intensive users) greater than 10 MW.
Planning
There also needs to be a clear, consistent and reliable national energy planning framework that publishes an Integrated Energy Plan (IEP) for South Africa annually as required by Section 6 (1) of the National Energy Act, Act 34, 2008.
The Department of Mineral Resources and Energy (DMR&E) needs to commence 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 South Africa’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, and technology prices, and the realities of changing market responses.
Eskom needs to urgently re-work 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, it should be noted 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 PV), 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 overdependence on coal for power generation, and to decarbonise the economy. As such, 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 (EAF) 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 aging, clapped-out, coal-fired power generation plants. Many of these power plants have been damaged by overloading for extended periods, skipping of 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 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 generation 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 PV renewable energy plants, backed up by least-cost new, flexible generation capacity from gas-to-power plants and battery energy storage systems (BESS).
New Section 34 ministerial determinations based on IRP 2019 are urgently required, and the IPP Office needs to re-start the procurement of utility-scale wind and solar farms within identified renewable energy development zones (REDZ), as well as gas-to-power and BESS capacity, without delay.
To expedite and facilitate renewable energy power plants in the depressed former mining areas of the Mpumalanga coalfields, the North-West Province platinum fields and the Free State goldfields, utility-scale wind, solar PV and BESS plants planned for installation on disturbed mining land should be exempted from any restrictive regulatory requirements of the National Environmental Management Act (NEMA).
End the single-buyer model
Government and NERSA should immediately drop their opposition as respondents in the court application brought by 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 South African Local Government Association (SALGA) 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 by operation of expensive, diesel-driven OCGTs.
In addition, government and Eskom should negotiate with wind and solar IPPs to extend the capacity of their existing power plants, and to install BESS 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 BESS
Everything possible should be done to facilitate the rapid uptake of embedded generation on customers’ premises through expediting the finalisation of the long-delayed SABS 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 SAPVIA Green Card initiative, and provide positive messaging and encouragement of 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 BESS on customers’ premises and within the transmission and distribution grids.
It is also important to develop and simplify appropriate regulations and standards specifically applicable to BESS, as opposed to applying complex and inappropriate generation regulations and licensing requirements to BESS.
Demand response
Government, Eskom and municipal electricity distributors should focus on providing signals such as domestic, commercial, industrial and municipal time-of-use tariffs and other economic 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 and compensated to switch off non-essential load and/or to shift load supplied from the grid to their own back-up generators upon receipt of a signal from the System Operator, in order to minimise the economic impact of unserved energy on the general economy through loadshedding.
Similarly, domestic and small commercial customers should be incentivised and compensated to install ripple control or radio control receivers to switch off non-essential loads upon receipt of signals from the System Operator.
Domestic and small commercial customers should also be incentivised and compensated to install smart time-of-use meters with load control facilities, in order to shift load from the working day, morning and evening 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 REIPPP programme. Such renegotiation would have very significant downside implications for future renewable energy procurements that far outweigh any cost benefits that could be achieved 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 are not part of IRP 2019 in the years to 2030.
Time should not be wasted on other so-called “solutions” for the years to 2030 that are not yet developed, proven, economically viable and/or appropriate. These include small modular nuclear reactors (SMRs), underground coal gasification (UCG), carbon capture and storage (CCS), “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.
