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Funding from Western nations for decarbonization of South
Africa's power sector announced at COP26 last November is merely a
small down payment on the level of backing that will be needed,
according to Andre de Ruyter, CEO of the country's state-owned
monopoly Eskom.
Eskom, Africa's largest power utility, is responsible for 25% of
the continent's GHG emissions and as its top executive, de Ruyter
will be responsible for directing where much of the $8.5 billion
promised in November will be spent. South Africa is the globe's
12th largest GHG emitter. South Africa's emissions increased by
10.4% between 2000 and 2017 to 531.33 million mt, according to the
latest government data,
released in August 2021.
Speaking at the Edison Electric Institute (EEI) Global
Electrification Forum 27 April, de Ruyter said the company had yet
to receive any of the funds promised, which are supposed to come in
the form of grants, concessional loans and investments, and
risk-sharing instruments. The $8.5 billion will be just the first
part of the necessary funds, said the executive.
Five G20 members—France, Germany, the UK, the US, and the
EU—are providing the funding through the "Just Energy Transition
Partnership." The premise of the partnership is to prevent up
to 1.5 billion mt of emissions over the next 20 years, and
accelerate South Africa's transition to a low-emissions,
climate-resilient economy, they said.
Plans for spending the financial aid for South Africa and Eskom
need to be put in place carefully, de Ruyter said. He said the
donors shouldn't rush things, given Eskom and South Africa's
history of corruption.
"It takes time to identify projects, and time to set up the
checks and balances; you don't rush with our history of corruption,
you don't want to hose money into a system that lacks a bit of
creditability," he said. "We are at pains to emphasize to the
[Western political and financial leaders] that we want to ensure
good governance and make sure the money is well spent," he
added.
Emerging from turmoil
Making sure the money is well spent is doubly important, given
how much work is needed. Eskom operates 96% of South Africa's power
generation, as well as the country's transmission and distribution
grids, but since 2007 the company has been forced to impose rolling
blackouts on a regular basis due to the decrepit state of its
largely coal-fired fleet.
De Ruyter is now the longest serving Eskom CEO of the past 15
years, which, he told conference attendees, was a "fairly dubious
distinction." Power is such a sensitive topic in South Africa de
Ruyter said he holds daily briefings on the blackouts, or load
shedding as it is known locally, on national television. In such a
position, de Ruyter said the basic departure point is to be
brutally honest about why yet more load shedding is required.
That level of honesty from de Ruyter extends to other parts of
Eskom's past. The company is "slowly emerging from a period of
immense turmoil," he said, that had been "characterized by
grand-scale corruption," or what has been termed "state
capture."
The history of the plundering was laid out in minute detail on
29 April when the Commission of Inquiry into State Capture issued
one of its latest reports focusing on the actions of an Indian-born
family, the Guptas, their businesses, and influence on South
African government decisions due to links with then President Jacob
Zuma. The report was titled "The Capture
of Eskom."
Eskom said in response to the report 29 April
it was working with special investigators to recover funds lost as
a result of the actions of Gupta businesses, then company
executives, and politicians. The company has already recovered
funds from global consultancy McKinsey and engineering firm
ABB.
Cost of retrofitting coal fleet too high
While fixing the culture at the company, de Ruyter has also had
to start shifting the company's generation fleet from old coal
units to cleaner sources of power. Eskom has 46 GW of capacity that
has an average age of 41 years old. To make the fleet
environmentally compliant would require $20 billion, which is
"something we cannot afford," said de Ruyter.
It has now decided to accelerate the retirement of its
coal-fired units and by 2035 some 22 GW of capacity will have been
put out to pasture, which is 47% of the company's nameplate
capacity, its top executive said.
The government was warned as early as 1998 that Eskom needed
more generation capacity. The government disagreed. When the
capacity crunch came, the government gave a buildout the green
light, but it was done in great haste, de Ruyter said. Like any
project carried out in great haste, he said, there were overruns,
it was over budget, and didn't work very well.
The coal-fired capacity will largely be replaced by wind and
solar. De Ruyter expects about 9 GW of coal-fired capacity to
remain online in 2050 as well as 6-7 GW of gas-fired units.
Eskom carried out extensive system modeling, and the optimal
portfolio mix is likely to involve 82% or 83% renewable generation
by 2050, he said. The company, he added, ran "more than 100
different scenarios."
"Possibly" there will be some gas-fired capacity, he said, or
"even nuclear," although that option is controversial from a number
of perspectives, even without addressing the cost factor.
South Africa currently has one nuclear plant with two reactors
that were connected to the grid in the mid-1980s, but under Zuma,
it inked a deal with Russia's Rosatom to build a 9.6-GW fleet at an
astronomical cost of $76 billion—or nearly 23% of the entire
country's 2020 GDP, based on World Bank figures. The deal fell apart in
2018, the same year Zuma was forced out amid graft scandals after
nine years leading South Africa.
Transforming the company's generation fleet was "one of the
great strategic conundrums when I joined Eskom," de Ruyter told the
EEI event. His challenge was to improve energy security while
migrating to a lower carbon footprint, and at the same time
avoiding causing "more economic hardship and misery," he said.
Putting the transformation into action, Eskom on 12 April sought to attract developers
interested in leasing land across some of its many sites for
constructing renewable power generation. Eskom is offering access
to existing generation sites in Mpumalanga province—east of the
country's administrative capital of Pretoria and bordering
Mozambique—that already have transmission connections. It hopes
as much as 4 GW of capacity can be added over time. Each facility
where land will be leased will be limited to 100 MW of
capacity.
The company said it hoped the leases could
"give impetus to collaborative efforts to resolve South Africa's
electricity crisis," although bidders had until just 29 April to
submit their proposals. The turnaround did indeed prove to be too
quick. Eskom representatives said on 5 May that the RFP deadline
had been extended to 17 May at the request of bidders.
Load shedding continues
On 3 May, in the company's latest warning of imminent load
shedding, Eskom said it had 3.875 GW of capacity on planned
maintenance, while an additional 15 GW or more was unavailable due
to breakdowns.
In April, Eskom issued nine warnings to the public about load
shedding. The most serious in April reached stage four load
shedding. The outages start at stage one and the most serious is
stage eight.
The latest load shedding, it said was caused by a shortage of
generation capacity owing to delays in returning generators to
service, as well as breakdowns of nine generators.
The company's aging coal-fired power plant fleet has been "quite
poorly maintained," de Ruyter told the EEI event. Eskom, prior to
de Ruyter's tenure, ran the fleet much harder than international
norms, he said, and as a result has "less and less headroom for
maintenance."
Eskom's load shedding and its impact on the country's quality of
life and economy cannot be underestimated. The International
Monetary Fund (IMF) said in a February report that Eskom's operational
and debt problems raise macro-critical challenges. Eskom should
abandon its outdated business model, reduce its footprint in the
electricity sector, and compete on a level playing field with
private participants, including the producers of renewable energy,
the IMF added.
Analysis by S&P Global's country risk team added that South
Africa's potential growth rate has been slowing consistently in
recent years and is expected to drop to a meager 0.9% in 2022-23,
noting that the load shedding had placed a significant damper on
the country's growth potential since 2015.
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