André de Ruyter, the CEO of Eskom, in a recent series of interviews with Chris Yelland in Daily Maverick, culminating in Part 5 thereof on 5 May 2020, laid out what Eskom is going to do – with money the company patently does not have. Among other things, he says he will retire old plants over the next 10 years which will reduce particulate and CO2 emissions. The question is, however, what replaces these plants to keep the wheels turning?
The repurposing he refers to is, I suspect, the gas option, but where is the gas going to come from? It would presumably require a pipeline for delivery and would need to be stored in large volumes in underground facilities and in smaller volumes in tanks above or below ground. The important question is, who is going to pay for the installation of this storage and distribution network?
He also refers to flue-gas desulphurisation (FGD) – a set of technologies used to remove sulphur dioxide from exhaust flue gases of fossil-fuel power plants. This is a disaster waiting to happen: the reliability of the plants do not justify the investment, even if they can find the money. The cost of FGD installation is 6% of new plant costs. So, at a cost of R100-billion (Medupi’s costs are running at R145-billion and R161.4-billion for Kusile), FGD would cost R6-billion – and bear in mind that no one will purchase a power plant without FGD.
His reference to renewable energy (RE) from independent power producers (IPPs) is interesting. The plain fact is RE cannot make up the base load minimum to operate a grid and, importantly, it needs to be understood that electricity output must be dispatchable – dispatchable generation refers to sources of electricity that can be used on demand and dispatched at the request of power-grid operators, according to market needs. This is in contrast with non-dispatchable renewable energy sources such as wind power and solar PV power, which cannot be controlled by operators.
So, even if the measures referred to above were possible and practicable, the question, quo vadis, remains: how do we get where we’re going, and what road do we take? Covid-19 has decimated Eskom revenues, prior to which the utility was largely responsible for our sovereign downgrade. The Integrated Resource Plan wants to expand the RE component – not a bad thing in itself – but Treasury will have to provide more guarantees. Currently, Treasury has issued guarantees of R250-billion for RE from IPPs – and that number is growing. On top of this, Eskom’s debt sits at R450-billion. How can Treasury keep guaranteeing obligations to this junk-rated entity, especially in the face of dwindling demand?
Government has historically provided the utility with a series of bailouts, but now Finance Minister Tito Mboweni has said there is no scope to provide more. Let’s hope that this is adhered to and not lost in the smoke and mirrors of circuitous funding mechanisms that are ultimately guaranteed by government.
Let’s also not forget when in 1983, Eskom – for the first time – requested an electricity tariff hike of 72% over two years to fund new investment. Clearly Eskom was in trouble then, and the government’s response at the time was to appoint the De Villiers Commission, which recommended that Eskom’s management be overhauled and the not-for-profit business be run on commercial lines.
Where is the commission of enquiry into the current madness, mismanagement and looting? Where exactly is this circus going while Eskom executives still take home fat packages?
And as for government’s plan to set up a new state-owned electricity generation entity separate to Eskom, as put forward by Energy Minister Gwede Mantashe, the less said the better.
Instead of making the South African electricity supply sector more competitive, the government is seeking to extend its monopoly over electricity generation – the very monopoly which has been almost single-handedly responsible for driving SA Inc to the very verge of bankruptcy.
It should be clear to all that Eskom needs to be broken up and sold off. The private sector needs to be allowed to step up in the face of clear public sector failure. It completely beggars belief that an entire economy is put at risk to protect Eskom’s monopoly on electricity generation. Legislation prohibiting private electricity generation and trading must be repealed as a matter of urgency, or the effects of Covid-19 on the economy will be compounded.
The time is now, and best a beady eye is kept on the hundreds of million-rand golden handshakes that will be dished out by the board for continued failure by the failed entity. DM