In this opinion article, Mike Roussos suggests that a new renewable-energy utility be established within the public sector to ensure that the State plays a direct role in establishing and guiding a new and cleaner energy dispensation for South Africa.
The Minister of Mineral Resources and Energy has generated a lot of controversy by refusing to discuss various aspects of his mandate with those directly affected – i.e. all of us! In the end his Boss stepped in and announced a major concession – and many of us who had been frustrated by a wide range of strange decisions made by this department – cheered and welcomed the new 100MW cap.
Let me explain why I think that this both a good thing and a move in the wrong direction. I must admit that I joined the cheering when the Minister was finally shunted aside by his Boss (his constant refusal to engage and his regular use of irrational ‘roadblocks’ - tends to evoke such a response from most of us!).
Our national Grid comprises large power stations located close to the coal that they use to generate our electricity, which means that the power we rely on has to be transmitted across long distances to get to all of us. It also means that these power stations are grouped in some parts of the country, that are very far away from many of the users. The Grid is enormous; 27 770 km of high-voltage lines for the long-distance transmission - and a further 325 000 km of distribution lines to get to each consumer.
LARGE CENTRALISED GRID
Our power grid was built on the old model – large centralised power stations (that were more cost-effective historically) – that rely on a huge Transmission infrastructure to get the electricity to the consumers. Please bear in mind that electricity on this scale cannot be stored (I’ll explain some exceptions to this below) – it has to be used when generated – or discarded. More important for all of us – if more electricity is demanded (by all of us who use it) than has been generated – then the entire grid can trip and leave us all in darkness while Eskom tries to get it working again.
The people in charge are tasked with keeping the grid ‘Balanced’ so that this does not happen. If it looks like it might – it is their job to ‘loadshed’ (i.e. switch some of us off to reduce the amount of electricity being demanded) so that total demand does not exceed the amount of available electricity – which would cause the whole grid to collapse.
SO HOW DOES THIS RELATE TO THE 100 MW CAP?
This ‘old style’ centralised grid is definitely part of the problem. New designs stress the need to generate close to consumption, the need to design grids that allow for redundancy and many smaller generating units, the use of ‘smart meters that allow for two-way transmission of information and power, and the use of electronics that allow for much greater control of the system and how much you charge for it – at various points during the day and night. All of this is sometimes referred as a ‘smart grid’ design – but clearly that is in the future and very far from where we are right now.
Any dispensation that will allow more decentralised generation by more people should surely be cheered? If more businesses set up their own generating facilities and provide themselves and their neighbours with power – and maybe even link up to the grid – won’t this help? It will certainly help those businesses who are currently unable to rely on Eskom to keep their businesses going!
Before I address this, let’s talk a bit about Renewable energy and the need to do something about climate change and greenhouse gases (GHG’s) and global warming.
We get about 93% of our electricity from burning coal in our power stations and as a result we are one of the 15 largest contributors to GHG pollution in the world! Sasol – our local company that invented the ‘Oil from Coal’ technology - adds a big chunk of that GHG pollution thanks to emissions from their process. Those of us involved in trading internationally know that the pressure is on to cut our carbon footprint – or get excluded from many of these international markets. We don’t have a choice as companies – or as a country – we have to find ways to cut those GHG emissions. Our planet cannot survive if we don’t - and nether can our companies.
Fortunately, we have access to one of the biggest alternative energy sources available, thanks to the amount of sunshine we get across the country and for large portions of every day, month and year. The government decided to exploit this using a tender process known as the REIPPP to attract private sector investment into this sector. The new generating facilities were to be funded and owned by the private sector and they would sell their electricity to Eskom on fixed 20 year contracts, thus guaranteeing them a yearly return on their investment. This process attracted around R209.4 Billion in investment in some 6.4GW of generating plant (mostly SolarPV and Wind – with around 600MW of CSP and hydro and some other).
This process has been hailed as having been ‘highly successful’ and apart from some hitches due to the Zuma Presidency’s attempt to smuggle in a nuclear contract with Russia – has been touted as the foundation for our new energy regime in SA.
WHERE IS ESKOM IN ALL OF THIS?
Despite some early indications that Eskom would get involved in some renewable energy generation, this has not happened – with the Minister being the loudest proponent of ‘Eskom staying in its lane’. Eskom has thus been relegated to being the custodian of our past – the aging coal-fired power stations. It includes the newest coal plant at Medupi and Khusile, which is amongst the biggest coal fired-plant in the world – and which thanks to corruption and bad decisions, is now amongst the most flawed plant that we have. They also look after Koeberg – our sole foray into nuclear power – and all the nuclear expertise we have built up in refining and medical isotopes etc. This has also been ‘parked’ due to huge (world-wide) resistance to any new nuclear plant being built.
Eskom also looks after our pumped water storage facilities – which are amongst the most impressive in the world – and which act as a vital backstop to our grid and allow us to use surplus power to store that energy and reclaim it when needed. The storage works by pumping water uphill using excess power during quiet times on the grid – and then letting it run downhill through a generator when we need the power on the grid.
They also look after our gas peaking plant, which can be switched on and off at short notice and thus serves as a critical balancing reserve for the grid when needed. This is the generating plant that uses diesel and costs Eskom a fortune whenever they try and ‘keep the lights on’ - despite having no reasonably economical plant available to generate power with - and ‘excess demand’ from all of us wanting to heat our homes or cook our evening meals.
The current Minister seems to be touting a ‘Gas Plan’ for the country that might include Eskom but seems more targeted at private actors in some future envisaged ‘Gas Industry’ - despite us having no proven gas reserves in the country or off our shores. This kind of ambition has led us to the strange debacle that handed a 20-year contract to a Turkish company who will bring in foreign-owned and built generating plant, built onto ships that will park at our ports. They will generate electricity that Eskom will be forced to buy for the next 20 years as part of an ‘emergency procurement’ to meet our current needs – that somehow turned into a very lucrative 20 year contract for the ‘lucky winner’?
It’s not at all clear how Gas somehow became part of the future when we are all trying desperately to survive the consequences of burning hydrocarbons and polluting the atmosphere with GHG’s for the past 230 years. I’m not sure who told the Minister that Gas is not a Hydro-carbon – or that it is somehow better than coal with all the evidence about gas leakages and the bigger (if shorter-term) GHG impacts from methane, but this needs to be put into perspective. Even if it were seen as a transitional and short-term ‘necessary evil’ – this does not mesh with grandiose ‘Gas Plans’ that built it into our future and definitely does not mesh with 20 year supply contracts! Converting existing gas turbines to use ‘green hydrogen’ would be one way to transition to a renewable future – but this does not appear anywhere in his grandiose ‘gas plan’!
So it seems that Eskom = Coal + Nuclear + Gas + Pumped Storage! Apart from the pumped storage, it appears that the lane that the Minister wants Eskom to stay in, is firmly situated in the past – and has nothing to do with the ‘green future” that the president has announced we are striving for? (‘..a just transition to a low-carbon economy and climate resilient society’)
‘ESKOM = THE PAST’ AND THE ‘PRIVATE SECTOR = RENEWABLES AND THE FUTURE’??
Anyone who has spent the past 20 years trying to get Eskom to assist with various attempts to establish renewable energy on the national agenda – or at the least to get Eskom to stop sabotaging various attempts to establish the new direction – will sympathise with a ‘healthy suspicion’ of all that is associated with Eskom. But does this make sense today?
Eskom (the new leadership) has very serious problems just managing the problems they have inherited, and one can be forgiven for feeling that they must just focus on that and nothing else!
BUT DOES THIS MAKE SENSE?
If renewable energy generation, of various types and technologies, is going to be the foundation of our energy future, then is this something we want to remove from the ambit of the public sector? Surely government needs to be main actor in the thinking and planning and implementation of the energy future that it needs to commit to and to be part of creating for our country?
We have to be very careful here that we do not throw the baby out with the bathwater – that we do not abandon the crucial leading role of the state in establishing and guiding this new energy dispensation for our country.
Leaving aside the question of whether this crucial role should reside inside or outside of Eskom for the moment. It is clear is that establishing renewable energy as the future path has to be part of the role of government, our renewable energy future cannot be left to the independent actions of a variety of private sector companies who respond to the opportunity to make some money.
WHY THE PUBLIC SECTOR HAS TO GUIDE AND DEVELOP RENEWABLES FOR OUR COUNTRY
Whether it is ultimately part of Eskom or not, it is clear that this kind of direction and planning and operationalising (within the renewable energy space) is a critical part of the role of the public sector, if our country is to take full advantage of the natural resources it has been blessed with.
This REIPPP process (the tender process Treasury set up to allow for new renewable plant to be set up) has led to an anarchic process that is subject to the whims and opportunities of each individual private sector actor – with no unifying vision or plan.
Let me give an example of why this is the case – by looking at the how new Wind plant is established.
Everyone knows that the wind comes and goes – when it blows near established plant (wind towers) then that plant can generate electricity – when it stops blowing then that plant stands idle. Without an established national wind map for the whole country (which does not exist) it is not possible for those choosing bidders for the Wind tenders to know how this will impact the national grid. This map would allow them to know when the wind blows in a specific area – at a specific height above the ground – at a specific time of day or night – at a specific time of the week – time of the month – or season of the year.
With this map it would be possible to plan for an overall result – aggregating plant in different locations with different generating capacities – so that the overall result is known (statistically speaking) with vastly greater accuracy than is possible today. This would allow Eskom to be able to plan for how much power they can rely on from the entire established (wind tower) plant base across the country – which is impossible to do currently.
How does it make sense to keep establishing wind plant wherever various private actors decide it might be a good idea to do so – for reasons of their own – and then just buying whatever they produce for the next 20 years?
The same principle applies to planning and guiding and managing the use of all the renewable resources we have available to us.
A NEW PUBLIC SECTOR ENERGY UTILITY - RENEWCO
Let’s posit – for the sake of argument - the establishment of a new renewable energy utility within the public sector that we will call RenewCo. What would the role of such a utility be?
The country needs a dynamic renewable energy institution – under public control – that is responsible for initiating and running renewable energy projects (in partnership with private companies where desirable / needed) that will build up our renewable energy generation base.
The country needs a center that is mapping where our natural (renewable) resources exist and in what quantities and how these could contribute to a future decentralised power dispensation that gets power to where it is needed. This should link all the different resources into one ‘Renewables Master Plan’ that gets updated and revised periodically.
The country needs to build up our capacity to manufacture and build such renewable tech right here. We need to stimulate local research and development in these areas, and we need to build our experience in running such installations and maintaining them - with local expertise.
RenewCo should compete with others in setting up new projects. It should compete in raising funds for such new projects, in making deals with tech companies on the use of their technology or even some of their products, but with a clear mandate to build local capacity, local production, local expertise and public ownership and control (albeit with some private partnerships where this is appropriate).
The one area where RenewCo will have as a definite advantage, is that it will be part of the public sector and will be promoting the aims of the country in building this new renewable foundation of our long-term power needs.
BBBEE AND RENEWCO
Our current BEE scorecard does not recognise state-owned entities on the BEE scorecard. This makes no sense and needs to be changed. Business entities owned by the state ae owned by the population of our country – with its current racial breakdown and should be recognised as such. The fact that state owned entities have their own target for BEE spending does not get in the way of this and should not be confused as such. RenewCo should be recognised as a BEE partner within our BEE points system, that is 92.39% owned by black South Africans. This will allow such entities to be sought after as partners by the private sector as they would then get BEE points for such partnerships and for buying from, or selling to, such entities.
RENEWCO – TWO PARTS TO THE COMPANY – OPERATIONS AND RESEARCH / PLANNING
One part of RenewCo should be operational – it will setup and build and run renewable energy projects within a range of different renewable technologies. The other part (maybe in partnership with a University or the CSIR?) should be an R&D unit that scans for new developments in renewable generation technologies, to identify likely candidates for local application. It would also do work on Smart Grids and independent decentralised power sources for local application and development.
As it will be a state utility it is critical for RenewCo to avoid the mistakes of its predecessors (Eskom). To do this it should be setup in a way that allows for independent oversight to ensure that it doesn’t become part of the problem (that it doesn’t end up creating roadblocks for other actors to make it look good and so on). The exact form of this oversight will need to be carefully considered to include the right people – without falling foul of the ‘dead hand of bureaucracy’ that could kill the entire project!
RenewCo’s mandate will be to set up generating facilities using key renewable technologies. These will be ones that will make an optimal contribution to the building of critical mass in geographical areas that have the renewable resources needed - and that will make an important contribution to decentralising the grid.
RENEWCO’S CONTRIBUTION TO HOUSEHOLD AND BUSINESS RENEWABLE PLANT
RenewCo can use its buying power to get good prices and to lay the basis for local production - and to secure low prices for households and businesses that partner with it, to set up their own generating facililties. Although 20-year licenses are too extreme, the same basis that allowed funding to happen for the REIPPP projects - government guarantees - can be used to facilitate RenewCo raising the funds for its generating facilities. This will require the setting up of contracts where Eskom purchases the electricity over a fixed period, to allow for such projects to be ‘bankable’.
RenewCo will need to find innovative ways of partnering with households and businesses as they set up their own generation facilities, so that this is not perceived as ‘taking something away’ from the public utility – but as assisting it to achieve the country’s energy goals.
Economies of scale can be achieved by buying renewable plant through the state utility, as part of the process of ‘subsidising’ private players to go in this direction. Power Purchase agreements from private generators should give preferential access to such ‘partners’ and they could (for example) get preferential rates from Eskom for their power.
This will allow RenewCo – without paying direct subsidies – to count such assistance as their contribution to such partnerships with private players.
SO WHAT ABOUT THAT 100 MW CAP ON PRIVATE INSTALLATIONS?
It should be clear that the problem does not lie with allowing private actors to set up their own generating facilities to augment their power needs themselves, it lies with the fact that the current situation removes the public sector from the renewable energy space – from the envisaged future of our energy generation dispensation. This makes no sense at all and will ultimately prevent our country from being able to optimally transform our current outdated and polluting energy environment, into one that will be built on the abundance of renewable resources that exist in South Africa.
Roussos is working at Manto Management Consultants, specialising in local government and shared services.