In 2007, after the first failure of government policy to source new generation from independent power producers (IPPs), Eskom hurriedly embarked on constructing two 4,800MW mega coal power stations, Medupi and Kusile, with budgets of about R80bn each.
Medupi was scheduled for completion in 2014 and Kusile 2015. Sixteen years and more than R300bn later, after being born in corruption and a subsequent accumulation of human and mechanical error, Kusile is struggling to spew out a single megawatt. Medupi is performing somewhat better but has been no stranger to breakdowns and delays.
The transition and transformation happening in energy sectors globally, and in SA, might mean that these expensive new coal megaplants will be retired 10 or 20 years before their end of life.
“As soon as 10 years from now it will become very difficult to source the parts needed to service and maintain our coal-fired plants. But we will need at least some power from coal for the next 20 to 30 years,” said James Mackay, CEO of the Energy Council of SA.
For this reason, SA will have to phase out of coal over the next 20-30 years and find a way to support Eskom’s generation business through its final years or risk facing an increasingly large generation supply gap on top of what the country is experiencing now. This phase-out requires the rapid rollout of wind and power generation.
Medupi and Kusile have been built to run until the early 2060s but Mackay doubts that will happen. “We will most likely shut these plants down before their end of life. By 2050 there will not be any role for coal to play in a net zero world. Besides, coal-generated power will not be cost-effective compared with new, low-carbon technologies.”
Economies that fail to transform their energy sectors to less carbon-intensive ones will increasingly find themselves shut out of global trade, he said. If SA wants to continue participating, the country will have to decarbonise at a pace in line with global trends and with its own international climate change commitments to reduce emissions.
SA is busy moving into its energy transition. Wind and solar power are already responsible for about 6% of electricity supply. As this starts speeding up with more renewable capacity being added to compensate for coal power stations that are decommissioned as they reach their end of life, Eskom’s outdated business model will become even less commercially viable.
Eskom’s institutional model — a vertically-integrated, state-owned monopoly — was perhaps appropriate to the last century when there were economies of scale that encouraged large, centralised, capital-intensive coal and nuclear power plants, said Anton Eberhard, an energy expert at the University of Cape Town (UCT).
“But now its dominant market position, combined with state ownership, provides poor incentives for improved performance,” he said.
This underscores the importance of Eskom committing now to the unbundling process into three businesses for generation, transmission and distribution. So far, it has been moving slower than expected, delaying progress that could already have been made in getting funders on board to bolster transmission infrastructure.
Eskom hopes to connect 50,000MW-60,000MW of variable generation capacity to the grid by 2030. But, as it has previously indicated, to do so it will have to spend R130bn to build 100 new substations and 8,000km of transmission lines.
Already last year, the government’s renewable independent power producer procurement programme (REI4P) had to delay awarding bids for about 3,400MW of new solar and wind energy because of grid constraints.
Investment in renewable generation in SA has so far been done almost exclusively by the private sector. Some is being rolled out as part of the REI4P guarantees offtake by Eskom, but the projects are privately funded and owned.
As their share on the grid grows, said Eberhard, they need to be complemented by flexible resources such as hydro, pumped storage, operated in innovative ways, utility-scale batteries and perhaps also gas.
This is perhaps where Eskom can play a role in the future. According to Mackay, whether there is a future beyond 2050 for an Eskom generation business remains to be seen.
As part of the Treasury’s agreement with Eskom for the provision of R254bn in debt relief, the state-owned power utility will not be allowed to undertake any capital expenditure on new “greenfield generation projects” for at least the next few years.
In addition, most new investment in generation in SA is being done by private companies that are developing wind and solar capacity. Mackay says one option for Eskom might be to transform its generation business into a bulk energy storage business.
Where there will definitely be space for Eskom is at the system operator level and in transmission and distribution.
It is almost certain that in 20 or 30 years from now it will still be “hugely beneficial” to have a capable, regulated state-owned electricity transmission and distribution grid, said Hilton Trollip, a fellow at the Global Risk Governance Programme at UCT and an independent consultant in energy research.
As generation becomes decentralised and electricity supply variable, a well-managed national grid will enable the sharing of moments of peak demand or low demand from customers, and peak and low supply from variable power sources across a large area and among many people, Trollip said.
This will be a smart grid, managed by way of artificial intelligence that will automatically balance supply and demand in an active way to get the best value out of systemic assets.
Such a grid, said Trollip, will, for example, automatically switch off power supply to appliances such as geysers and freezers when there is excess demand and then switch them on again when there is excess supply.
As a parting shot, Trollip warns that should SA choose to continue to buck the trend and resist the transition, the electricity system will become more and more dysfunctional, until it collapses.
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