As SA’s electricity generation market becomes liberalised, allowing for power trading among independent sellers and buyers, there is no reason for Eskom to enter into more long-term power purchase agreements with independent power producers (IPPs), former CEO André de Ruyter says.
Instead, De Ruyter says, Eskom should rather use what resources it has to build more transmission infrastructure.
De Ruyter, who led Eskom during a tumultuous time when load-shedding began to rise to unprecedented levels, spoke at the PSG Financial Services conference on Wednesday.
Liabilities
He said renewable energy power purchase agreements were not only costly for Eskom but — given that projects developed under the Renewable Energy IPP Procurement (REIPPP) programme enjoyed government guarantees to IPPs if Eskom fails to pay the agreed purchase price — they added to the government’s contingent liabilities.
“I don’t see any reason for Eskom to buy more renewables. There are better ways” to encourage investment in new renewable generation capacity. “It should rather direct money to transmission assets that offer a better return on investment and will serve the country for the next 50 to 60 years.”
De Ruyter said SA must move forward with the work that is already being done to liberalise the power market through interventions such as the Electricity Regulation Act Amendment Bill.
The private sector was in a much better financial position to invest and take on the financial risk of developing the magnitude of renewable energy capacity SA had to add to the grid to replace capacity that would be lost when Eskom’s end-of-life coal-fired power stations were retired.
De Ruyter’s comments were in line with the findings of a recent report by the nonprofit green economy organisation GreenCape published in April that says private offtake agreements grew rapidly in 2023 and were expected to be a large driver of future renewable energy projects.
Business Day previously reported GreenCape expects about R400bn to be invested in the deployment of 22GW of renewable generation capacity by 2030. It forecasts most of these opportunities to shift towards private sector projects (for private offtake) and municipalities given the uncertainty and slow implementation of the government-backed REIPPP programme.
But the rollout of renewable energy could be hampered by the shortage of available grid capacity. This, said De Ruyter, was what Eskom should be focusing most of its attention on.
SA needs an estimated R390bn to strengthen its transmission capacity and connect new energy projects to the grid. This is required to fund Eskom’s current transmission development plan, which outlines the need for the installation of more than 14,000km of new high-voltage power lines by 2032.
Over the past 10 years, Eskom has built a mere 4,300km of transmission lines but it plans to build 1,400km over the next three years at a cost of about R70bn.
The government has said that to fast-track investment in grid infrastructure it would enable private investment.
The Treasury announced in the 2024 budget it would launch a pilot project that will enable private investment in electricity grid infrastructure in July as part of wide-ranging reforms.
Grid capacity
But according to De Ruyter, while it was likely there would be some private sector involvement in transmission infrastructure investment, it would be difficult to come up with a funding model that would meet the requirements of all parties.
“This is where government, with its access to lower-cost capital, should be able to participate more competitively [than in power generation], and this is where Eskom should focus, rather than competing with the private sector in generation,” he said.
It would make more sense for Eskom to invest in transmission infrastructure rather than “spending billions [of rand] retrofitting end-of-life coal-fired power stations so that they can be environmentally compliant.
“That money should go to the transmission grid,” De Ruyter said.
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