With the UN Climate Change Conference (COP26) just five weeks away, can the government catch up with the world in time to deliver something special?
There is hope in the developed world, which is looking to deliver something meaningful on climate change to its citizenry, that a coal retirement plan for SA can provide the evidence that the world is serious about making progress in reducing greenhouse gases. With SA as the world’s 12th largest emitter and dependent on coal for energy, a step change in SA’s energy policy would be a good showcase at COP26.
That is the reason for the visit by climate envoys from the US, France, Germany, the UK and EU this week. The plan on the table that has attracted them is that proposed by Eskom: the shutting down of nine coal power stations by 2035. In return Eskom is looking for R180bn concessional financing to invest in the national transmission grid, to enable new connections, invest in its own renewable capacity and secure funding for social programmes to mitigate the impact on communities.
But it is enormously sensitive: the decommissioning of coal stations is controversial as it will affect coal and energy producing communities in Mpumalanga. And it is not Eskom’s role to decide when power stations close. That function is the responsibility of the energy department, which formulates the country’s energy strategy, the Integrated Resource Plan (IRP).
As the IRP stands the Eskom proposal is not a huge acceleration of coal retirement. Because the retirement of plants according to the IRP is behind schedule, some argue that to stick to the schedule is faster than we are going now. In addition, Eskom has added one additional power station — Tutuka — which is also Eskom’s biggest problem from a performance point of view. Tutuka would be retired in 2030 according to the Eskom plan, instead of 2041.
Eskom is walking a fine line. On the one hand it doesn’t want to antagonise the department or its minister, Gwede Mantashe, by straying from its lane, and unfortunately even with the envoys already in the country Mantashe is not yet on board. Nor is the Treasury, which though briefed by Eskom is on the margins. It is yet to be convinced that there is as much cheap money sloshing around the world as Eskom and other champions of the deal are wont to believe, or that Eskom could take advantage of it given its inability to service the R400bn debt mountain it already has.
On the other hand, there is the danger that in being too conservative, the Eskom deal is not deemed a significant enough acceleration by the rest of the world to come up with the money. Eskom’s own calculations are that the plan to retire the nine power stations, and the commitment not to build new coal or return any retired units to service in future, will mean that by 2050 it will make a carbon saving of 1-1.5 gigatonnes. Eskom believes this is substantial enough to attract a climate transaction finance, but will the world?
To get more ambitious would require bigger government involvement and a commitment to a different energy policy. It would require a deal between governments, not one with a state-owned utility. A deal on a sovereign level has advantages. It could be bigger because the government has the ability to change the country’s policy and could also deal with Eskom’s biggest obstacle to doing any of this: its historical debt burden.
The government has danced around this problem for three years without a resolution. In the interim it has provided debt support at whatever scale Eskom needs, which has been substantial. It has balked at more complex proposals for exchanging some of Eskom’s expensive debt for cheaper debt, based on a coal decommissioning plan, as well as taking Eskom’s debt onto the sovereign balance sheet, which is the simplest solution.
One of the motivations advanced by the Treasury for refusing to do so has been that Eskom must take responsibility for itself and it will not open the door to moral hazard by letting it off the hook. This no longer seems a rational response: Eskom CEO André de Ruyter has set out to run a tighter ship and has cut Eskom’s borrowing programme as well as used government bailouts to repay principal debt.
But as the indecisiveness over Eskom’s debt problem shows, the government is not good at making rapid decisions. Now one is upon it: it can either rise to the challenge and endorse the Eskom plan with a view to something bigger in future, or kick for touch in a manner more typical of the way it does business.
• Paton is editor at large.
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