With the country repeatedly plunged into darkness as Eskom’s decrepit power stations fail, the need for a solution to the electricity supply problem is urgent. Investments must be made in new generation, both Eskom’s and privately owned, and into Eskom’s transmission grid. There is no avoiding this, and it will not help the country if the government fails to grasp the nettle, no matter how much it stings.
At the same time, the world is gathering in Glasgow to secure new national commitments for emissions reduction and to commit to funding for developing countries to mitigate and adapt to climate change. The developed world has previously committed to making available $100bn a year in grants and concessional loans, every year for five years. Not all the money is there yet.
Eskom CEO André de Ruyter and the head of Eskom’s just energy transition office, Mandy Rambharos, will be there to see if they can mitigate both problems: lower global emissions and fix the state of Eskom’s system.
It is critical for SA to accept that as much as the public has come to hate Eskom and detest tariff increases, investment in the utility is essential to solving the load-shedding and the climate problem.
In the lead-up to COP26, it has been difficult to get a handle on how likely it is that SA will pull off a green deal with countries of the north. While it was signalling that it planned an ambitious coal retirement that got the four climate envoys and people from the Climate Investment Funds (CIF) on a plane to SA a month ago, some complexities have emerged.
When the Eskom coal retirement plan reached cabinet, other ministers piled in, also wanting their green plans included in a funding deal. When the government met the envoys, it added the manufacture of electric vehicles to the plan, as well as the development of green hydrogen. But thankfully the envoys have made it clear: it is Eskom they are interested in, as this is where the low-hanging fruit for a green deal lies.
The next question is whether what Eskom is offering for coal retirement is enough to get a deal, or whether SA is asking other countries to pay for what it intends to do anyway.
Eskom is not in charge of energy policy and the Integrated Resource Plan (IRP) — the government is, and Eskom needs to stay in its lane. The IRP sets out which coal plants will be closed by 2030. Eskom’s proposal tactfully remains largely in step with this, with the addition of only one power station, Tutuka, which is a particularly problematic one.
The climate envoys are not yet convinced. Said the British high commission’s head of climate and energy, John Wade-Smith, in an interview with Business Day: “Our intention is to support an accelerated transition; we are not looking for status quo movement.”
SA’s 2030 plan plus Tutuka brings it within reach of the upper bound limit of its emissions reduction target of 350–420 megatonnes of carbon dioxide. But to reach the lower bound, more is needed. The range aligns with limiting the global temperature rise to 1.5°C on the lower bound and 2°C on the upper. Wade-Smith says the UK is mindful that Africa has in the past strongly argued for the world to aim for 1.5°C.
De Ruyter has tried to get around the government policy conundrum by extending the Eskom plan beyond the term of the IRP to 2035. After 2030, Eskom proposes a step change in coal retirement so that by 2035 a huge 22GW of coal will be shut down. He and Rambharos are hoping a big win like that will bring funders on board.
So, while Eskom is in with a chance to access concessional finance (it would be a government-to-government deal), there is still a large obstacle in the way. Eskom’s balance sheet is over-extended, and it is unable to service its existing R400bn of debt. It is a problem the government has avoided solving, preferring to drip-feed Eskom with equity bailouts, an exceedingly expensive way of doing things as the government’s cost of debt is about 9.5%.
De Ruyter is meanwhile chipping away at the debt, exploiting the property portfolio and taking other steps in the hope of achieving higher tariffs that will improve revenue. He is also a firm advocate of bringing in the private sector on a much larger scale in a market where buying and selling of electricity can happen more freely.
All of these are part of solving the electricity supply problem. While the public and political parties — particularly the ANC — look to Eskom with impatience and anger when load-shedding happens, they need also to look at Eskom’s owner to address overdue problems with funding and policy.
• Paton is editor at large.
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