/ 14 June 2019

Eskom: From fail to bail to auction block

A new study by Greenpeace recommends that oldest power stations be decommissioned within five years and that others
A new study by Greenpeace recommends that oldest power stations be decommissioned within five years and that others, excluding Medupi and Kusile, be auctioned off. (Gustav Butlex)

President Cyril Ramaphosa has told us firmly that Eskom is too important to be allowed to fail, but ratings agency Standard & Poor’s has apparently taken a somewhat different tack, and Engineering News reported that it viewed Eskom as too big to bail.

We know the utility has been teetering on the financial edge for some time now. Chief cook and Finance Minister Tito Mboweni was even required to write to Parliament ahead of the May 8 election to free up R17-billion of emergency funds so that Eskom could pay its bills.

We also know that Ramaphosa tasked a technical panel to come up with a plan to rescue the over-indebted utility, which is staggering under the burden of debts amounting to R440-billion.

Such a plan emerged this week — but it didn’t come from Eskom, the technical panel, the treasury or Eskom’s parent, the department of public enterprises.

The plan comes from Greenpeace and is authored by Uwe Leprich, who has an impressive CV in the fields of economics, energy policy, future energy systems, decentralised power generation and climate protection.

The report, Eskom: A Roadmap to Powering the Future, is subtitled The Future Role of Eskom in the Transition Process of the South African Electricity Sector. It notes that South Africa scored a dismal 112th place out of 114 countries on the World Economic Forum’s energy transition index.

It recommends dramatic action, including decommissioning Eskom’s oldest coal-fired power stations and refinancing the power utility through the sale on auction of all its other coal-fired power stations, including the two that are still incomplete, Medupi and Kusile.

Although Eskom derives 90% of its electricity from coal, the report recommends that this fuel source should be phased out by 2040.

A strength of the report is that it draws on international cases of states and large energy companies that are also shifting, or attempting to shift from the old to the new. It compares the Eskom case with Poland’s PGE, India’s NTPC Limited, Australia’s AGL Energy and Germany’s EnBW. All of these companies, significant players in their respective energy sectors, are adapting to the new energy landscape, some well, others less so — but in Eskom’s case, hardly at all.

Apart from the oldest coal-fired power plants, which should be decommissioned in the short term, Eskom should separate itself from all other coal-fired power plants, the report says. Three categories would have to be distinguished:

• The oldest power stations would remain with Eskom for controlled decommissioning over the next five years;

• All other stations except Medupi and Kusile would be sold by Eskom, one by one, over the next five years in competitive auctions; and

• Medupi and Kusile units in operation would be sold in a package which would make transparent to the investors the fact that enough capital must be raised through the sale to be able to pay back Eskom’s associated loans.

The report recommends that Eskom’s coal-fired power stations be sold on auction. If this sounds like privatisation, which would run into significant union headwinds in South Africa, this is not what is envisaged. “In principle, it must be considered whether private companies should also be invited to buy shares of the coal plants, or whether only public companies should have the right to participate in the auctions for the plants,” the report says.

Additionally, it stipulates a just transition process to ensure all key affected parties participate in discussions leading to a social compact. “South Africa must prioritise the wellbeing of people living and working in the coal regions by ensuring the finalisation and implementation of a just transition plan.”

Eskom’s coal-fired power generation will be transferred from Eskom to new generation companies, which will operate the power plants on precisely defined conditions in terms of compliance with existing air quality and environmental regulations, and clear timelines for their closure.

The new Eskom would be unrecognisable from what it is today. It would run the grid as an independent transmission system operator, with the possibility of operating its own grid-supporting (non-coal) power plants, the report says.

The independent transmission operator has the role of improving the security of electricity supply and providing fair access for new renewable power plants, such as wind and solar.

Independent power producer auctions for renewable energies should be opened to Eskom to make this a significant part of the utility’s business model, and there should be the possibility for Eskom to participate in six newly created regional electricity distributors.

Implementing these recommendations would give Eskom an opportunity to stabilise its economic situation, reduce its debt and become a constructive promoter of the necessary transition of the electricity sector to renewable energy, the Greenpeace report says.

It says business as usual threatens Eskom with insolvency. “South Africa and Eskom urgently need to redirect their electricity policies to meet the standards of the global energy transition and evolution of the electricity markets.

“While more and more countries and companies worldwide are realising that the age of coal is coming to an end and that renewable energies are becoming the most important and cost-effective pillar of energy supply, South Africa and Eskom are lagging far behind, as many global statistics show. This poses a major threat not only to Eskom, but also to the South African economy and the public budgets,” says the report.

We can expect to see other plans in the not too distant future. The Greenpeace plan shows the bold and creative thinking needed to get us out of the coal dead-end confronting us.