South Africa’s power sector: unravelling for good?

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Labour needs to get on top of rapid changes taking place in the electricity industry and deal with the climate emergency for the sake of its members, says Dinga Sikwebu.

Although cliched, George Galloway’s saying: ‘decades where nothing happens and weeks where decades happen’, (incorrectly attributed to V.I Lenin) is appropriate given recent changes taking place in South Africa’s electricity industry.

Since cabinet’s adoption of the White Paper on the Energy Policy in December 1998 as South Africa’s energy blueprint, government has attempted with little headway to restructure the country’s electricity sector. Uppermost in the reform plans has been the break-up of the vertically-integrated electricity utility Eskom into separate generation, transmission and distribution entities companies. Introduction of competition and private sector participation in the power sector were identified as key steps to realise the White Paper’s stated objectives.

After inertia of more than two decades, there appears to be some movement in the direction outlined in the 1998 policy document. Propelled by different drivers and not following steps sketched out in the White Paper, recent policy initiatives and regulatory reforms seem to be leading to an overhaul of the country’s electricity industry. With functional separation of generation, transmission and distribution complete, Eskom’s unbundling appears to be proceeding as planned. The next big step is the licensing of the National Transmission Company as an Eskom subsidiary. The utility is also making bold moves to enter the renewable energy space.

R131bn climate finance deal

Although details are still scanty and a lot must still be negotiated, something likely to have the greatest impact on the electricity industry is the R131-billion financing partnership that South Africa concluded with France, Germany, the UK, the US and the European Union (EU) on the side-lines of the 26th United Nations Conference of Parties (COP26). The aim of the transaction is to shift South Africa’s electricity from its overdependence on coal. The funds will also be used to develop the country’s green hydrogen sectors and capacities to manufacture electric vehicles.

Regulatory changes

Other potential game-changers are the regulatory changes introduced in October 2020 which have opened the door for municipalities to procure new generation capacity. The move to allow organs of state at sub-national levels to generate and procure electricity takes place parallel to the entry of private sector players in electricity generation. Migration of wealthier residents and businesses off the grid through installation of photovoltaic (PV) systems on their rooftops, is also gathering pace.

Key questions

With all these developments, important questions arise. Is South Africa’s power sector unravelling for good? Are we witnessing an energy transition, where the country is moving away from its dependence on fossil fuels? How are workers, their organisations and communities responding to these changes?

South Africa’s Mineral Energy Complex

Historically, the abundance of cheap coal drove South Africa’s economic development. On the basis of its coal endowment, the country built a network of energy-intensive industries, bringing the energy sector together with mining and associated sub-sectors of manufacturing. The existence of this network as the core site of accumulation made Fine and Rustomjee (1996) characterise South Africa’s economic development as the ‘Minerals-Energy Complex’ (MEC). The interlocking sub-sectors of the MEC were the energy industry, mining, basic metals, smelting, synthetic resins, basic chemicals, quarries, fertilisers and pesticides.

Important MEC companies are the state-owned electricity utility Eskom and the South African Synthetic Oil Limited (Sasol) that uses both coal-to-liquid and gas-to-liquid technologies to produce petroleum products. With a total nominal capacity of 46 466MW, Eskom dominates South Africa’s electricity supply industry. It generates around 90 percent of electricity in the country through its 30 power stations. The company also owns and maintains the national grid, including 310 123MVA of transformer capacity and the 399 546 kilometres voltage lines and underground cables (Eskom, 2021).

Eskom’s power stations and the national grid (Source: Eskom Integrated Report, 2021, p. 7.)

Entry of the private sector in generation

In the Energy White Paper, Eskom’s dominance and monopolistic position was seen as a problem. Competition and private sector participation were identified as crucial for efficiency improvements in the electricity industry. After numerous unsuccessful attempts to lure private sector investors into generation, the government launched the renewable energy independent power producer procurement programme (REIPPPP) in 2011. Through this programme, the private sector was to provide new electricity capacity using renewable energy sources.

The latest go-ahead given to 25 solar and wind projects who were successful in the fifth bid window, when complete will bring on stream additional 2 600 megawatts (MW) of private-sector generated electricity. This adds to the 6 300MW contracted since the launch of the renewable programme a decade ago. According to the Integrated Resource Plan (IRP), solar PV and wind would contribute about a third of South Africa’s installed capacity, or about 24% of annual energy generation, by 2030.

The amendment to Schedule 2 of the Electricity Regulation Act could also spur greater private sector participation in generation. The amendment makes it possible for users to generate their own electricity of not more than 100MW without having to apply for a licence from the National Energy Regulator of South Africa (NERSA). This electricity will be generated outside of the REIPPP programme. The regulatory change also deals with battery storage, electricity trading and wheeling to multiple customers.

Since the announcement of these policy changes, the number of renewable energy projects to be undertaken have increased by 146 per cent in terms of generating capacity as compared to those announced for 2020. “The mining industry is involved in various stages of building plants, conducting studies, planning and applications for up to 3 900MW of renewable solar, wind and battery projects which could provide some of that much needed supplemental capacity”, said Minerals Council CEO Roger Baxter. He attributed the licence-free concession of up to 100MW for the rise in renewable projects in mining houses’ pipelines.

Municipal energy generation

After a protracted legal battle with the City of Cape Town, the Minister of Mineral Resources and Energy, Gwede Mantashe, gazetted amendments in October 2020 that allow municipalities to generate or procure their own electricity, under certain ministerial conditions. The amendments followed an announcement that President Cyril Ramaphosa made when he opened parliament earlier in the year and promised that the government “will also put in place measures to enable municipalities in good financial standing to procure their own power from IPPs”. Until the changes were introduced, only organs of the state involved in the energy sector had the permission to procure new generation capacity.

IPPs such as the Saltuba Cooperative feed electricity from solar panels directly into Gqeberha municipality

Since the announcement last year, municipalities such as the City of Johannesburg, City of Cape Town and eThekwini have developed plans to wean themselves off Eskom. In October, the Mayor of Johannesburg Mpho Moerane, unveiled the municipality’s Energy Sustainability Strategy that will add an extra 500MW capacity of alternative energy to the city’s power sources. City Power, which the municipality wholly-owns, currently receives 90 percent of its electricity from Eskom and 10 percent from the privately-owned Kelvin Power Station. “I am pleased that we are finally unveiling the 15-year Energy Sustainability Strategy that will see City Power transitioning from an electricity distribution company to an energy service provider. This means City Power is set to be a ‘wires business’ that will not only continue delivering conventional power, but will also cover distributed energy generation and energy storage facilities as its core business”, said Moerane.

Eskom enters the renewable space big time

Compared to coal, Eskom presently provides very small amounts of renewable energy to customers through the utility’s renewable energy tariff pilot programme and the use of the company’s accredited plants such as Sere Wind Farm and Run-of-River hydro facility. This is likely to change in the coming years.

The utility has identified renewables as a space that the company intends to play in. “With the requisite financing of around R180-billion, Eskom could build 7 400 MW of clean capacity, plus at least 244 MWh of battery storage, in the next five years alone,” said Eskom’s chief executive Andre de Ruyter when he delivered this year’s Dr Hendrik Johannes van der Bijl Memorial Lecture.

In its forecasts, Eskom has identified the need for energy storage as the national share of renewables in South Africa’s energy mix increases. At the end of October 2021, the African Development Bank (AfDB) granted Eskom a US$57.67-million loan to develop battery energy storage projects. The projects entail the development of four-hour 200MW duration battery storage, with 800MWh capacity in seven sites across the country. The battery storage systems will be linked to solar and wind power plants. They will enable Eskom to store variable renewable energy that could be wasted, if not stored in batteries and dispatched at peak times. The utility will be involved in design, engineering, supply, construction, installation, testing and commissioning of the projects.

During the same week that the AfDB loan was announced, Eskom signed a memorandum of understanding (MoU) with Exxaro and Seriti Resources to develop renewable energy projects. Cooperation between the three companies will see the building of solar photovoltaic facilities and wind farms to power the mines. The companies also committed themselves to explore energy storage projects. Exxaro and Seriti are Eskom’s largest coal suppliers. Jointly, they contribute yearly close to 80 per cent of the electricity utility’s coal supply.

Impact of changes

There is little doubt that the changes underway will restructure South Africa’s electricity industry. They will also have an impact on Eskom as a company. If the changes continue in an uncoordinated manner as they currently appear to be doing, we then have all the ingredients for the making of an unjust transition.

Without an industrial policy to create jobs through locally manufactured renewable energy components, the investments in renewable energy will flow out of the country as multinational corporations grab all the supply contracts. The migration of well-off households and industrial customers off the grid robs municipalities of revenue that is necessary to cross subsidise other services and poor households. The amendments that enable municipalities with good financial standing to set up their own power generation projects, will further entrench the chasm between rich and poor municipalities. 

Labour needs a new vision

Unfortunately, the labour movement does not appear to be engaging concretely on the changes taking place in the electricity industry. It is pre-occupied with the defence of Eskom and is mounting a rhetorical campaign against the unbundling of the utility. In many instances, this posture portrays unions as being in defence of coal. The calls for ‘clean coal’ and the use of carbon capture technologies entrenches the perception that the labour movement is aligned with fossil-fuel interests.

The changes that are unfolding have a direct bearing on the jobs of trade union members. As electricity security and availability is critical for economic growth and development, failure to provide alternative and concrete plans on the restructuring is short-sighted. To effectively defend its members and their communities, the labour movement requires a new vision of the electricity industry that puts at the centre the livelihoods of its members and the climate emergency.

Dinga Sikwebu is an ex-NUMSA official.

Further reading

Eskom. 2021. Integrated Report.

Fine, B and Rustomjee, Z. 1996. The Political Economy of South Africa: From Minerals-Energy Complex to Industrialisation, Witwatersrand University Press, Johannesburg.

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