MICHAEL SCHMIDT: The flaws in Ramaphosa’s go-green energy plan

In a country despairingly accustomed to being plunged back into the candlelit gloom of the 19th century, South Africans welcomed the news that President Cyril Ramaphosa’s new energy plan will add a third of the power required in worst-case scenarios over the next three months by drawing the private sector and green sources into electricity generation.

But while there has been much excitement over the falling costs of renewables, as a looming crisis in European power production shows, the funding model for green independent power producers (IPPs) disguises the uncomfortable fact that hidden costs are passed on to consumers, while the need to retain baseload legacy power generation means coal will remain king in emerging economies such as SA for decades to come.

Eskom drew up a plan to go green back in 2019, under the national Integrated Resource Plan (IRP): its “Just Energy Transition” strategy to green-repurpose 14 coal-fired power stations and achieve net zero carbon emissions by 2050 — later costed at $33.1bn — paying attention to employees, affected communities, the environment and reliability of electrical supply.

Ramaphosa’s announcement adds very little to this — a Band-Aid on a gaping economic wound, removing the 100MW limit on how much IPPs are allowed to generate for their own use should at least make investment in the IPP sector more attractive. It also reduces local sourcing requirements for IPPs in terms of materials and labour from 100% to 35%, allows for retrenched skilled Eskom staff to be rehired, reduces the red tape on spares acquisitions, and boosts its maintenance budget.

That last point is key, as insiders say the massive turbines — the very heart of power generation — at several of its decrepit power stations are in poor repair, while some suppliers of coal have been seditiously and fraudulently bulking their consignments with rock, damaging the coal crushers that process the power stations’ fuel.

Ironically the plan also calls for SA to rely on neighbouring countries — once Eskom’s clients — for input into the flagging national grid, such as the proposed contribution of 150MW of Mozambican gas within three months. And as critics have noted, rolling power blackouts look set to continue well into 2023, despite the new interventions.

But back to Eskom’s 2019 go-green project, which was assessed in great detail in the 2020 report “Eskom Transformed”, by the Eskom Research Reference Group — trade union-linked research organisations in Cape Town, New York, and Amsterdam — that suggested an ideal framework for decarbonising the national energy utility, and the entire economy, in favour of renewables.

Eskom’s own 2019 annual report sounded a warning note on green energy: “It remains a concern that IPP purchases were 4.8% of total generating production, while their cost represented 25% of the total primary energy cost.” Something is obviously wrong with the economic model.

The group’s researchers stated that Eskom’s “death spiral” crises of maintenance, supply-generation and debt burden were rooted not so much in institutional mismanagement as “within the context of a stagnating and de-industrialising economy, made even worse now by the Covid-19 pandemic”. Its $23.89bn debt is down from $26.51bn in 2021, and the Treasury recently announced negotiations to take on a portion of that debt, the details of which will be made public in October.

Bloomberg noted that other ideas to alleviate the utility’s debt-servicing burden include selling off some of its power stations and debt-for-equity swaps with the likes of the Public Investment Corporation, manager of public sector workers’ pension and unemployment funds, but that these and other proposed solutions “have since emerged and faded”.

This was against a backdrop, the group’s researchers wrote, of the gross inequalities of an eroding SA minerals and energy complex that appears to have passed its peak — as well as the impositions of climate change on the energy sector, and “the legacy of state capture”, including overinflated coal prices.

They cautioned against the dream of a “painless” transition to renewables: “Modern renewable power (mostly wind and solar) is only inching forward as a proportion of energy generated and used. It remains marginal to overall global energy use, which means it has barely affected transport systems, industrial processes, or heating and cooling in buildings.”

Two of the biggest problems with Eskom’s go-green plan are the unpredictability of weather-dependent solar and wind power, which means they typically trail fossil fuels in real-time generation, and solar and wind projects’ relatively short lifespans.

In Europe, for example, by 2020 only about 22% of annual power generation was renewable and supply was wildly variable: a record high of 30.1% on July 30 2017 was followed only three weeks later by a low of 5.5%. As a result, Europe’s baseload grid is still sustained overwhelmingly by fossil fuels, with nuclear providing a quarter of supply.

The falling costs of renewables — driven by better efficiencies, a maturing market, concessionary financing, low interest rates, overinflated initiation costs and renewables development slowdowns in China and Europe — have caused profits to fall too, driving investment out of the sector. Yet Europe’s legacy power generating sector is also experiencing disinvestment due to declining wholesale electricity prices, leading to its own “death spiral”.

As unpredictable renewables make greater inroads — the EU now aims at increasing its renewables share to 45% by 2030 to reduce its reliance on Russian oil and natural gas — EU system stability is becoming increasingly fragile, leading to the necessity, the researchers argued, of ensuring the survival of the dirty technologies of “zombie utilities” that are past their natural point of demise. European industry body Eurelectric has warned that “the outlook on power system adequacy for the whole of Europe is concerning”.

Of greater concern is that much green power growth has utilised public funds to sponsor private, for-profit power generation. The green lobby uses the “levelised cost of electricity” — installation lifetime costs divided by the value of power produced — in hailing falling renewables prices. But the researchers warn that this represents only 33% of the final cost of green electricity, with the remaining two-thirds hidden costs including for backup/storage facilities, grid integration and coal plant decommissioning, plus taxes and levies.

These costs of privatised green power are typically passed on to the consumer or the state, and thus to the general taxpayer — not to the power producers themselves. Generous state-guaranteed profits for green IPPs under 20-year contracts, regardless of whether their output is used, have contributed significantly to Eskom’s debt burden.

Confusion at cabinet level doesn’t help either: last October Ramaphosa punted green hydrogen fuels at a conference, while at a separate event the same day mineral resources & energy minister Gwede Mantashe touted nuclear. But nuclear generated by Koeberg’s two reactors only contributes 5% to the SA power grid and is enormously reliant on big capital subsidies from the state, while a proposed expansion has suffered several policy reversals since it was put on the table in the 2010 IRP.

Unless we want our cities to languish in darkness at night like Brazzaville in the Republic of the Congo, we deserve a realistic and coherent Eskom rescue and mixed-source power plan, based on a better economic model.

• Schmidt is a veteran journalist and author.