President’s Energy Plan and Progress in Implementation�Dr Kenneth Creamer�

COSATU ENERGY SUMMIT

20 June 2023

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Overview

1. Progress in Implementation of the Energy Action Plan to overcome the country’s electricity crisis?
2. What does the end of loadshedding look like?
3. What are the factors behind the energy transition?
4. What are the elements of a Just Energy Transition?

Unity is power

• This is a very important Summit
• COSATU must be congratulated for calling this Energy Summit as overcoming our country’s electricity crisis is one of the most important challenges the we are facing
• South Africans are very angry and popular confidence in the ANC-led Liberation Alliance is falling – job creation, investment, service delivery and growth are all severely constrained by loadshedding
• When we were younger, we had a slogan that ‘Unity is Power’
• Today our lack of unity is leading to loss of power
• My hope is that COSATU’s Energy Summit will bring Greater Unity
• Our goal must be to unite the country around the President’s Plan to end loadshedding – the Energy Action Plan
• COSATU should resolve to support the work of NECOM, of Operation Vulindlela, and of the President and his Ministers in implementing the the Energy Action Plan
• Yes, we must be free to debate the details of the plan and push for greater justice in the energy transition, for proper planning for local government finances, and for greater social ownership of electricity infrastructure, but most importantly we need the Alliance to have a united line of march for advancing the country’s Just Energy Transition, or if we do not, we will all pay a heavy price for our disunity

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The Focus of the Energy Action Plan

• The Energy Action Plan was announced by President Ramaphosa in July 2022
• The Plan outlines a clear set of interventions to:
• reduce the severity and frequency of load shedding in the short term and
• achieve energy security in the long term through fundamental reform and modernisation of South Africa’s electricity sector.

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The Plan includes a number of interventions around the following themes:

1. Fix Eskom and improve the availability of existing supply

2. Enable and accelerate private investment in generation capacity

3. Accelerate procurement of new capacity from renewables, gas and battery storage

4. Promote businesses and households to invest in rooftop solar

5. Fundamentally transform the electricity sector to achieve long‐term energy security

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• Accelerating procurement of new generation capacity.
• Three projects from the risk mitigation programme have entered construction, with a further five hybrid projects expected to reach financial close during this quarter.
• Project agreements have been signed for 19 of the 25 preferred bidders from Bid Window 5 in terms of the Integrated Resources Plan (IRP 2019) amounting to approximately 1800 MW, of which 784 MW is already in construction.
• Six preferred bidders have been announced under Bid Window 6, amounting to 1000 MW of new capacity. Although grid constraints meant that a further 3200 MW of planned projects could not be announced.

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Key milestones so far in implementing the Energy Action Plan

Source: IRP 2019

• Amending Schedule 2 of the Electricity Regulation Act to remove the licensing requirement for generation projects of any size.
• More than 100 projects are now at various stages of development
• This represents over 10 000 MW of new generation capacity and over R200 billion of investment.
• This has helped to save jobs as farms, factories, and shopping centers would be hard pressed to continue operations without making their own electricity generation investments as loadshedding has intensified.

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Key milestones so far in implementing the Energy Action Plan

Impact of Reform – the removal of licensing requirements is resulting in a spike in Electricity Projects being registered with Nersa (measured in MW)

• Introducing tax incentives to support households and firms to invest in solar panels. For individuals, a tax rebate for solar PV panels of 25% of the cost for a limited period and capped at R15 000 per individual has been implemented.
• Launching the Enhanced Demand Management Programme. This programme includes plans to use electricity more efficiently and reduce wastage.
• Providing land to facilitate the construction of new generation capacity. Through this Eskom will facilitate 2 000 MW of generation capacity in areas like Mpumalanga that have sufficient grid capacity.

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Key milestones so far in implementing the Energy Action Plan

• The objective is to restructure and strengthen one of South Africa’s most important state owned-companies so that it can play an effective role in over coming loadshedding and advance South Africa’s just energy transition
• Addressing Eskom’s debt burden. The 2023 Budget introduced R254 billion in debt relief to Eskom, subject to strict conditions. This will relieve pressure on the utility’s balance sheet, enabling it to conduct necessary maintenance and supporting the restructuring of the electricity market.
• Progress on the restructuring of Eskom. Significant progress has been made towards the establishment of the National Transmission Company of South Africa (NTCSA) as an independent subsidiary of Eskom.
• Strengthen the capacity of the grid. We must accelerate implementation of the Eskom’s Transmission Development Plan and unlock additional grid capacity. Investment in new grid capacity is urgently required (and it is one of the key investment objectives of the concessional finance linked to the Just Energy Transition Partnership). This programme has vast employment creation potential in construction jobs, steel and cement manufacturing.

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Strengthening and Restructuring Eskom

Between 2023 and 2032 Eskom’s Transmission Development Plan requires 14 000 km of new transmission lines, with linked transformer capacity, capacitors, and reactors, at an estimated investment cost of over R225bn

What does the and of loadshedding look like?

• As an indicative example, modelling by Energy Specialist Clyde Mallinson has shown the following:
• Scenario 1: The ACTUAL electricity situation in February 2023 with loadshedding indicated by the area between the red line (load or demand) and supply.

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Scenario 2: The COUNTER-FACTUAL electricity situation in February 2023, if coal fleet performance were to be increased by 5%, and if there were 8 GW of solar, 5 GW of wind and 3 GW of storage added to the system.

Then South Africa would not have experienced loadshedding. There would also be more space to maintain Eskom’s coal fleet and we would not need to burn nearly as much diesel.

What are factors behind the energy transition?

• South Africa like all other countries around the world must manage a process of technological change and modernisation in its electricity system
• Previously, the economics meant that large vertically integrated systems were cost effective in lowering the cost of producing electricity.
• Now globally the technology has changed and it is cheaper to produce electricity through distributed systems with a mix of technologies – solar, wind, gas, coal, nuclear and hydro.
• Th world is also committed to reducing global warming caused by carbon dioxide in the atmosphere. The introduction of carbon border adjustment mechanisms by the EU (and other countries) will pose a risk to South African competitiveness, exports and jobs if the country does not move decisively to decarbonize its electricity production.
• The US, Europe, China and others are contesting who will have the greatest economic and industrial benefit from this energy transition process, and there is scope for South Africa to also position itself and our industrial policy to benefit from upstream and downstream industrial activity linked to the energy transition.

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What will our electricity sector look like in the future?

• Electricity from various sources will be supplied into a single national grid run by the Eskom Transmission entity.
• Eskom’s Transmission entity will manage the grid and will serve as a neutral intermediary contracting with public and private entities generating electricity, as well as those running consumer-facing distribution systems, a large part of which is likely to be Eskom’s Distribution entity.
• Eskom restructuring and grid strengthening and extension are essential components of the modernisation of South Africa’s electricity sector to replace the logic of monopoly with increased levels of competition.
• On the other hand, if Eskom is not restructured, it will likely slide more into debt and dysfunction and public policy leverage over the energy transition will be progressively weakened.

What are the elements of a Just Energy Transition?

• The World Energy Council coined the Energy Trilemma to describe balancing three important, but sometimes competing, goals: 
• Energy equity  including access and affordability (this is a particular challenge for African countries that have very levels of electrification); 
• Energy Security including Reliability and Stability; and 
• Environmental Sustainability including climate change, water-use, and air quality.   
• It could be argued that in South Africa, and other developing countries, Social Sustainability (e.g., employment, livelihoods, skills) should be added as a fourth priority.

What are the elements of a Just Energy Transition in SA?

• In SA, the main objective of the ‘just’ energy transition is to put in place protections and alternative pathways for workers, industries and communities negatively affected by the energy transition.
• In coal producing areas, like Mpumalanga, a number of coal power stations will be repurposed or closed over time (mainly as they come to the end of their economic lives, as some are over 60 years old).
• Also, Mpumalanga is well-endowed with grid access, so Eskom land is being made available for new wind and solar investment.
• In addition, in order to create new employment opportunities in Mpumalanga there should be coordination with private companies:
• Coal company, Seriti coal, has set up Seriti Green in that area to build facilities to produce renewable power.
• Sasol is also planning to build renewable energy components and hydrogen production facilities in this area.

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Proper planning for local government finances

• As companies and households provide for their own electricity, we will need to adjust local government finance models to ensure the financial viability of this sphere of government
• For example, instead of tariffs based purely on electricity use, grid connection fees will have to be charged as generally all households and companies will wish to continue to be connected to the grid for part of their electricity needs – this will help local governments secure their revenue streams
• If we don’t have a proper framework in place for preparing local government finance for the energy transition this will have very serious negative implications for local government capacity and service delivery

Social ownership of energy infrastructure

• Lenin understood the important linkage between people’s power and electric power – just over 100 years ago “Communism is Soviet power plus the electrification of the whole country”,
• But Lenin, could not have been expected to predict the changing technological basis of electrification production and how popular formations would 100 years later be able to interact with that new technological base.
• In addition to restructuring Eskom to make sure a strong public entity can play a key role in reshaping our energy sector, it is critical that we allow ourselves to imagine new social frameworks:
• Models of Social and community ownership of energy projects must be developed and have been developed in various places
• SA’s just transition should include a policy framework to support communities and co-ops to develop their own electricity projects for their homes, community centers, schools and sports facilities
• This will reduce the energy transition’s potential for increasing inequality in South Africa and will promote energy equity

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Wise leadership is required for South Africa’s just energy transition

• For the sake of South Africa’s national interest and to improve prospects for employment and economic growth we need to be forward looking
• We need leadership that understands the technological changes that are taking place in the world electricity sector and a wise leadership who can see around the corner to ensure that our people are included in the process and are not left behind.
• The process will less controversial and contested, if effective employment-creating pathways are put in place for those who are made vulnerable by the energy transition, and if issues such as local government finances and social ownership are addressed so as to avoid a widening inequality gap.
• It is my firm belief that it is through plans such as the Energy Action Plan that energy security can be restored for South Africa and that our energy transition can be shaped to be more just and inclusive especially for the working class and the poor in our country.