SA’s Just Energy Transition – the Role of Renewables��Dr Kenneth Creamer�

Wits University

19 June 2023

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Overview

1. What are the underlying causes of South Africa’s electricity crisis?
2. How does government’s Energy Action Plan aim to overcome the crisis?
3. How will accelerated investment in new capacity assist in ending loadshedding?
4. What are the characteristics of South Africa’s energy transition?
5. What are the elements of a just energy transition in South Africa?

What are the underlying causes of South Africa’s electricity crisis?

• Failure to implement the power sector unbundling and market reforms announced in the early 2000s
• After the Eskom go-ahead was given for the building of new power plants, the Medupi and Kusile projects were severely delayed, suffered from cost overruns and corruption
• Serious delays from 2010 to 2019 in finalising the planning instrument for the expansion of new electricity generation capacity, the Integrated Resources Plan (IRP)
• From 2019 to 2022 the pace of implementation of the IRP has not been sufficient to close the electricity supply gap, and the IRP has not been updated to take into account changing circumstances including Eskom’s lower than assumed Energy Availability Factor; and
• Urgently needed transmission grid expansions have been delayed, this slows the pace, and increasing the cost, at which new electricity generation capacity can be brought onto the national grid.

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Source: IRP 2019

How does government’s Energy Action Plan aim to overcome the crisis?

1. Skills and finance are being mobilised to assist Eskom to improve the maintenance and performance of power stations.
2. After some serious delays, the REIPPP continues to procure investment in new electricity capacity
3. Funds are being mobilised to buy more diesel for diesel peaking plants
4. There has been a removal of red tape on private investment in electricity generation stimulating a spike in investments in new generation capacity.
5. Tax incentives have been put in place to make it easier for households and firms to invest in their own solar systems
6. Environmental exemptions have been allowed so that Kusile power station can get up and running again by the end of the year after it suffered damage to its chimney system.
7. Budget relief has been announced for Eskom on condition that Eskom is restructured and there is accelerated investment in the country’s transmission infrastructure by Eskom’s unbundled Transmission Entity
8. SA’s Just Energy Transition Partnership with France, Germany, the United Kingdom and the USA and the EU will mobilise highly concessional finance and grants in order inter alia to expand investment in grid capacity and the repurposing of end-of-life power stations.

These is a selection drawn from a wider set of Energy Action Plan interventions.

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

Solar panel imports into South Africa (Source TIPS)

In addition to improving Eskom plant performance, expanded capacity must be driven both at utility scale and smaller scale

• A constraint for the implementation of the IRP is that planned grid investment has not taken place so it is difficult to bring new electricity generation capacity onto the grid.
• As result of grid constraints, in December 2022, Bid Window 6 for new wind and solar capacity, was only able to announce 850MW to 1000MW of new projects rather than the planned for 4200MW.
• Investment in new grid capacity is urgently required (and it is one of the key investment objectives of the restructuring of Eskom and the concessional finance of the Just Energy Transition Partnership), but such investment will take some time to realise.
• Given this constraint, firms and households are also encouraged to invest in generation capacity, such as, rooftop solar and battery systems, which use local distribution networks rather than wider transmission networks.
• This has been done by removing licensing restrictions, by introducing tax incentives and systems for feed in tariffs are under consideration

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In addition to improving Eskom plant performance, Eskom must be restructured

• As part of the country’s transition to a system characterised by less centralised, and more distributed, electricity generation, to be fit for purpose Eskom, in turn, will need to be restructured into three entities, namely a Generation entity, a Transmission entity and a Distribution entity.
• 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 unbundling and grid strengthening and extension are essential component of the modernisation of South Africa’s electricity sector to facilitate increased private investment in generation capacity and to replace the logic of monopoly with increased levels of competition.
• If Eskom is not restructured, due to political opposition, it will likely slide more into debt and dysfunction and public policy leverage over the energy transition will be progressively weakened.

66GW of renewable energy projects are in planning, but are likely to be limited by grid constraints

Between 2023 and 2023 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

How will accelerated investment in new capacity assist in ending loadshedding?

• As an indicative example, modelling by Energy Specialist Clyde Mallinson has shown the following:
• Scenario 1: The current 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, the prices of electricity will stabilise, there would be more space to maintain Eskom’s coal fleet and we would not need to burn nearly as much diesel.

What are the characteristics of South Africa’s 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.
• The introduction of carbon border adjustment mechanisms by the EU 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 to benefit from upstream and downstream industrial activity linked to the energy transition.

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What are the elements of a just energy transition in South Africa?

• The objective of the ‘just’ 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 being repurposed and closed over time (mainly as they come to the end of their economic lives).
• For example, Komati power station is over 60 years old – and activity is being created for new industrial activity on site to build containerized solar systems to electrify off-grid rural villages.
• Also, Mpumalanga is well-endowed with grid access, so Eskom land is being made available for new wind and solar investment.
• A coal company, Seriti coal, has set up Seriti Green in that area to build facilities to produce renewable power.
• Petro-chemical giant, Sasol is also planning to build renewable energy components and hydrogen production facilities in this area.

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A just energy transition in South Africa

• For the sake of South Africa’s national interest and to improve prospects for employment and economic growth South Africa needs to be forward looking in how it leads the energy transition
• The process will be more resilient, and less hotly contested, if effective employment-creating pathways are put in place for those who are made vulnerable by the energy transition.
• It is through such interventions that energy security to be restored and the energy transition can be shaped into a more just and inclusive process.