Global Renewable Energy Market to Reach $1,977.6 Bn in Value by 2030

Global shift from fossil fuels to renewables, rise in legislative and financial initiatives, and increase in electricity usage fuel the growth of the global renewable energy market.

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Western Cape Government commits to resolving the country’s electricity crisis

23 Aug 2022

Joint media release Cabinet Meets Business: A focus on Energy

To once again demonstrate that the Western Cape Government (WCG) is solidly committed to resolving the country’s electricity crisis, we called a Cabinet Meets Business gathering with the sole purpose of focusing on energy.

It comes at a critical time as we all must double down with our combined efforts to end load shedding once and for all and bring stability to power production to grow the economy. To achieve this, we need to build strong partnerships; and that is where business leaders and role players in the energy sector are crucial. “The Provincial Government cannot do this alone. Eskom too cannot by itself address this challenge,” said Western Cape Premier Alan Winde.

The Western Cape has a well-established business environment, complete with the required skills ecosystem and the steadfast intent to address energy production challenges, not just for the province but the entire country. Through strong public-private partnerships, large-scale energy generation is possible to build our energy resilience.

This gathering was an opportunity for the Western Cape Provincial Cabinet to meet face-to-face with various stakeholders, to further cement collaboration and create more partnerships.

When load shedding escalated several weeks ago, the WCG, under the stewardship of Finance and Economic Opportunities Minister Mireille Wenger, held an energy summit and invited a wide array of experts, including Eskom, to further map our way out of the darkness. Bold solutions were put on the table. Various proposals from bringing more Independent Power Producers into the fold to looking at other exciting interventions like green hydrogen were robustly and thoroughly discussed. Today’s gathering adds even more voices to the ongoing discussion around fixing our power system.

Innovation is one of the WCG’s core values. The Premier said: “We already have a fertile innovation culture in our Government and province. We must use occasions such as this to build on this.”

The Premier added: “It is the responsibility of not just those who attended Cabinet Meets Business to come up with solutions, but every single citizen should also do what they can to help, even if it means contributing through the reduction of energy usage.”

He added this crisis requires a whole-of-society approach as it impacts the economy and all our lives.

Eskom Group Executive Andre de Ruyter agreed. He was candid in his presentation in saying: “It will not be an easy journey to end load shedding. It is not easy to solve due to decisions made in the past,” but he added: “In the crisis we currently find ourselves in lie the seeds of opportunity.”

Taking questions from attendees, some of whom enquired about the move to renewable energy, de Ruyter assured the gathering: “Energy transition is inevitable, but it must be a just transition.” He added: “Eskom is investing in reskilling the utility’s employees working in the coal management chain with accredited training to find meaningful jobs beyond coal.”

He offered another message of hope: “From this crisis, we can create massive opportunities. Imagine the jobs we can save and create if we invest in solving the crisis now?” he asked.

Minister Wenger said: “Cabinet Meets Business is borne out of a belief in the power of partnerships. Therefore, we brought together local and provincial government, the private sector and Eskom to share our plans to address this urgent issue, which is a major impediment to our country’s success.”

Cape Town Mayor Geordin Hill-Lewis said: “This year is already the worst year of load shedding on record, and we are only eight months in. The constant threat of more blackouts hangs over the heads of all South Africans. I am grateful here in Cape Town we are often able to spare residents and businesses up to two levels of load shedding.” He added: “Putting an end to our economic malaise requires urgent action on energy and the City has embarked on an ambitious plan to end load shedding over time by making Cape Town less reliant on Eskom.

“I am encouraged that we as the City of Cape Town have capable partners in the Provincial Government and other Western Cape municipalities who not only share our vision of an energy secure future for the province but who are also committed to working within their own spheres of competence to ensure the key ingredients for energy security are put in place as soon as possible.”

“It must be emphasised,” the Premier stressed, “We stand with Eskom in solving this crisis. Under the Group Chief Executive and his team, I believe the power utility is doing everything it can to resolve the country’s energy woes, and as the WCG and City, we will help wherever we can.

“There is always opportunity in crisis, and the call was put out today for businesses to invest in innovative energy generation solutions, and to look at innovation as a whole in this space – and to do so with haste. Energy generation has become an economic opportunity that businesses should look to embrace.”

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Wind industry welcomes presidential support of accelerated energy transformation

Responding to President Ramaphosa’s address on the budget vote (9 June 2022), the South African Wind Energy Association (SAWEA) applauds the president’s unequivocal support of the energy sector’s transformation. Furthermore, the industry welcomes the presidency’s clarity of the various reforms.

Fundamentally, the Association points out that the reforms and work underway will deliver a robust, competitive energy sector with multiple generators competing to supply electricity at the lowest cost and selling power directly to customers, which will go a long way in supporting local business and South Africans individually. 

“This is a historical moment in our country as we are recreating not only our energy generation sector, but providing stable foundations for economic growth that is in line with the National Development Plan which sees 2030 as a time when South Africa will reduce its dependency on carbon,” commented Niveshen Govender, SAWEA CEO.

The President clearly outlined the work underway aimed at increasing the energy availability factor (EAF), and closing the electricity gap between generation and demand, which is the root cause of load shedding. These included ensuring that projects from existing procurement programmes, including Bid Window 5 of REIPPPP, reach financial close and are connected to the grid as quickly as possible; accelerating private sector investment in generation capacity under 100 MW; enabling Eskom to purchase surplus power from existing power producers; supporting municipalities to procure power independently; and encouraging households and businesses to invest in small-scale solar power installations and feed energy to the grid, amongst others.

“The interventions are in line with the RE sector advocacy efforts. We believe that this step change that we are experiencing will alleviate the impact of power disruptions and allow us to build back better. While these are ambitious intervention, strong leadership is required to move us forward,” added Govender. 

 The wind sector is excited by Cabinet’s approval of the appointment of Jacob Mbele as the new Director-General (DG) for the Department of Mineral Resources and Energy, as announced by Minister Mondli Gungubele, yesterday. On behalf of its members’ SAWEA welcomes Mbele, who is currently a Deputy Director-General for general programmes and projects at the department, noting that he has been intimately involved with both the Integrated Resource Plan and the procurement of electricity from independent power producers for many years, and wishes him well on his journey to drive and support the energy transition in a fair and equitable manner.

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The Wind at his Back: SAWEA CEO, Niveshen Govender

The South African Wind Energy Association (SAWEA) recently appointed Niveshen Govender as CEO. Govender undertakes a leading role in driving the country’s transition to a greener economy and brings along a vision founded on procurement, localisation and policy. Green Economy Journal met up with him.

SAWEA
Niveshen Govender

Congratulations, Niveshen, on your recent appointment of CEO at SAWEA. Besides this major accomplishment, what are the defining highlights of your career?

My career has been purposefully dynamic so I could experience the different views of promoting and achieving a green economy. I started off my career in consulting, where I managed to gain broad experience across a range of areas.

Thereafter, I moved to implementation, focusing on how to successfully execute large-scale projects which impact across the green economy landscape. I approached national government to better understand the policy development objectives and focused on renewable energy policy creation.

My experience and exposure across the green energy sector, has enabled me to take roles in the solar PV and now wind power industry associations, as I am able to translate policy into building an inclusive sector.


What are your personal aspirations while at the helm of the wind industry?

I believe that our industry needs to harness, accelerate and maximise localisation to move toward industrialising renewable energy in South Africa. Transformation goes hand-in-hand with this vision, so it is foremost and top of my mind.

I am personally passionate about information sharing and skills development, so that we harness our collective talents and knowledge, which spreads naturally and helps to accelerate transformation.

What are the greatest challenges for the industry in relation to the REIPPP programme?

While we continue to face an energy crisis, it is essential that our country remains geared to bring on more new generation capacity as quickly as possible, which points to renewable energy as the fastest and most cost-effective option.

To achieve this, we need to consider the current procurement rules, as there is currently a misalignment between the bid window procurement requirements and the sector capabilities. This will require additional dialogue with the relevant stakeholders, so that we can reduce the gap and make the necessary adjustments.

Our industry is currently challenged by the transmission infrastructure restraints, particularly the grid capacity challenges in the Northern Cape as well as the Eastern Cape Province, which house the country’s best wind resources.

The government has amended and gazetted the Electricity Regulation Act and the Electricity Pricing Policy for public comment. The sector has highlighted that the updated forecasting requirements also impact the power pricing tariffs. Please talk to us about the identifiable gaps and inadequacies in the penalties for deviation and how to overcome them.

The challenge is not so much in the forecasting requirement but more based on the methodology used to calculate the forecast. I believe that there is a misalignment on understanding this. Together we can develop solutions – this needs workshopping.

Should this not be considered now, the penalties will have an enormous impact on the operating IPPs.

Please expand on the challenges that the industry is currently experiencing to execute unlicensed 100MW renewable energy projects as well as other independent power projects.

While the 100MW licence exemption notice has sent positive signals, there are many finer details which require attention, namely:

  • The NERSA registration process still poses challenges
  • The distributor connection agreements need streamlining
  • There is no national wheeling framework in place
  • Wheeling tariffs need to be developed

Regarding private power purchase agreements, unclear policy for the 100MW reform needs to be clarified. The municipal energy procurement process also needs to be streamlined. Please advise on these two issues and expand on the benefits of your solution.

I believe that we are already seeing the policy reform we have been calling for, including:

  • The changes and direction of those changes speak volumes
  • As a sector, we are happy with the step change that is happening
  • We will continue to seek clarity in the details to ensure an open transparent market

The next step is for us to work on the impact, namely how we create benefit to meet the country’s social imperatives. These include access to affordable electricity for all, addressing unemployment, inequality and poverty. These aspects need to be incorporated into the business-as-usual plan.

What impact do grid capacity limitations cause? Will improved grid access make any difference to the transition?

Grid Capacity Limitations stalls the roll out of renewable energy projects in key areas:

  • It is only with the new capacity that we will be able to transition.
  • Improved access allows for us to deliver the much-needed new generation capacity.

For more information on the wind association: www.sawea.org.za

READ THE FULL INTERVIEW HERE

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Heating your geyser for less:  The hidden costs of solar thermal and heat pumps systems

This year South Africans are bracing for electricity hikes of up to 25%, this means your geyser – the biggest electricity guzzler in your home – is going to cost 25% more to run. What’s more the National Energy Regulator of South Africa (NERSA) is planning to target grid-tied solar users, driving the cost of electricity used at night peak times up and effectively destroying the business case for installing solar PV (electricity), unless you’re totally off the grid. 

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What’s really going on with SA’s energy supply?

The National Science and Technology Forum (NSTF) Discussion Forum on Load shedding and power cuts – what is really going on?

Why load shedding is necessary

Gav Hurford, National Control Manager: System Operator, Transmission, Eskom

There are multiple layers to understanding load shedding. It begins with South Africa’s power system value chain: generation, transmission and distribution (transporting electricity to the consumer), and customer services. A centralised control is needed to keep the power system stable.

Gav Hurford: Why load shedding is necessary

In general, bulk electricity cannot be stored. It must be generated at exactly the same time it is consumed. The System Operator manages the supply/demand balance at every second.
 
There is very hierarchical control of the high voltage power system, with instructions moving top down from national control (765-132 kV) to regional control (132-66 kV) and finally local control (66-11 kV), such as municipalities. Hurford says: “There is no ‘big red button’ in the National Control Centre (NCC) that we hit to start load shedding. It’s a lot more systematic than that.”

South Africa’s NCC operates parts of the network in Swaziland and parts of the network in Mozambique. Hurford says there are plans to make the NCC a separate entity outside of Eskom.

National Control Centre and the supply/demand balance of 50Hz

The System Operator is part of the NCC and the NCC is responsible for the overall wellbeing and real-time operation of the entire power system. In general, this means:

  • Dispatching available generators to meet demand or reducing demand to match the available generation (eg load shedding). If there’s too much demand and not enough power generation, the whole system starts to slow down ie the frequency starts to drop. This puts the network in jeopardy. Typically the network should run at 50Hz or close to it. Hurford says that this supply/demand balance of 50Hz relates to the generators’ mechanical capabilities. South Africa’s large coal-fired generators must remain running at or close to 50Hz.
  • Managing maintenance outages of the vast transmission network. The South African network is interconnected from Cape Town up to the Democratic Republic of Congo, and from Namibia across to Maputo. These all run at the same frequency of 50Hz. The bigger the grid, the more stable it tends to be. However, it also means the countries are “locked in and share the same fate”, says Hurford. South Africa’s Eskom operates the largest system. According to the 2019/2020 Southern African Power Pool (SAPP) statistics (sapp.co.zw), the maximum demand was 38 897 MW. Next highest was Zambia with 2 237 MW. It’s clear that South Africa won’t receive a lot of help from its neighbours.
  • Controlling the power system to maintain stability.
  • Overseeing the safety of people and plants.
     

Eskom’s generation responsibilities

Source: ‘Why load shedding is necessary’

  • Brown rows: owned by Eskom.
  • Green rows: the two Independent Power Producers (IPP) and these are open cycle gas turbines (OCGT) which burn diesel.
  • Grey rows: renewables that have been added to the power grid since 2015 (about 560 MW). The bulk of these are wind generation, solar PV (photo voltaic, like solar panels) and CSP (concentrated solar power).

Hurford says that South Africa already has significant amounts of renewable energy (RE) on the grid. Typically, during the week there is a contribution of 12% and there have been contributions of over 20%.

Grid Code and maintaining the 50Hz supply/demand balance

The South African power industry is governed by the Grid Code, a National Energy Regulator of South Africa (NERSA) suite of documents. It lays out what licensees (participants in the power system) can and can’t do, what is expected of them technically, and what to do to maintain the stability of the power system. It includes what to do in a power crisis.
 
The frequency of the power system needs to stay within 49Hz and 50.1Hz. In that range, generators should operate continuously. Grid Code Level 1 restrictions occur when the frequency drops by 0.5Hz (49Hz-48.5Hz). A large generator only tolerates this for about 80 minutes over its lifetime of 30 years.
 
Automatic tripping starts at Level 2 (48.5Hz-48Hz). Here the lifetime tolerance is about 10 minutes, operating for one minute in this range. Each consequent level shows a 0.5Hz drop with automatic tripping after a very short time.
 
Below 47.5 Hz it becomes chaotic, says Hurford. Generators will then automatically trip off to protect themselves and there will be a cascading situation. As more generators trip off, there is less capacity available to supply the demand and the frequency drops even further. This results in the tripping of every generator connected to the power system and a national blackout. (Note that there are other causes for large and national blackouts beyond lack of generation capacity, including faults on the transmission system.)

To maintain the supply/demand balance, Eskom uses a range of options:

  • During normal system operations. The base load power and self-dispatched generation comes from nuclear, coal, IPPs, and Eskom’s RE.
  • As demand increases within normal system operations. Eskom uses more RE. There are also various products. Examples include specific customers switching off their plant or part of a plant, as well as contractual agreements where Eskom can interrupt demand. The benefit of these products is rapid response. (It’s quite a slow process to ramp up a large coal fire station – about 8 MW per minute – for example.)
  • At highest peak during normal system operations. There is a country response with calls to reduce load ie the ‘power alert’. Hurford says that the public does respond and the impact can be significant. “We can get about 275 MW response if we haven’t shed for a while,” he says.
  • System Emergency. This is declared in terms of the National Code of Practice (NRS048-9). It’s a document adopted by industry and approved by NERSA. It sets out a systematic way of load shedding, from the System Operator declaring a system emergency to load shedding stages and further. The third edition is currently being developed. The guiding principle of NRS048-9 is that all participants be treated equitably. This does involve ensuring essential services meet criteria, like hospitals having back-up generators. NRS048-9 allows for very specific circumstances – if something critical is happening – where power is not interrupted.
  • After System Emergency. There is large customer and international load curtailment, scheduled load shedding (stages 1-8), and unscheduled load shedding. Load curtailment means load reduction from customers who can reduce demand on instruction. Load shedding is load reduction from disconnecting the load at selected points on the transmission and distribution network.
  • Beyond stage 8 load shedding. Hurford says there are contingency plans if South Africa needs to go beyond stage 8, such as large blocks (towns and cities) dropped off the network plus more. The aim is to prevent a total power system collapse.
     

Impact of national blackouts

Planned and unplanned load shedding is part of the solution to avoid a national blackout. So far, South Africa has not had a full national blackout. However, there have been a number around the world. Hurford says the one in March 2019 in Venezuela drew many parallels with South Africa. They have a similar system and the cause was poor maintenance. Venezuela was down for around five months.
 

The impact in Venezuela included: looting, running out of water, the inability to process sewerage, people dying at hospital (no electricity for essential equipment), business interruption, the inability to keep food fresh, and much more. There was an impact on almost every single part of daily life.


There are other considerations with a national blackout. Hurford says the telecommunications backbone would fail in about eight hours. Another example is the impact on available liquid fuel. While it’s used to power so much, it also needs powered storage. Just moving around the country would become severely limited.

South Africa’s system design includes contingency plans and capabilities to deal with a blackout. There are Black Start capabilities to restart the power grid.


Understanding our emergency reserves

Emergency reserves provide a limited amount of energy and are only available for a short duration. There is also an ongoing need to replenish emergency reserves. The cycles become clearer when looking at pumped storage and open cycle gas turbines (OCGTs).

Pumped storage schemes involve water stored in an upper reservoir and then released to drive turbines that generate electricity. The water ends up in a lower reservoir. At night, excess energy allows the water to be pumped back up. It’s a 168-hour cycle so reserve power is not easily restored. Hurford says that pumped storage is about 75% efficient but offers the only viable means of storing large amounts of energy. South Africa has three pump storage stations.

South Africa has 20 OCGTs and Eskom owns 14. These cost about 10 times more than coal to run, using almost 1900 litres of diesel per minute per generator. The cost is excessive. Beyond that, it’s not even possible to move diesel fast enough to these generators.

Between pumped storage, OCGTs, and gas turbines, Eskom is able to dispatch almost 6000 MW, making up the majority of the emergency reserves.

Managing a constrained power system

“We’ve had to manage the power system very differently from the traditional way,” says Hurford. “Obviously we need to do maintenance on generators but we can’t shut them all down. We are forced to do maintenance as and when we can.”

Managing the systems involves Eskom teams doing scenario planning, looking at installed generation capacity, plant unavailability, the demand forecast, planned outages for maintenance, and potential unplanned outages. Eskom works with three scenarios at any given time. Even with this planning, the system is volatile and unreliable. It “makes giving the country certainty absolutely impossible”, says Hurford.

However, the system is continuously monitored and, where there is enough time, Eskom gives the country as much warning as possible. Note that Eskom is fully mandated to do whatever is required to get the power system stable even if there’s no time to give a warning. Hurford says he knows there’s anger around load shedding and consumers have a right to be angry. He also hopes that understanding the situation in more detail will ease the frustration.

What happened? Load shedding in South Africa and how to fix it

Dr Jarrad Wright, National Renewable Energy Laboratory (NREL), USA

Dr Jarrad Wright: What happened? Load shedding in SA and how to fix it


South Africa’s power system is in crisis with urgent action needed to ensure system adequacy while simultaneously creating a cleaner and more diversified long-term energy mix. So says Dr Jarrad Wright when he presented on ‘What happened? Loadshedding in South Africa and how to fix it’. He was, until recently, at the Council for Scientific and Industrial Research (CSIR) and is now at the National Renewable Energy Laboratory (NREL) in the USA.

Wright says there is a worrying trend of a continuous increase in load shedding. There has also been a shift from equal levels of planned maintenance and unplanned outages in 2017 to more unplanned outages at higher levels as the years progress. This means there’s limited space to do planned outages and maintenance. He says, “There is still a lot that needs to come into play until we get an adequate power system over the next two to three years.”
 
To reduce load shedding and increase power generation, his recommendations include enabling regulations and institutional capacity for customer response at scale (power self-supply) to all customer segments. Wright says South Africa also needs to accelerate the augmented Department of Mineral Resources and Energy (DMRE) Risk Mitigation Power Procurement Programme. All things need to be done in parallel including implementing the Integrated Resource Plan (IRP) 2019 now. This is so there is sufficient time for lengthy procurement processes, technology specific lead times, and so on.

The case for renewable energy

Professor Frik van Niekerk: A compelling case for fast-tracking renewable energy in SA and the region

Prof Frik Van Niekerk noted that we have a growing population and a growing energy need. At the same time, there is an unreliable energy supply and the burden of the climate crisis. The current renewable energy (RE) use is too low and he says our future planning is insufficient. Van Niekerk presented on ‘A compelling case for fast tracking variable renewable energy in South Africa and the region’. He is from the Unit for Energy and Technology Systems, Faculty of Engineering, North-West University.
 
Van Niekerk says that we need a strategy to accelerate the green energy trajectory. He recommends deregulating and deploying RE of which there is an abundance in South Africa and Africa, ensuring a fair energy transition, and recognising the lowered cost of RE and storage technologies.
 

Dr Melanie Murcott: Ending SA’s reliance on energy from coal


Dr Melanie Murcott also spoke on the just energy transition in ‘Ending South Africa’s reliance on energy from coal? An introduction to the policy framework for South Africa’s Just Energy Transition’. She is from the Department of Public Law, Faculty of Law, University of Pretoria.
 
She notes that it’s a false binary to pit concern for the environment against employment. The energy landscape in South Africa must transition, not just because of loadshedding. In a time of climate change, fossil fuel-driven energy is a justice issue, particularly for vulnerable and disadvantaged communities. (Note that according to World Bank data, South Africa is the 13th highest greenhouse gas emitter in the world.)
 

Tommy Garner: The perspective of independent power producers


Tommy Garner presented on ‘The perspective of independent power producers’. He is Business Development Manager at Earth and Wire, and the Chair of the Independent Power Producers (IPP) Association. Garner notes that Eskom operates an ageing generation fleet, with more than half of the stations over 37 years old. Replacement and refurbishment of major components mean extensive outage time and is costly.
 
He says the significant increase of unplanned outages over time shows the low reliability. “You don’t know when it’s going to break down,” says Garner. This makes it difficult to plan for maintenance.
 

Obstacles to renewable energy

Van Niekerk looks at what is holding us back from more RE. He says that IRP2019 still has too much coal in the energy mix and the idea of ‘new coal’ should be avoided. IRP2019 isn’t ambitious enough and there’s insufficient attention to storage. Deregulation is needed, as well as a more distributed small-scale generation rather than just a centralised system. He emphasises more urgency around RE, including prioritising it within the highest offices of government.
 
He doesn’t believe the problem to be technological but rather around political considerations. These include Eskom debt liability, labour politics, gate keeping, and procurement issues. Garner agrees with him.
 
Garner explains that when new technology gets to the point of lower costs, this drives more demand in the RE sector. (RE costs are now up to 45 times cheaper over the last 10 years while coal, nuclear and carbon capture are not reducing in cost.)
 
With more demand in the sector comes more production investment and more supply – which in turn drives lower costs. This feedback loop continues, with more infrastructure investment and more government support. This then drives better capability and more public acceptance. It also drives less demand of older technology.
 
Garner says that this was happening in 2010 when government added RE into the energy mix. There was also investment in the IPP office, and the Renewable Energy and Energy Efficiency Partnership (REEEP) programmes were very successful.

However, in 2014, these positive causal feedback loops came to a halt. As part of state capture and the Gupta family intervening in Eskom, government supported the fossil fuel industry, says Garner. Agreements for REEEP weren’t signed and the programme started to fall over. There was less infrastructure investment and less government support in RE. Garner says this also led to IRP2019 including coal.
 
All of this has resulted in a stop-and-start process.
 
Garner says South Africa needs between three to five times our current generation capacity with variable renewable energy (VRE) and between 35-90 hrs of battery storage. We can then go to a complete VRE system.

Hurford does note that, when planning power grids, we need to keep in mind the ‘one in 10 year’ event where there is no wind or sun to maintain stability of the network

Garner recommends updating IRP2019, especially regarding battery storage, prioritising investment in grid infrastructure, and government pushing through the unbundling of Eskom and supporting RE and IPP, among other things. He also sees deregulation as a significant driver.

Professor Roula Inglesi-Lotz: The impact of electtricity shortage on SA’s economy

Prof Roula Inglesi-Lotz, South African Association for Energy Economics (SAAEE) and Department of Economics, University of Pretoria (UP) presented on ‘The impact of electricity shortage on South Africa’s economy’. Among other things, she shows the effects of electricity supply on attracting Foreign Direct Investment and the need to stabilise the energy supply.

Professor Xiaohua Xia: Go Solar

Prof Xiaohua Xia from the Department of Electrical, Electronic and Computer Engineering, University of Pretoria (UP) and Director: Centre for New Energy Systems, UP presented on ‘Go solar’. He looked at an off-grid PV system that is being piloted at the university, suitable for rural and urban environments.

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Eskom tariff increase driving consumers to eco-friendly appliances

The National Energy Regulator of South Africa (NERSA) has approved Eskom’s application for a 9.6% increase in electricity tariffs to become effective from 1 April 2022.  

While lower than the initial increase of 20.5% that Eskom proposed, the current increase will still place additional financial pressure on consumers. The cost of water is also expected to rise between 6-10% on 1 July 2022.

In addition, on Thursday 27 January 2022, Reserve Bank Governor Lesetja Kganyago hiked the repurchase rate (repo rate) by 25 basis points to 4%, an act to curb the upward trajectory of inflation, but one that adds pressure on consumers.

South African consumers are focusing their attention on eco-friendly appliances to save on the increasing cost of utilities.

“Eco-friendly appliances are increasing in popularity for many South Africans that are looking for ways to ease the burden on their budgets,” says Rajan Gungiah, Beko Regional Marketing Director for sub-Saharan Africa. The cost benefits of these appliances reduce expenses after the first use. 

Gungiah says that as an example, a washing machine with a A+++*** energy rating can save up to 22% on electricity compared to washing machine with an A+ rating. A dishwasher with an A++ rating can save 11% in comparison to dishwasher with an A+.

“Contrary to popular belief using a dishwasher is more economical than washing dishes by hand. Using a dishwasher saves about 57 litres of water per load. Washing a load of dishes by hand uses about 66 litres of water, the same amount being cleaned in a dishwasher uses only 9.5 litres,” says Gungiah.

The interest in eco-friendly appliances extends beyond saving water and electricity, it’s also a sign of the rising awareness of consumers to lessen their impact on the environment.

“Many leading appliance manufacturers are actively using innovation and technology to ensure that the products they offer meet not just the consumers’ need for energy and water efficiency but also for a quest to lessen their environmental footprint,” says Gungiah. Eco-friendly appliances also provide additional benefits that consumers are looking for, such as lowering greenhouse gas emissions and reducing their carbon footprint because they emit fewer harmful gases.

South African consumers can rely on the Standards and Labelling (S&L) programme implemented by the Department of Energy (DoE) to determine whether or not the appliance they are about to purchase uses energy efficiently.  In 2018, the DoE made it easier for South Africans to identify eco-friendly appliances by updating their label criteria for this segment and by launching the Appliance Energy Calculator Mobile App.

“The App allows consumers to insert the price of the appliance and the annual electricity consumption rate of the appliance (this information can be found on the label), and the App will then work out the estimated running cost and the amount of power the appliance uses,” says Gungiah.

“It is vital that appliance manufacturers commit to innovations that are eco-friendly, serving the environment, but also promoting healthy living and convenience for consumers at large,” he says.

Beko recently ranked 20th on The Real Leaders®️ Top 200 Impact Companies of 2022, a testimony to the company’s sustainability mission and its belief that “healthy living is only possible on a healthy planet”. Beko’s product line uses recycled materials, bio-composites and detergent saving technologies for sustainable living.

The Real Leaders 200 Top Impact Companies Award recognises organisations making a positive social or environmental impact across a well-respected impact brands of various sizes and from a variety of industries.

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Shedding the light on Eskom and its mountain of debt

Eskom released its FY20/21 financial results on 31 August 2021. These were characterised by the persistent strain on the liquidity and profitability position, high gross finance costs and some challenges to operational efficiency.

By Sithembiso Garane, Head of Listed Credit @ Futuregrowth

The group incurred a loss after tax of R18.9 billion, a slight uptick from the previous year’s loss of R20.7 billion. The audit opinion was qualified owing to irregular expenditure and going concern risk.

The government injected R56 billion to assist in reducing the debt burden.

Eskom current debt maturities were reduced to R44.9 billion from R128 billion in FY20. The group’s cash generation capacity has continued to deteriorate since its five-year peak in FY17 at R47.4 billion and is currently sitting at R30 billion.

The prevailing theme remains Eskom’s unsustainable debt, despite the recent equity injection and reduction in capital expenditure. Operating expense increases offset the revenue surge. Primary energy cost pressure and the inability to contain employee costs continue to pose a significant challenge in the utility expenditure reduction programme.

The energy availability factor decreased from 66.64% to 64.19%, largely attributed to increased maintenance. During the year, two Kusile power stations were added to the grid, contributing 1 500MW, and Medupi’s final unit was handed over to Eskom in July 2021.

Investigations into the recent Kusile explosion are ongoing, with the damage estimated at R2 billion. Eskom expects to incur an additional R38.4 billion in environmental project costs on Medupi, as part of its loan conditions with the World Bank.

Financial highlights FY20/21

  1. Revenue was up 2.38% year-on-year, solely owing to the 8.76% tariff increase. Sales volumes significantly declined by 6.7% (from 205 635 GWh to 191 852 GWh) off the back of the Covid-19-induced slump in demand across all customer categories. Management noted that sales volumes are expected to rebound in FY21/22, albeit not to pre-Covid levels. Revenue is expected to be aided by 15.06% tariff increase in the medium term.
  2. Interest bearing debt (IBD) reduced from R483 billion to R401 billion, assisted by the R56 billion equity injection from the government. The reduction in the capital expenditure programme over the reported period also contributed to the net redemption of debt. Finance costs remained very high, despite the slight decrease from R48 billion to R45 billion. As a result, the effective cost of debt spiked from 9.58% to 9.66%. This remains a concern for the issuer, as it seeks to extricate itself from this debt overhang.
  3. Primary energy costs continued to rise in spite of the lower demand: 3.4% year on year, due to a combination of coal and import cost escalation, higher utilisation of open cycle gas turbine (OCGT) and renewable energy independent power producers (IPPs). The IPPs contributed 24.0% in total primary energy costs and accounted for 6.0% of energy generation. The growth in contribution was stunted by the force majeure on wind energy procurement during the hard lockdown. Coal contribution, which currently accounts for 85% of energy generation (and 65% of the cost base), is expected to decrease as Eskom rolls out its decarbonisation strategy.
  4. Eskom’s average employee cost decreased from R775 000 to R735 000 as a result of the slight reduction of headcount from 44 000 to 42 000 and a management salary freeze. This is expected to be dampened by the 7% wage increase settlement over the next three years. Employee costs remain the Achilles heel for the counterparty as it grapples with its cost base. A 42 000 headcount is still a far cry from the 35 000 optimal level as noted by management. The total employee cost accounts for 16.35% of Eskom’s revenue.
  5. Municipal debt arrears increased by 26% year-on-year from R28.0 billion to R35.3 billion (including interest accrued over time). This figure was R6 billion in FY16 and is escalating very fast. Efforts to address collections from the top 20 defaulting municipalities continue to be questionable. Eskom has entered into a payment agreement with 12 of the 20 defaulting municipalities in an effort to increase recovery; however, 10 of the 12 are yet to comply with the agreement.
  6. The utility remains completely reliant on its R350 billion government guarantee programme to raise debt in the market. Currently, the guarantee headroom is R47 billion, inclusive of the R32 billion committed drawdown. The expected debt service costs for FY22 are R71 billion (FY21 103 billion), R31 billion of which are finance costs. Eskom generated R30 billion from operations, hardly covering its net finance costs (R33 billion in FY21). The total funding requirement for FY22 is R39 billion which can be fully absorbed by the guarantee headroom.
  7. Eskom recorded a net loss for the year of R18.9 billion and R37.2 billion in irregular
    expenditure, which is the main driver for its audit qualification. The reduction in debt does give some reprieve on debt service costs; however, the entity’s failure to generate sufficient cash from operations remains a significant risk.

Eskom expects to fully unbundle the transmission division by December 2021, followed by the generation and distribution divisions in December 2022. This is subject to all regulatory and legislative compliance.

It is our view that management may be somewhat overly optimistic with these timelines, given potential political impediments.

Futuregrowth

The functional separation of the three entities is said to be complete, and plans are afoot to create legal entities that will be operated independently. Some efficiencies may be unlocked through this exercise, but this will not address the core problem of debt spiraling out of control.

The majority (60%) of Eskom’s employee costs come from distribution and shared services – a low-margin division and a cost centre. Other high operating expenses from the generation division are due to the provision for the decommissioning costs of coal generation and are not expected to remain at current levels in the medium term. The third-party generated energy (IPPs and imports) forms part of the transmission division cost base.

Management now has to grapple with the IBD split amounting to R416 billion (as at FY20) across the entities, which requires bondholder consultation and approval. Our expectation is that this will not be a swift process. Further details are yet to be revealed, including how the R350 billion guarantee will be segregated, and business cases for each division so that investors can assess each division’s investability.

More importantly, all these interventions do not address Eskom’s core problem: the debt trap. The utility’s management has alluded that more government assistance to the tune of R200 billion will still be needed. It is our view that, regardless of the divisionalisation and liberalisation of the energy sector, a debt solution is still required. Failing this, the debt problem will be inherited by all or some of the soon-to-be established entities.

Some encouragement but concerns remain

Futuregrowth is encouraged by Eskom’s accelerated execution of its long-communicated divisionalisation strategy and government’s equity injection. However, these interventions are barely scratching the surface when it comes to extinguishing Eskom’s solvency risk. The remaining operational inefficiencies and unsustainable debt burden patently require further extra-ordinary support. We are cautiously optimistic that a decisive debt solution will be found, and we are of the view that comprehensive divisional business cases will determine the success (and/or duration) of the debt separation process.

Government’s recent intervention does indicate that Eskom remains important to the state and that the likelihood of government support is still high. However, these intermittent interventions do not solve the going concern risk status of Eskom, and its high dependency on the shareholder. Eskom needs more than just unbundling to address its solvency and liquidity risk.

Published on www.futuregrowth.co.za/insights.

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Energy regulations a positive move, but further clarity still required

MEC David Maynier on schedule 2 of the Electricity Regulation Act gazetted by Minister Gwede Mantashe

We welcome the gazetting of Schedule 2 of the Electricity Regulation Act by the Minister of Mineral Resources and Energy, Gwede Mantashe, which gives effect to the announcement by President Cyril Ramaphosa to increase the licensing threshold for embedded generation projects from 1 MW to 100 MW.   

This is a positive move towards a more open, diverse and competitive energy sector and will give much-needed certainty to investors and facilitate quicker uptake and access to affordable, renewable energy to meet the current energy shortfall in South Africa.  

However, these amendments do not go far enough to urgently address the energy and climate crisis facing the country.  

Recent statistics from the CSIR show that by mid-June of this year, load shedding figures (1268GWh) had almost reached the same amount of load shedding that was experienced for the entire year in 2019 (1352GWh). 

Large-scale private sector participation in energy generation, in partnership with government, will be key to addressing the current shortfall in the Western Cape.  

And so, we urge the minister to provide further clarity on the potential role of municipalities as a reseller as it is currently unclear if municipalities will be able to buy energy from an independent power producer and then sell it on to their customers, or whether it is limited to buying energy only for its own consumption. 

We also urge the minister to ensure that the registration process is streamlined as this risks becoming a complex spiderweb of red tape that could undermine the implementation of renewable energy projects and lose the opportunity provided through the licensing exemptions threshold increase. 

This clarity will be critical to the success of the Western Cape’s Municipal Energy Resilience (MER) Initiative which seeks to support municipalities to implement renewable energy projects in municipalities across the province so that municipalities, businesses and households can generate, procure and sell electrical energy.  

By contributing to an increasingly decentralised system of low carbon energy generation and distribution that will help to mitigate the risk of load shedding in South Africa, the MER Initiative will help to boost business confidence and contribute to economic growth and job creation in the Western Cape. 

Importantly also, the MER Initiative will contribute to the fight against climate change, which is more important than ever given the recent findings and recommendations of the Intergovernmental Panel on Climate Change (IPCC) 6th assessment report released this week.  

The renewable energy sector in South Africa has the potential to attract much-needed investment that create jobs. The amendments to Schedule 2 of the Electricity Regulation Act are a significant step in the right direction, but I also urge the Minister of Mineral Resources and Energy, Gwede Mantashe, to ensure that the proposed amendments to the Electricity Regulation Act clarify and simplify the current regulatory challenges to unlock these opportunities in the Western Cape.

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President Cyril Ramaphosa: a step in reforming the electricity sector

10 Jun 2021

President announces major reform to enable investment in embedded generation and promote energy security

President Cyril Ramaphosa, together with Minister of Mineral Resources and Energy Gwede Mantashe, today (10 June 2021) announced a significant step in further reforming our electricity sector towards the achievement of a stable and secure supply of energy. 

Following an extensive public consultation process undertaken by the Department of Mineral Resources and Energy, Schedule 2 of the Electricity Regulation Act will be amended to increase the licensing threshold for embedded generation projects from 1 MW to 100 MW. 

New generation projects up to 100 MW in size will now be registered and will be able to connect to the grid. 

Generation facilities will still need to have their registration approved by the regulator and meet all of the associated requirements, including grid connection approval from the network provider. 

Generators will be allowed to sell electricity to one or more end-user customers, on the condition that they are registered and have secured grid connection approval. 

This intervention is undertaken within the broader context of electricity industry reforms currently underway. The raising of the licensing threshold is expected to unlock significant investment in new generation capacity in the short and medium-term. 

President Ramaphosa said: “This decision reflects our determination to take the necessary action to achieve energy security and reduce the impact of load shedding on businesses and households across the country.” 

The final version of the amendment to Schedule 2 and associated rules will be published within the next 60 days. 

Courtesy: www.gov.za

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