Standard Bank welcomes president’s call for private sector energy generation

Innovative platform enables any enterprise to sell energy

The South African president’s recent removal of the licensing threshold on embedded private generation, the announcement of feed-in electricity tariffs for the outright purchase of privately generated electricity, tax incentives for the construction of commercial generation installations, and a virtual – albeit temporary – scrapping of private power generation application red tape, marks a watershed in South Africa’s 14-year struggle against the socially and economically crippling onslaught of loadshedding and persistent energy insecurity.   

While the country breathes a collective sigh of relief that a comprehensive and broadly inclusive plan is finally on the table, “the effectiveness of these bold initiatives depends on how quickly they can be implemented, and how successfully the expertise available in South Africa’s private sector can mobilise and gear capital in the development of an environmentally and financially sustainable public-private energy future,” says Berrie de Jager, Head of Natural Resources at Standard Bank’s Business and Commercial Clients division.  

Kick-starting stalled construction on bid window five independent power producer projects by addressing impractical local procurement requirements, doubling the size of bid window six projects from 2 600MW to 5 200MW, issuing requests for proposals for battery storage, as well as the review and speeding up of Integrated Resource Plan allocations, are significant developments that the country’s existing energy sector should leverage – and take to scale – with alacrity. “The funding mechanisms and capital structures enabling these projects have long been in place. They are proven and are working well in the formal, relatively restricted, public-private renewable generation sector,” observes de Jager.

What is most exciting about the president’s recent announcement, however, is the new opportunity that these pronouncements present in the decentralised energy generation space, that is “the niche and entirely untapped energy market that sits behind the Eskom or municipal meter,” says de Jager.

Making this space available for general investment for the first time means that almost any business in any sector can now potentially generate – and sell – any amount of energy to the grid. In short, once the required regulatory adjustments are made, energy production, sale and trading will no longer be the preserve of the state and its exclusive and very limited circle of approved energy partners.

Instead, if South Africa urgently implements the reforms promised on Monday night, “investment in the country’s energy market will expand exponentially, allowing all manner of innovative combinations of energy generation, sale and supply,” predicts de Jager. From malls to mines, hotels to hospitals, and farms to factories – every business or even small enterprise might soon be participating in the generation and sale of electricity.  

While Eskom will retain control through a soon-to-be spun off transmission entity regulating and controlling the trading and transmission of energy across the grid, “the key challenge for South African businesses wishing to participate in the country’s new energy market is managing the financing, construction delays and cost overruns that typically plague private generation projects,” reports de Jager. Poor quality energy generation technology investments are another common pitfall preventing businesses with no knowledge of energy generation from reaching cash-neutrality as quickly as possible.

To help businesses manage the operational and reputational challenges associated with independent energy generation, Standard Bank has developed a digital platform to support clients in procuring high quality and financially sound Solar Photo Voltaic solutions.

Even before the president’s recent announcement, “we designed PowerPulse as a digital platform to empower ordinary businesses to produce, deliver, consume and trade energy,” says de Jager. Whether you are a financial executive looking to manage energy costs, feel overwhelmed by the jargon and complexity of technical solutions, or are simply unsure of which providers to use, PowerPulse provides the answer. “PowerPulse even assists with financial modelling, delivering a report which can be used to justify renewable energy investments to boards or investors,” adds de Jager.  

In Standard Bank’s experience, a key need for any business thinking of building an independent energy generating and trading capability includes accessing and shortlisting accredited engineering, procurement and construction partners. Introductions to specialist concierge teams to guide the process is also critical for businesses whose core capability is not energy. As such, PowerPulse is also linked to solar photo voltaic and other technical knowledge bases across the energy value chain, “connecting client enterprises with the specialist energy experts, advice and resources that they may require,” reports de Jager.  

Supported by this kind of energy procurement and build capability ecosystem, “any businesses can confidently add an energy income stream to their existing operations or infrastructure,” says de Jager.

Moreover, knowing that clients are being guided by PowerPulse provides Standard Bank with the confidence to provide funding support to as many clients as possible, “heeding the president’s call to contribute to South Africa’s future energy security in a profitable and sustainable manner,” concludes de Jager.

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What it will take for South Africa’s ailing power utility to keep going

By David Richard Walwyn Professor of Technology Management, University of Pretoria

The chief operating officer of South Africa’s electricity utility, Eskom, warned in May that the government should urgently start building new generating capacity. He was referring to a new build programme which has existed for at least a decade.

The country’s Integrated Resource Plan of 2019, a cabinet approved document, sets out the timelines for decommissioning coal-fired power stations and adding 44GW of new capacity, including 18GW of wind energy and 8GW of solar (photovoltaic).

The country is already way behind on this programme, limping along with antique power stations and regular power cuts. Outages are a regular occurrence which are estimated to cost the country’s economy about US$1 million an hour.

South Africans are all too aware that there is an energy crisis. But in my work on energy systems and transitions, I began to ask questions about the real nature and extent of it, and how Eskom should be responding. My views are informed by Eskom’s data portal, a rich source for insights on South Africa’s complex electricity system. The portal is designed to share detailed information on electricity demand and supply. It has data on sources of energy, levels of storage and the extent of loadshedding (power cuts) on an hourly basis.

I analysed the data for demand and supply for the first half of May 2022. It revealed three main trends: demand has fallen; power cuts aren’t as big as they could be; and there’s scope to get more out of the system using renewable energy sources.

South African power supply and demand trends

The data reveals three key trends for the utility. Firstly, Eskom has dropped 6GW (about 21%) of demand within a year. This is because many non-paying customers have been disconnected and several large clients, among them industrial users like mines, are now generating their own power.

The figure below compares two days of demand, one from June 2021 and the other from May 2022. It reflects actual demand, not Eskom’s supply. The difference in demand is staggering. At this rate, South Africa simply won’t need Eskom in five years.

A graphic showing energy demand.
Energy demand from June 2021 and from May 2022. Provided by author.

The second interesting finding is that the quantity of the power cuts is small relative to the total delivered energy. Over the week 12-19 May 2022, Eskom delivered 4,271 MWh of electricity and cut 70 MWh, which is only about 1.6% of the energy generated, as shown in the image below.

I’m making this point to show that power cuts could get much worse, unless the rebuild programme begins soon. One reason that the power cuts attract high media attention is that consumers bear a disproportionate share of the energy cuts relative to Eskom’s anchor customers.

For instance, under level 4 where power cuts can last for over five hours in a day, lower end users have power for only 67% of the day – meaning 33% of their power supply is cut. But the total energy saving across the whole system is 10%. This suggests that Eskom deliberately preserves supply for its anchor customers – large industrial users and essential services – even during the power cuts.

The final issue is that Eskom could get more capacity from its pumped hydro schemes. These schemes use excess power at night to pump water to high storage dams, from which the water is released during the day to meet the higher demand during daylight hours. During the week 12-19 May, capacity utilisation of pumped hydro was only about 38%.

If there had been sufficient power during the day to refill the reservoirs, Eskom could have added 1.7 GW of generation capacity during the early evenings, making full use of the pumped hydro capacity and avoiding the need for loadshedding. That daytime power could have come from the renewable energy programme, if the Department of Mineral Resources and Energy had followed the build schedule.

Figure showing the portion of the energy supplied by solar power facilities.
Energy supplied by solar power facilities. Supplied by author.

Eskom’s options

What are the options for Eskom, apart from starting the build programme?

To answer this question, we need some basics on energy systems. South Africa has a diverse energy system. Electricity is obtained from coal (the largest source), wind, solar, hydro-electric, nuclear, diesel and imports.

Wind, solar and nuclear can’t be controlled by the operator. Gas, hydro-electric, pumped hydro and diesel can. Coal is somewhere in between the two. Eskom’s role as the system operator is to blend all the sources to match the demand.

The difficulty is that both demand and supply are variable, as shown for solar in the image above. It is akin to managing a catering event when you have no idea how many guests will be there or how many meals will be delivered.

So, Eskom follows some simple rules (like other energy system operators). The rules are first to use sources it cannot control (wind, solar and nuclear), then add the coal power stations, and then top up with hydro-electricity and pumped hydro. And if there is still a shortfall, bring in the gas and diesel turbines.

The most obvious solution to Eskom’s immediate problem is two-fold:

  • bring in more renewable energy, especially wind and solar, of the independent power producers procurement programme
  • make more use of pumped hydro by using any sources of additional low-cost power, available from independent power producers and elsewhere.

This approach has already been outlined in my previous publication covering the independent power producers procurement programme. I criticised the programme’s requirement of stand-alone power producers and argued that interconnectedness of the producers would reduce cost and increase resilience in the system. It is precisely this arrangement which will provide a solution to the short-term issues within the national grid.

In the longer term, the country needs to properly implement the 2019 Integrated Resource Plan, even if it clashes with the Department of Mineral Resources and Energy’s coal, gas and oil interests. If the country doesn’t start the 2019 plan now, it will lead to the demise of Eskom as an energy producer as users are compelled to turn to other sources.

Article courtesy of The Conversation.

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Small businesses are being left in the dark when it comes to renewable energy solutions

Although Eskom and government provide support for large renewable energy projects designed to bridge the power gap on a number of levels, there is still an important piece missing from these initiatives. Owen Murphy, Tax Specialist at BDO, shares some insights around the role government plays in supporting small businesses in the energy crisis.

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The reality of SA’s electricity crisis

South Africa’s power sector is navigating an almost perfect storm of a growing electricity supply deficit, exacerbated by Eskom’s deteriorating generation because of increasingly unreliable coal plants, resulting in skyrocketing electricity prices. Together these forces are crippling the economy.

With the country emerging from a Covid-induced economic slowdown over the past two years, it is becoming clear that we have been lulled into a false sense of progress regarding the rollout of new energy generation. The stark reality of the situation is alarming, with almost weekly load shedding and the possibility of stage 8 recently mentioned by the government. We are on track to break another record for the worst year of load shedding. By Eskom’s own admission, load shedding so far for 2022 has already exceeded their predictions and is set to worsen in the months ahead.

Figure 1: Hours of load shedding from 2014 to 2021[1]

Given the delayed roll-out of the emergency power procurement plan, which was set to start a year ago and due to come online this month, Eskom has been forced to rely even more heavily on its diesel-fueled generators, at an enormous cost to the utility. South Africa also faces growing pressure to transition to clean energy to meet environmental commitments and avoid punitive international trade terms.

Key questions that need to be answered are: What has been done to address this situation? Will the current plans be enough, and how could the country accelerate the power sector’s reform?

PLANNED INTERVENTIONS: BUT ARE THESE ENOUGH?

South Africa’s successful Renewable Energy Independent Power Producer (REIPPP) programme over the past 10 years and planned reform of the power sector and transition to cleaner energy has been internationally recognised and achieved significant support.

Since 2019, the government has announced several notably bold plans, given the country’s historical reliance on Eskom’s centralised command and control of electricity supply. These have included:

  • Eskom’s unbundling and energy sector reform in September 2019 (“Roadmap for Eskom in a Reformed Electricity Supply Industry”).
  • Updated Integrated Resource Plan (IRP-2019) in October 2019, which outlined the planned electricity procurement over the next 10 years and the transition in the energy mix towards renewables.
  • Launch of Emergency Power Procurement Plan (RMIPPPP) in 2020 and announcement of RMIPPPP preferred bidders in March 2021.
  • The resurrection of the REIPPP programme, with the launch of Bid Window 5 in April 2021 and the announcement of preferred bidders in October 2021. It follows a hiatus of procurement from Independent Power Producers since Bid Window 4 was announced in 2015.
  • Government’s move to unlock private power generation and grid access by lifting the Nersa licensing threshold to 100MW in August 2021.
  • Local research and the development of green hydrogen and battery storage, technologies that are globally acknowledged as key to power generation in the future.

Over the last six months, plans by Independent Power Producers have been complicated by an international supply backlog in the equipment required to build new power plants, together with a significant increase in shipping and insurance costs.

Unfortunately, the delays and unpredictability of contracting Independent Power Producers since 2015 has almost wiped out the local supply industry, necessitating a measure of foreign-sourced procurement. However, there is optimism about re-igniting the development of the local supply sector, given the amount of renewable energy set to be rolled out over the next 10 years. 

MUCH HAS BEEN ACHIEVED ON PAPER

In theory, much has been achieved in terms of the intention to reform the energy sector and unlock new sources of electricity supply. In summary, the following steps to take electricity generation forward have been made:

  • RMIPPPP: 11 Independent Power Producers were awarded almost 2 GW of new power contracts more than 12 months ago, but only three are nearing financial close.
  • REIPPPP Round 5: 25 Independent Power Producers were awarded 2.6 GW of new power in August 2021 in the most heavily contested bid window, resulting in the lowest tariffs awarded so far in South Africa.
  • Private power generation: dozens of projects totaling some 4 GW are in the pipeline for registration to avail of the <100 MW embedded generation cap.
  • IRP 2019 has outlined the decommissioning of more than 10 GW of coal by 2030, replacing it with 31 GW of new power (incl 21 GW of renewables) over this period.
  • Eskom’s unbundling has progressed and the first step of legally separating its transmission operations into a separate company was achieved in late 2021.

THE REALITY OF THE SITUATION

Despite the ambitious plans and the initial steps taken, there is growing frustration with the glacial progress that is being made towards fully executing them. South Africa is one to two years behind the new power schedule outlined in the IRP 2019.

The first three projects under the RMIPPP programme concluded Power Purchase Agreements by Eskom in early June 2022, with financial close expected within 60 days, but most of the programme has stalled. Environmental issues and litigation plague the Karpowerships, and the pass-through of gas costs are now prohibitively expensive for Eskom. Many REIPPP Round 5 projects are struggling to close, given the significant price adjustments of engineering, procurement and construction contracts against the backdrop of the tight margins bid under the REIPPP programme. Private power projects are also struggling to meet Nersa’s stringent requirements – 18 projects have been registered, including 16 in April 2022, since lifting the licensing threshold in August 2021.

The capacity of Eskom’s national transmission grid is highly constrained in the Northern and Western Cape, limiting the potential for new projects to connect to the grid. Furthermore, the reliability of Eskom’s coal plants is rapidly deteriorating. The Energy Availability Factor (EAF) for the year to date has averaged less than 60%, and the trajectory is increasingly moving in the opposite direction to the 75% targeted EAF that was envisioned in the government’s plans under the “Roadmap for Eskom in a Reformed Electricity Supply Industry”. The increasing cost of maintaining Eskom’s aging assets, together with the huge cost over-runs and interventions to address design flaws of mega coal plants Medupi and Kusile, has driven up the real cost of electricity by more than 600% over the past 15 years.

Figure 2: Eskom average tariff vs. inflation (CPI)[2]

Note: The graph depicts overall average increases – actual increases will be different for different types of consumers (residential, commercial and industrial) and will vary between municipalities.

THE ROADMAP TO TURNING AROUND THIS DIRE SITUATION

  • We urgently need to simplify and fast track the registration of license-exempt projects (<100 MW) through better coordination between Nersa, Eskom, the Department of Mineral Resources and Energy (responsible for electricity procurement), the Department of Public Enterprises (responsible for Eskom) and National Treasury.
  • To assist Eskom, private concessions should be given to Independent Power Producers to upgrade parts of the grid network where they need to connect. Independent Power Producers could achieve cost recoveries if the wheeling fees Eskom charges for using its grid network were reduced.
  • To expedite the financial close of Round 5, consideration should be given to granting a one-off adjustment to the tariffs to help projects address the unexpected increase in equipment supply costs. Doing so would arguably be cheaper than the cost to the economy for every day of load shedding, plus the cost of running diesel generators by Eskom.
  • Instead of a new bidding process for Round 6 of the REIPPP programme, there could be an award of Power Purchase Agreements (PPAs) to the lowest range of bidders that missed the tariff cut off in Round 5.
  • Another update to the IRP is needed given the delays in project closings and performance deterioration in Eskom’s coal plants. This should include the increased allocation to electricity procurement from Independent Power Producers by municipalities in good financial standing, expected to be a growing factor in South Africa’s electricity sector reform in the years ahead.
  • A formal plan to facilitate the use of Eskom’s infrastructure by municipalities in good financial standing that wish to procure electricity directly from Independent Power Producers, and consumers who wish to sell power into the grid, would greatly assist in rolling out the decentralisation of power away from Eskom generation.
  • The updated IRP should include an increase in the speed and scale of developing additional renewables and battery storage.

EXECUTION OF THESE PLANS ARE THE KEY TO A BRIGHTER FUTURE

There is an urgent need to fast track the build-out of new power generation to minimise the reliance on Eskom’s coal plants and reduce the negative impacts of load shedding. Many positive factors support energy reform, including the extensive national grid infrastructure, significant amounts of private investment in the pipeline, South Africa’s vast natural resources, and global support for the clean energy transition.

The key issue is prioritising, coordinating and executing decisions that are primarily still on paper. We cannot afford further delays; this is a national emergency for South Africa. We need to do more, faster. However, inflexible regulatory paradigms restrict private sector investors who have the capital, expertise, and the will to make a difference. Significant capital investment is required to upgrade/strengthen the grid. It cannot be left up to Eskom alone and offers an opportunity for public-private partnerships that will ultimately lead to a brighter future for our country.


[1] Source: CSIR Energy Centre

[2] Source: https://bit.ly/3xu4KFa

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Wind energy association unpacks complexities of procurement process

Responding to the announcements made last month delaying two renewable energy procurement rounds, meant to unlock and deliver new generation capacity for the country, the South African Wind Energy Association’s (SAWEA) provides insights.

June 2022

The sector in general, view the interrupted procurement as unfortunate, citing that this delays the achievement of investment, job creation and security of electricity supply that South Africa desperately needs. However, Chair of the Working Group, Kai Howie, notes that considering the complexity of the market and scale of the procurement process, it is understandable.

“We understand that these projects are complex and that given the chaos on the global manufacturing and logistics markets, as well as inevitable process delays, it is not entirely surprising that there has been a postponement to signing the agreements with the state utility and government departments, and achieving financial close where funds can be drawn down to fund the construction of these renewable energy projects,” says Howie.

BW5 preferred bidders are now expected to reach financial close by the end of next month, or late September 2022, pushed out from end-April, which was just six months after the bidders announcement in October last year. Whilst it isn’t certain which of the preferred bidders are earmarked for commercial close and financial close for the two allocated deadlines, as the discussions between the preferred bidders and Eskom are generally confidential, Howie explains that the original timeframe was actually very tight. He also explained the complexity around setting an ideal timeframe, considering the policies and pricing requirements.

“The ideal timeframe for these projects to reach financial close needs to be short enough so that pricing from suppliers and contractors can be as close as possible to the pricing that was bid on, and long enough so that all permits, consents, and the Eskom budget quote can be obtained as well as for all agreements to be negotiated and finalised,” explains Howie.

While six to twelve months may be an ideal timeframe, this is still challenging for preferred bidders considering the current international market conditions, which means that pricing cannot be locked in for significant periods. On the other hand, regulatory processes, for example, the water-use licence process, take months to complete, even with the assistance of the Presidency’s office.

Further addressing the policy and regulatory environment, Howie and his industry colleagues are looking at how processes can be adjusted to ease the pressure on IPPs.

“Firstly, the capacity of various government departments needs to be improved to ensure that requests for permits and consents can be processed as quickly as possible. Secondly, given the uncertainty and instability in the global manufacturing and logistics markets, placing full pricing risk on bidders is not conducive to projects reaching financial close. Finally, relooking at the risk allocation to ensure that there are not onerous terms which need to be passed down to suppliers and contractors could go a long way in ensuring that the projects reach financial close in a shorter period of time as this would simplify the negotiations significantly,” reports the SAWEA Policy and Markets Working Group.

The Group report that the cumbersome policy relating to commercial closure range across a number of departments, which are battling to issue permits and consents timeously. The sector has noted that the Department of Water and Sanitation has certain capacity challenges, which are being addressed to improve turnaround times.

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“Landmark” power purchase agreements signed, but Mantashe still punts multiple energy technologies

“Leave the issue of environmental challenges to environmentalists. They will take us to court, allow us [the Department of Mineral Resources and Energy] to go to court… Eskom must not enter that space. They must take up energy. That’s it.” This was said by Minister Gwede Mantash, at the signing ceremony of the first three power purchase agreements under the RMI4P on 2 June. 

by Julia Evans, Daily Maverick

Mantashe was addressing Eskom CEO André de Ruyter, emphasising that Eskom should focus solely on energy generation, and not let environmental concerns stop it from having procurement in a range of energy technologies like gas and nuclear. The three power purchase agreements (PPAs) of the RMI4P, signed at the Independent Power Producers (IPP) offices, were dubbed “landmark projects” as they are considered to be the largest renewable projects of solar and battery combined technologies in the world. 

The Risk Mitigation Independent Power Producer Procurement Programme (RMI4P) was introduced to the market in August 2020 and aimed to close the immediate energy supply gap, as indicated in the 2019 Integrated Resource Plan, and reduce the extensive use of diesel-based peaking electrical generators in the medium to long term. 

The RMI4P had a target of procuring 2 000 megawatts (MW) of new generation capacity from different generation projects.  

Of the 11 PPAs awarded to preferred bidders in March and June 2021, three of the projects have now been signed, which saw Norwegian renewable energy company Scatec enter a 20-year agreement with Eskom to dispatch 150MW (all projects are 50MW each) to the national grid, between 5am and 9.30pm daily. 

Bernard Magoro, the head of the IPP office, called the RMI4P a “long journey” — the bid window was opened to the market in August 2020, and now, nearly a year after all the preferred bidders were announced, some of the PPAs are being signed into agreement.  

Delays can be attributed to ongoing litigation and administrative problems, such as three gas-fired projects failing to secure environmental permits to operate and red tape put up by the National Energy Regulator of SA (Nersa) delaying renewable projects. 

De Ruyter said at the signing ceremony: “This is unique technology in that for the first time we now have dispatchable renewable energy thanks to a combination of solar and batteries. 

“And this addresses one of the key challenges of renewable energy in that, typically, without storage, they are self-dispatching.” 

Jan Fourie, Scatec’s general manager for Sub-Saharan Africa, told Daily Maverick that to his company’s knowledge their project would be one of the biggest solar photovoltaic (PV) and battery projects on the planet. 

“It proves that dispatchable renewables are possible. It’s cost-effective. And it’s available today,” said Fourie. 

“So I think it takes away the argument that renewables are intermittent.” 

The “landmark” projects will be built in the Northern Cape 12-18 months after the financial close (3 August 2022) and have an installed capacity of 540MW of solar PV capacity and 1.1GWh of battery storage. 

Mantashe said that while he was excited about the contribution these projects will make, “I want a bigger contribution”, and the process of building generators needed to be reviewed and shortened to address the urgent issue of load shedding. 

“We must find a formula of cutting that process out and make it easy to do business in South Africa,” said Mantashe. 

Prices for these projects were bid at R1 884.61 per MWh – which is favourable compared to the R2 300 to R9 000 per MWh Eskom is currently paying. 

The projects have attracted R16-billion in investment and will create about 4 968 job opportunities (measured in job years) during their construction and operation. 

Anti-bribery and corruption clause 

De Ruyter said the agreements include anti-bribery and corruption clauses. 

“This is very important, of course. Eskom’s recent history has been characterised by capturing corruption, and we have therefore taken a very firm stance on this,” he said. 

“We are able to give the South African public the assurance that these agreements have been done with the very strictest standards of corporate governance and ethics. 

“I think it shows what the art of the possible is if we are all together held accountable for maintaining the highest standards of governance.” 

The benefits of renewable energy 

Terje Pilskog, the CEO of Scatec, whose company already has six renewable projects operational in South Africa said: “We believe South Africa’s abundant sun and wind resources combined with the quick turnaround of establishing renewable-based projects make for the most effective and sustainable solution to the energy risks the country is facing.” 

Pilskog illustrated the benefits of renewable energy, citing how it is cost-competitive relative to thermal energy, doesn’t experience pricing volatility like fossil fuels, is not linked to international commodity prices and is a big part of the solution of reaching commitments of the green transition and limiting global heating to 1.5 or 2°C above pre-industrial levels.  

“It has achieved its rightful status as the lower-cost, clean alternative to fossil fuels. And we should seize the opportunities that are arising as a result.” 

However, Mantashe was not sold. 

Mantashe sticks to gas and nuclear

Today, we signed power purchase agreements with 3 projects under RMIPPPP. These projects are expected to add new energy to the grid within 18 months. We did this against the backdrop of #Loadshedding which hinder on our economy & on livelihoods. #InvestInSAEnergy #InvestSA pic.twitter.com/TUgnMIvbvJ

— Gwede Mantashe (@GwedeMantashe1) June 2, 2022

In his address at the ceremony, after expressing his excitement at the Scatec projects, he emphasised that the energy mix should include several types of generation.  

“My biggest problem as a person is the polarisation of the debate among energy technologies,” said Mantashe, saying that the debate made it seem that in order for one technology to expand, another must die. 

“We need all of them. We are short of energy. We don’t have universal access to energy. So everybody must have space to grow.” 

Mantashe said the IPP office should work to get the other eight RMI4P projects signed, including resolving the problem of Karpowership (which has three approved PPAs). 

Mantashe said he had seen Karpowership and gas-to-power technology work very well in Ghana and Gabon, as well as Europe.  

“In South Africa — no. All the gas projects that have been approved are taken to court. 

“But Europe has taken a decision that gas and nuclear are part of the energy mix. In South Africa, we don’t want to touch anything.” 

Mantashe added that Europe had labelled gas and nuclear as part of the energy transition. 

He said he made this point not because he thinks one technology is better than another, but because he believes multiple energy technology solutions can coexist together and resolve the problems of load shedding and energy poverty. 

New IRP finally being revisited 

In line with his thinking that multiple energies can coexist and solve issues, Mantashe revealed that on Wednesday night his department had made the decision to revise the Integrated Resource Plan (IRP), which last came out in 2019 and details what South Africa’s energy mix should look like based on cost and social imperatives. 

He said they were revisiting it now, as a big part of the plan had been implemented and they had to revise it now to look into the future, beyond 2030. 

Mantashe’s department has faced criticism for not updating the IRP sooner, as the introduction to the 2010 IRP (the last one to come out before the 2019 IRP), states:  

“The Integrated Resource Plan (IRP) is a living plan that is expected to be continuously revised and updated as necessitated by changing circumstances. At the very least, it is expected that the IRP should be revised by the Department of Energy (DoE) every two years, resulting in a revision in 2012.”  

When asked why the IRP had taken so long to be updated, Mantashe said the previous IRP came out in 2011, so this revision was happening a lot faster and they needed time to implement the plan and assess results. 

The minister also said that revising the IRP would be a very long process, so he could not give specifics on when it would come out.

This article first appeared on Daily Maverick and is republished here under a Creative Commons license.

Green Economy Journal Issue 52

READ GREEN ECONOMY JOURNAL ISSUE 52: On page 20, a case study details the renewable energy solution modelled for a tailings processing and exploration diamond mining operation. It demonstrates the engineering and economic feasibility of various hybrid energy approaches.

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SA wind energy industry reaffirms commitment to energy security

May 2022

As the country bears the weight of continued load shedding, the South African Wind Energy Association (SAWEA), has reaffirmed the sector’s role in delivering energy security. This is despite the recent announcement of delays of two renewable energy procurement rounds meant to unlock and deliver new generation capacity.

Responding to a recent statement issued by the head of South Africa’s Independent Power Producer Office (IPPO), Mr Bernard Magoro, the Association says it is encouraged by the leadership demonstrated and the sentiments of stakeholder alignment. SAWEA has been lobbying for increased stakeholder engagement and alignment, as it is the key to establishing the foundation for accelerated procurement and unblocking hurdles.

“We continue to build relationships with the key stakeholders including the IPPO, Eskom, Department of Trade Industry and Competition (dtic) and Department of Mineral Resources and Energy (DMRE) and are assured that the stakeholders are having the right conversations to support the procurement process with the aim of more megawatts on the grid as quickly as possible,” said Niveshen Govender, CEO of SAWEA.

The South African wind power sector is robust and has the appetite, ability and capacity to deliver (at least) 1.6GW of new power generation per year, for the next decade. This has been demonstrated by exceedingly high levels of bid submissions for BW5 and reaffirmed by Magoro this week, who stated his confidence in the market appetite for the Renewable Energy Independent Power Producer Procurement Programme’s BW6. He noted that more than 50 potential bidders have acquired the bid documentation, and furthermore that the National Treasury has confirmed that the programme will continue to be granted government guarantee.

The Association points out that the sheer scale of these mega-projects, valued each on average over R1.5billion investment, require a slew of work to bring them to commercial closure. Commercial close is when the project agreements are signed, which is basically the achievement of the necessary power purchase agreement to sell electricity with Eskom and the implementation agreement with Government, which determines how Independent Power Producers (IPPs) will implement their projects and what economic development goals will be achieved.

“We are dealing with billion-rand projects that require in excess of sixty applications, licences, permit agreements, regulatory compliance processes, which demonstrates the importance of cross-sector stakeholder relations and supportive policies,” added Govender.

Citing the recent procurement round delay from end-April, the Association has pointed out that the failure to secure final budget quotes from Eskom for grid connection, shouldn’t be singled out as the only reason for postponements. It is suggested that a six to 12-month timeframe may be more realistic to navigate the cumbersome processes.

“I estimate around 12 months is a more realistic timeframe, which should be incorporated into the procurement process to reduce the public perception of delays, in addition to increased stakeholder engagement to resolve this,” reiterated Govender.

When asked about the comments made by the African Independent Power Producers Association Chairperson, SAWEA, has stated that it prefers to engage key stakeholders directly and work through the challenges in a constructive manner.

“South Africa can address fundamental challenges of energy access, energy security and climate change through the deployment of renewable energy. For this to happen, it is best that all stakeholders move towards working better together to achieve this,” concluded Govender.

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A perfect storm is forcing green independence from the coal-dominant grid

By Lance Dickerson, MD, Revov

For all our best intentions and well-meaning words, it is often easier to continue with the status quo. However, a perfect storm in South Africa has catapulted us into a new energy future. While its painful now, we will be grateful in a decade or two from now.

South Africa has relied on an ever-weakening coal-based national power supply with Koeberg being the sole nuclear reactor. As far back as 1998 – some would argue earlier – the writing has been on the wall. In the years leading up to the 2010 World Cup, the new-builds such as Medupi were already too little, too late. This is even before the cost overruns, delays and expensive design flaws. This as other countries were investing billions into renewable energy builds.

We’ve had some great announcements locally. There is the 100MW private embedded exemption and if one drives along various routes such as the N2 in the Eastern Cape you will see growing wind farms, but where is the mass rollout of renewable power generation? Most South Africans can answer this question.

Over the same period, the world has become conscious of the environment and there’s been a push towards reducing carbon emissions. The Congress of the Parties (COP) 27 will proceed later this year in Africa, after the last edition of COP was criticised for underrepresenting the so-called Global South. All eyes will be on countries such as ours.

While one may well be cynical about the level of carbon emission concern globally, the truth is that many countries have already made bold commitments. Norway, France, UK, US: they’ve all made bold plans to reduce and outlaw internal combustion engines by various dates – all of which fall, by the grace of God, comfortably within our lifetime. We will see it.

China is light years ahead of a country like South Africa. Shenzhen, the home of electric vehicle (EV) maker BYD, has 16 000 electric buses and 22 000 electric taxis. Carmakers around the world are investing billions of dollars into research and development, from 100% EV makers to traditional brands plotting their plans to shift their businesses to the certain electric future.

None of this is new. We’ve known this in South Africa for years. We’ve known the world is moving to renewable energy and e-mobility. Ask the average South African for their thoughts on the mass rollout of electric charging stations and their answer will likely be: “Great, but where will the electricity come from?”

Everyone knows Eskom barely has its head above water. We feel it with incessant bouts of load shedding. This is part one of the perfect storm. Out of necessity the government will have no choice but to speed up the transition to renewable power generation, complete with private players that can deliver. Businesses and households have little choice but to find ways to protect themselves from this unreliability.

The second part of the perfect storm is the cost of fuel. The end of May will likely see a record fuel price increase, made worse by the temporary fuel levy grace period coming to an end. Running a generator during prolonged periods of load shedding is very quickly becoming something only those with very deep pockets can contemplate. One shudders to think that Eskom runs diesel generators to keep our lights on. The costs are eye-watering.

The third part of the perfect storm is the repo rate increase cycle, putting pressure on already squeezed retailers and consumers. Costs eventually have to be passed on. Imagine running a small or medium business that’s dependent on electricity to generate revenue while the power is removed in bouts of stage 2, 3, 4 (and possibly more) load shedding. Imagine the squeeze when read against increasing rent, increasing input costs and ever-more weary customers. How long is this sustainable?

The fourth part of the perfect storm is the willingness of private financial institutions and lenders to proudly advertise credit and funding lines for renewable installations. Businesses and private households will likely take up this offer precisely because it gives them the opportunity to develop freedom from dependence on a broken grid.

Within five years we will see huge investments in installations of all sizes: homes, small businesses and larger manufacturing and mining operations that require high-voltage solutions. Lithium iron phosphate batteries mean that the ability to store energy has come on in leaps and bounds.

That’s the perfect storm – where South Africans are forced to make the transition. However, the good news is that by using 2nd LiFe batteries, where the cells are repurposed from EV batteries, consumers and businesses can make the transition with the peace of mind that they are contributing to an important step in the circular economy: they are using batteries that don’t add further strain to the environment such as their first life counterparts.

That’s where we want to be: in a world where conscious decisions are made to look after the planet. If it takes us being forced, through a perfect storm of Eskom failures and economic headwinds, to get there so be it. Better late than never.

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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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Latest tariff increase highlights why South Africans should generate their own power

The National Energy Regulator of South Africa (Nersa) recently approved a 9.61% increase in the price of electricity for Eskom. While this is much lower than the utility’s requested 20.5%, it is still clear that finding alternative energy solutions has never been more important for South Africans.

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