Eskom testimony at Zondo Commission points to key issues for directors

Testimony at the Zondo Commission relating to the prepayment of R1.68 billion to Tegeta, a company owned by the Gupta family, provoked strong words from Deputy Chief Justice Raymond Zondo.[1] Dr Simo Lushaba, Facilitator of Director Development Programmes at the Institute of Directors in South Africa (IoDSA), says the whole incident illustrates how seriously directors should approach their duties.

“Justice Zondo suggested that the directors were negligent at best. If we take that line of thought to its logical conclusion, they could be at risk of being sued for damages in their personal capacities,” he says. “Directors need to accept that theirs is a very serious job and that the stakes are high. Their only protection against decisions that are proved to be wrong is that they did discharge their duty of care, and made decisions based on a thorough examination of the facts and in the best interests of the company.”

Dr Lushaba pinpoints the lessons for directors as follows:

Understand your primary duty as a director. When individuals accept a board appointment, they are assuming a duty of care towards the entity, not to whoever appointed them or themselves. Their actions and decisions have to be guided by the interests of the company and its stakeholders.

Apply your mind and ask the right questions. In this case, the trigger phrase was “proposed owners”, which should have prompted directors to question why money for a commodity was not being paid to the existing owners. “In any event, you don’t buy something from the owner of the store, you buy it from the store itself,” he comments. “The most basic question was never asked – who owns the coal and why aren’t we paying them?”

Dr Lushaba emphasises that one of the primary duties of a board member is to ask questions and that there is no such thing as a stupid question. Directors are under an obligation to apply their minds to whatever is before them and to adopt a stance one might call “professional scepticism”.

Be courageous in discharging your duty of care. The fact that no directors dissented when approving this prepayment to “proposed owners” indicates that the board dynamics were out of tune. Directors must have the courage not only to ask tough questions but to dissent when a decision they believe to be wrong is adopted—a good director is an independent thinker.

An important corollary is the importance of diversity. Boards will not generate the necessary quality of questioning if they do not contain individuals with different backgrounds, experience and skills.  

A board is a collection of individuals, not a group and, crucially, directors are held individually responsible for the board’s actions.

Understand the interplay between risk and opportunity. One of the then-directors attempted to portray the board’s action as an effort to secure the supply of a necessary raw material. However, what seemed to be an opportunity hid considerable risk. The same point could be made about risks. “One of a board’s key jobs is to understand the risks the organisation faces and protect it from them,” Dr Lushaba concludes. “Directors cannot just look at opportunities.”


[1] News24Wire, “Zondo blasts ‘negligent’ former Eskom board over R1.68bn prepayment to Gupta entity”, Engineering News (11 February 2021), available at https://www.engineeringnews.co.za/article/zondo-blasts-negligent-former-eskom-board-over-r168bn-prepayment-to-gupta-entity-2021-02-11/rep_id:4136.


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Eskom: the time has come for freedom from dependence

Lance Dickerson, MD: REVOV

Freedom from dependence is liberating in that it places far more of your destiny in your own hands. Whether it is a marriage, a friendship, or a business, dependence provides security when the going is good but is disastrous when things go south. The country’s dependence on Eskom represents one of the biggest risks to us achieving our shared potential.

Every time the utility announces load shedding our economy takes a further beating. Freedom from dependence on Eskom is the only way to prevent this destructive cycle, made even worse by the ongoing Covid-19 pandemic.

Imagine for a second that a small business signs one large client and a few small ones. That large client accounts for 80% of the business’ revenue. If that client folds or leaves with its business, the implications are clear to see.

Imagine a retailer paying R30 000 a month in a shopping centre. Two weeks of level 2 load shedding – or a total of 48 hours of closure – are enough to force them to close the doors, and this after they have already been forced to close for extended periods due to Covid-19.

Often, when enterprises are in a position of dominance, such that their customers are entirely dependent on them, they sit on their hands – why is there a need to maintain, innovate and improve service delivery?

Not too long ago, the metered taxi industry was comfortably in control of the passenger vehicle taxi sector. If one needed a ride home from the airport, or to the stadium to watch your favourite team, they dictated the terms. Their loud, and sometimes violent, reaction to disruption from e-hailing services was the result of losing their position of dominance – suddenly customers had freedom of dependence.

Eskom is a monopoly. The country has identified the SOE as a strategic asset, and our collective fate is tied intricately to its prospects. Freedom from dependence in the Eskom context does not speak to privatising the electricity grid in South Africa – this debate is a rabbit hole that may well waste another decade. We have no more time to waste.

Eskom is predominantly coal-powered, and as we know with the IPP programme, government has earmarked renewable energy as a key investment area. This development is to be welcomed, however, we must understand it is a long game. Time is like gold when you don’t have too much left.

If we consider that Eskom has announced that load shedding is here to stay, with some analysts such as Chris Yelland arguing that while 2020 was the worst year on record, 2021 may well be worse and that until the end of 2022 at least, the situation is unlikely to change. We simply must find fast, sustainable solutions to become free of dependency on Eskom.

Every time the utility announces load shedding the economy is squeezed a little more, suffocating green shoots that have survived the hammering of the Covid-19 lockdowns.

For some time, many South Africans went out and bought generators. But, spare a thought for the thousands of stores in the middle of shopping malls or retail complexes that do not have the luxury of running cables from a generator hidden out back. Spare a thought for the micro-enterprises that cannot afford to purchase or run generators. This, despite the fact that burning even more fossil fuel represents a bitter irony of doing more harm to undo the harm.

Not all retail landlords can take the burden of providing continuous energy supply during load shedding, and this is why so many malls become lonely, dark places when Eskom flips the switch. The damage that these interruptions – for hours on end during operating hours – cause is immeasurable.

Covid-19 forced large swathes of so-called white-collar workers into a remote-working culture. How many corporates pull out their collective hairs when employees are not in Zoom meetings or do not deliver on projects because, “I was having load shedding”.

Freedom from dependence is when this destructive cycle ends. Imagine a world where freedom from dependence means that it does not matter whether there is load shedding – small businesses can also stay open and remote workers have the power and connectivity they need to carry on delivering.

It doesn’t fix the problem – that is ever-present and represents the biggest strategic challenge for South Africa.

What it does, though, is take the lost productivity of hundreds of thousands of workers in thousands of businesses, out of the equation. Shops in malls and retail centres, remote workers, freelancers, consultants and labourers alike can all carry on. It’s a small plug in the hole – but a vital plug.

This is precisely why Revov has pioneered a model of bringing continuous power solutions to small businesses, individuals, and corporates at a cost that’s less than a monthly cell phone rental – all the while using the Stellar 2nd LiFe technology, repurposed from electric vehicle (EV) batteries, which helps reduce the carbon footprint of keeping the lights on. These second-life batteries are not second-hand storage batteries, rather they are built from repurposed EV cells, thus bringing the reliability and longevity of lithium-iron at a reduced cost.

These portable uninterrupted supply systems were developed to answer the question: what does freedom from dependence look like for those who can no longer afford electricity distributions?

This philosophy does not detract from the strategic importance of Eskom, rather it enables big and small businesses to continue operating while Eskom renews itself.

We call on all South Africans to think out of the box and be creative: How can we, in our respective lives and businesses, achieve the freedom to give our economy a second life?

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Out of the coal age and into the stor-age

Seydou Kane, managing director for South Africa at Eaton, considers the shift away from coal towards renewables – and the potential for a future microgrid energy market in South Africa

South Africa’s energy generation capacity is dominated by fossil fuels, with this source accounting for 91.2% of the country’s energy, according to the 2019 Integrated Resource Plan. While the country is likely to continue turning to coal as its main source for generating electricity, plans are well underway to diversify South Africa’s energy mix. With multiple solar projects already operational, along with numerous wind farms producing energy too, it’s clearer than ever before that South Africa is well on its way to sourcing as much as 25% of its energy mix from renewables by 2030.

If the future of South African energy is going to depend increasingly on renewables, effective storage will be vital to better connect these energy sources to the grid. Energy storage will also be key to making our national energy infrastructure more resilient and, importantly, enabling it to increasingly rely on clean energy sources.

Learning to rely on renewables

Renewable energy has long been treated with skepticism. Some policymakers argue against renewable energy sources as unreliable, and this has resulted in a roller-coaster market for renewables as policies sometimes shift rapidly – seemingly without consideration for the impact to benefits such as jobs and energy independence. Yet, the ever-decreasing cost of renewables as technology advances has kept the South African market growing, albeit more slowly than is required to meet stated commitments for carbon reduction.

One major argument against renewables is that they do not produce a consistent baseload power like fossil fuels. The common refrain is that the wind does not always blow, and the sun does not shine at night. Of course, these are true, but it must be remembered that we are in a transition to a cleaner future – it is not an overnight change. It will take time, but the day will come when we run completely on renewable and clean power. 

This is being accelerated by the falling cost of battery storage which helps optimise the use of intermittent renewable energy on the grid – further opening up the possibility of powering South Africa with clean, renewable energy while shifting further away from our reliance on fossil fuels.

When renewable energy sources generate more energy than businesses or homes require, the excess can be stored securely. This energy can then be released during times of peak demand, which means less need for conventional fuel generation. This reduces the carbon footprint of South Africa’s energy supply. Even better, this energy can be located anywhere on the grid or in private consumer homes, so that businesses and houses can help eliminate harmful emissions and save costs.

To meet global emissions reduction targets and drive forward a nationwide low carbon economy, we will need to learn to rely on renewables.

The deployment of pioneering energy storage solutions will be crucial in this process as we attempt to embed sustainability within the national energy grid.

Creating a more resilient grid with a ‘behind the meter economy’

Another increasingly interesting application of storage is in microgrids which can efficiently and economically plan for local energy generation and distribution, while increasing reliability. The implementation of local, distributed power generation and storage can be designed to allow portions of the grid and critical facilities to operate independently of the larger national grid when necessary, helping reduce the potential for unforeseen blackouts. The storage systems that are part of these microgrids – whether large or small – can also provide ancillary services to the grid, again strengthening performance and reducing the use of carbon generation.  

Energy storage gives businesses and consumers the power of choice to optimise their energy costs and provides them with flexibility for the future. We are already seeing advanced aggregators working with businesses to educate and inform them on the extra money to be made while supporting the transition to a smarter, environmentally-friendly energy grid.

The investment opportunity

Investment in storage still needs to increase to ensure renewable energy sources can fully step into the breach created by the decline in coal use.

The ever-falling price of energy storage technology today is creating an increasingly viable and attractive investment opportunity – but many South African businesses are still not aware of this potential.

Energy storage technology can be complicated to understand from a commercial perspective when it comes to exactly how it will save money for a particular site. However, the option to sell surplus energy back to the grid through ancillary services opens up new revenue streams that help offset the cost of electricity and dramatically strengthen the business use case. Adapting the South African regulatory framework to remove barriers to entry in the ancillary services market will facilitate this option and better support the development of a healthy energy grid.

The shift to a cleaner future is already taking place as South Africa moves away from coal and towards renewables. Eskom CEO Andre de Ruyter affirming that renewable energy will have to have a place in the country’s energy portfolio if the utility is ever to provide reliable energy, along with recognising that the company cannot continue to violate environmental laws.  Energy storage will accelerate this trend and help ensure a clean, stable, and cost-effective supply of electricity for the country.

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Minister Pravin Gordhan and Eskom CEO Andre de Ruyter speak: An Independent Transmission System and Market Operator (ITSMO) in SA

An Independent Transmission System and Market Operator (ITSMO) in SA

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Energy arbitrage: A green way of making money

THOUGHT LEADERSHIP |Norman Jackson, Vice-Chairman, South African Energy Storage Association

Every businessman’s dream is to be able to buy low and sell high, without any risk, and on a contract that goes on for dozens of years. – Well that opportunity exists today in energy arbitrage, where you can …

.. buy electricity for R0.59c (Off-peak) and sell it for R3.57 (Peak), just two hours later, every workday.

Well, now that I have your attention. Let me tell you that only works in the high-demand “Winter” three months, the remaining nine months, it is a cost of R0.51 and a selling rate of R1.16 – which makes any calculation complicated, so let’s just proportionally blend the tariffs and get a tariff of R1.7660 (Peak), R0.8717 (Standard) and R0.5283 (0ff-peak).

Fig 1: Extract from Eskom MEGAFlex Gen: Non-Local Authority tariff table

To try and equalise the supply and demand curve for energy in South Africa state utility, Eskom, has a Time of Use (TOU) tariff structure for large users of electricity.

Fig 2: Eskom’s defined time-of-use periods

This opportunity has been around for a long time. The issue has been the cost of storing energy for two hours, which was prohibitively expensive. Well, thanks to electric vehicles and green initiatives, science and engineering have brought down the cost and it is not only theoretically, but also commercially, viable.

In simple terms, we are talking about a large uninterruptible power supply (UPS) that comes in one or more shipping containers. In technical terms, it is a battery storage system (BSS) with a discharge rate of two hours (C=2), a rated capacity calculated after the normal depth of discharge, a degradation of less than 20% over 10 years, based upon 6 000 cycles on the full discharge of rated capacity. The round-trip efficiency of the batteries should be 95% and power electrics 97%, having an overall loss of less than 7%.

Typically, a UPS is expensive, but when you compare it to what happens when you have a sudden interruption in power, the cost is negligible.

– But I digress, having a UPS is a by-product, not the intent of the BSS.

Energy storage is an expansive field, all the way from a human body to a pumped storage hydro scheme. The options are endless, and the technologies are constantly improving. For this example, I am going to choose one of the most common battery storage systems, that is readily available – Lithium Iron Phosphate (LFP). A BSS of the above specification is less than US$400 /kWh (R6 400/kWh). This example is more appropriate for consumers of more than 500kW.

“Sweating the asset” – having an expensive asset at our gate and only using it five times a week for the morning peaks is not optimum. We could also use it for the evening peak by charging it during the day (Standard). We can also use it twice on a Saturday charging at Off-peak and discharging at the Standard rate. In summary, 12 times a week, 50 weeks (considering public holidays), 10 years, which is 6 000 cycles.

Ok, we are now ready to do some calculations:

If we take a figure of 3% of CAPEX for maintenance and battery supplement to keep to our 100% rated capacity, we are looking at ROI of about 13% in year one, but with a modest Eskom increase of 8% a year, the ROI is above 25% in year ten.

Increasing the ROI

From the above, I hope that you agree energy arbitrage pays for itself and is an investment, I am not going to talk technical and put a value to having a huge UPS on your doorstep or try to estimate the savings in network demand charges, which for many customers, are significant.

If we add solar PV to our system, we have our very own power station, and we can charge our BSS System during the day as well. For those not familiar with PV, it is a generator that produces electricity from solar irradiance, but usually requires a reference grid (on-grid). With a BSS, the system would be able to work off-grid as well, which is sometimes referred to as island mode.

In Johannesburg, a solar PV system has a CAPEX cost of less than R9 000/kW, and producers yearly an average of about 2 000Wh a year. Which is about 5.5hrs/day of 100% output. (The actual output is more of a bell curve with lots of slices taken out of it due, to clouds and technical issues. – Another discussion.)

The calculation for the saving/income a solar PV system would give looks generally like this:

That is a healthy 17% in Year One (based on an O&M cost of 2%) and with an 8% escalation in energy prices annually, we are looking at over 35% in Year 10 of its 25-year life output warranty.

Going “green” is no longer an emotional or “right thing to do” decision, it is now the right business decision.

Source: Eskom, Tariffs & Charges Booklet 2020/2021 (www.eskom.co.za/tariffs)

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Green light at the end of the renewable tunnel

While the country continues to struggle with the crippling effects of prolonged load shedding, recent indicators point to a light at the end of the tunnel that is lit by renewable energy. 

Within a short week, the National Energy Regulator of South Africa (NERSA) opened the way to procure new renewable power; Eskom launched a daily power generation data platform that clearly demonstrates transparency; and Eskom’s CEO has been reported to say that new energy generation sources will need to be clean and green.

“We are hopeful that together these indicators mean that policy and procurement can work hand in hand to enable a green power revolution that will support the economic growth that is so desperately needed in South Africa.”

Ntombifuthi Ntuli, CEO of the South African Wind Energy Association (SAWEA)

Mineral Resources and Energy Minister, Gwede Mantashe, reported last week that NERSA has provided its concurrence to a Section 34 Ministerial Determination, issued earlier this year, which opened the way for the procurement of 6 800MW of wind and solar PV power.

SAWEA portends that the country’s continued power crisis is a problem that will keep recurring unless the country executes decisive policy initiatives and implements the 2019 Integrated Resource Plan (IRP), this development is the next step to making this happen.

“It is clear from the 2019 IRP that the new generation capacity should come from low-cost and reliable renewable energy sources, such as wind and other clean power technologies, especially as renewables can be rolled out within a period of 18 to 24 months, so it is the most feasible option to close the short term capacity gap and give the country a chance to catch its breath,” explained Ntuli.

It seems that Eskom’s CEO, Andre De Ruyter, agrees with this sentiment.  He is reported, in a number of media, acknowledging the global shift to renewable energy and that renewable power is cost competitive power, whilst delivering on reduced emissions and jobs.  To this end, the utility has established a Just Energy Transition office, to engage workers and communities, the article stated.

He is also quoted acknowledging the environmental benefits of clean power and that the national utility cannot continue to violate regulations. 

“Climate change and the decreasing cost of renewable energy have proven the case for the shift to renewable energy.”

Eskom’s CEO, Andre De Ruyter

Another win for the renewable sector is the recent issuing of draft regulations by the Department of Mineral Resources and Energy, which paves the way for municipalities to be able to procure their own power from Independent Power Producers. Once that regulation is approved it will open a new market segment for renewable energy procurement.

“We have also seen an increased interest from the private sector, particularly the members of the energy-intensive users group, to procure power directly from Independent Power Producers,” confirmed Ntuli, who says that the industry is ready and eager to help close the energy supply gaps created by Eskom’s reduced Energy Availability Factor and the decommissioning plan tabled in the 2019 IRP.


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Switching to solar? This is what you need to know

While Eskom and NERSA continue their legal battles, and with the specter of a rumored 10% tariff hike waiting in April 2021, most cash-strapped households and businesses might very well be asking what this means for them?

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Return of loadshedding confirms the need for implementation of IRP 2019

Intermittent electricity outages have come back in force while South Africa is experiencing an economic setback during the Covid-19 pandemic. The power disruptions, due to Eskom power station breakdowns, highlight the need for the implementation of IRP 2019.

The Integrated Resource Plan (IRP) 2019 is South Africa’s electricity infrastructure development plan for the procurement of generation capacity up to 2030. IRP 2019 supports a diverse energy mix and sets out nine policy interventions to ensure the security of South Africa’s electricity supply. The resource plan is based on the least-cost electricity supply and demand balance, considering the security of supply and the environment through the minimisation of negative emission and water use. Currently, coal is the main source for our energy supply and contributes more than 60% with renewable energy only contributing 11% to our power supply.

Recently, the government launched its inaugural Sustainable Infrastructure Development Symposium South Africa (SIDSSA) to plan its immediate infrastructure project pipeline aimed at reconstructing South Africa’s economic trajectory. At SIDSSA various investments in the energy sector were analysed. Eleven energy projects were chosen with an investment value of R270 billion. The projects could produce more than 2 000MW.

At an energy roundtable held as part of SIDSSA, Thsifhiwa Bernard Magoro, the recently appointed head of South Africa’s Independent Power Producer Office (IPPO), announced that Bid Window 5, the bidding round for the procurement of utility-scale renewable energy projects, would be launched in the second quarter of 2021. Magoro specified that the finalisation of bid documentation for the Risk Mitigation Power Purchase Programme (RMPPP) was a priority and the request for proposals for RMPPP would be released towards the end of July 2020. The IPPO aim to secure 2 000MW of emergency energy to fill an immediate supply gap that had been identified in IRP 2019.

The COO for the SA Photovoltaic Industry Association (SAPVIA), Nivesh Govender, responded that they are not convinced that the 2 000MW emergency round would be sufficient to address any short-term capacity restraints. SAPVIA has approached the National Energy Regulator of South Africa (NERSA) and recommended that this should be increased to at least 4 000MW with 2 000MW of this being reserved for the Minister’s determination. Govender proposes that the second 2 000MW should remain open for bilateral self-generation builds. “These bilateral self-generation builds require slight regulatory adjustments and will achieve the quickest addition of power at no cost to the government,” Govender said.

During SIDSSA, the Minister for Mineral Resources and Energy, Gwede Mantashe, indicated that the IRP for Round 5 would be published in March 2021. Govender believes that this timeframe coupled with the emergency round and storage acquisition will help achieve grid stability in the mid-term. “These procurements together with a robust self-generation programme will definitely contribute to the desired outcome,” Govender said.

There has also been talk of Eskom being able to access available excess capacity from current IPP projects. “While there is excess capacity available from a number of IPPs, this would require a process. The Department of Mineral Resources and Energy IPPO and Eskom would need to determine how this will happen. I assume they will engage with each of these projects individually and negotiate this. As far as I understand, this process has not moved,” added the SAPVIA COO.

“The IRP’s biggest opportunity is in low-cost electricity which would create additional operational and construction jobs and only consistency will open the prospect for domestic manufacturing of renewable components. Embedded solar energy can also contribute to ensuring energy security in the short- and medium-term which is now even more critical,” says Govender. The solar industry has a policy target to generate 6GW of energy by 2030 and will contribute to the procurement of 2 000MW of distributed energy by 2024.

“Implementation of the IRP is a valuable tool to kick-start our economic response to the pandemic and can go a long way to giving our country the stability and certainty of a reliable power source. Our economy and our future simply cannot afford the uncertainty that comes with the spectre of possibly again going through load-shedding,” concludes Govender.

UTILITY-SCALE TECHNOLOGIES OUTLINED IN IRP 2019

6 800MW of solar photovoltaic (PV) and wind capacity for the years 2022 to 2024

513MW of storage to be procured for the year 2022

3 000MW from gas for the years 2024 to 2027

1 500MW from coal for the years 2023 to 2027

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Eskom piles higher tariffs on consumers

Eskom pending higher tariffs would pile pressure on cash-strapped households and business buckling under the impact of the Covid-19 pandemic.

South Africa’s High Court on Monday sided with Eskom in a dispute over the amounts the National Energy Regulator of South Africa (Nersa) allowed the state utility to claw back from customers for electricity supplied in the 2014/15, 2015/16 and 2016/17 financial years. Nersa’s 2018 decisions to allow Eskom to recoup R32.69-billion via a mechanism known as the regulatory clearing account (RCA) for those three years have been set aside, and it must now come up with new decisions.

Monday’s ruling could lead to higher power tariffs, as the court said it appeared Nersa had disallowed Eskom money for lower-than-forecast revenue based on a “fundamental factual error”. It said disallowing some coal costs was not rational. Higher tariffs would pile pressure on cash-strapped households and business buckling under the impact of the Covid-19 pandemic, but they would be a relief for Eskom, which is mired in financial crisis and has long said the regulator has treated it unfairly.

While the rest of the world has made the move to new technology and LED lighting, most South Africans continue to use old inefficient fluorescent & discharge lamp technology, losing out on the energy-saving, environmental and cost-saving benefits of LEDs. Factors preventing the uptake of LED include installation and replacement costs and the reluctance of consumers to change. However, this does open up replacement opportunities for local companies, as does solar lighting.

LEDs reduce energy consumption by up to 70% for HIDs, and 45% for fluorescent. An 85-watt induction luminaire consumes 50% more energy than the LED alternative with the same lumen output. Bottom line is you will see immediate savings from implementing this technology.

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