Transition to low-carbon economy urgent – President Ramaphosa

President Cyril Ramaphosa says the country must urgently reduce its carbon and greenhouse gas emissions or risk experiencing negative social and economic consequences.

The President was addressing the nation through his weekly newsletter.

Carbon and greenhouse gas emissions are a product of the burning of fossil fuels, such as oil and coal, which contribute to global warming and changes in the Earth’s climate patterns (climate change). President Ramaphosa said the impact of climate change is already felt in some South Africans’ quality of life through drought and flooding.

“Several communities in Mpumalanga, for example, are affected by high levels of pollution, which increases respiratory illness and other diseases. Those who are dependent on the ocean for a living have already seen depleted fish stocks amid changing weather patterns and changes in ocean temperature,” he said.

The President warned that if the country continues its carbon-intensive production methods, the economy will bear some risks.

“As our trading partners pursue the goal of net-zero carbon emissions, they are likely to increase restrictions on the import of goods produced using carbon-intensive energy. Because so much of our industry depends on coal-generated electricity, we are likely to find that the products we export to various countries face trade barriers. In addition, consumers in those countries may be less willing to buy our products.

“The other economic risk is that investors will shy away from investing in fossil fuel-powered industries. Banks and financial institutions are already facing pressures from their shareholders not to finance enterprises that depend on fossil fuels to produce their products or services,” President Ramaphosa said.

A just power transition 

President Ramaphosa acknowledged that although the low-carbon economy transition is a necessary one, it needs to be “just” because some sectors will be negatively impacted. “There are several important sectors of our economy that will be negatively affected by such a transition, including agriculture, tourism, mining, energy, transport, manufacturing and the biodiversity economy.

“That is why a transition…must address the needs of workers in these industries and in affected communities. The process of transition needs to be based on the full involvement of organised labour and business in targeted programmes of reskilling and upskilling, creating employment and providing other forms of support to ensure workers are the major beneficiaries of our shift to a greener future,” he said.

Transforming communities and electricity sector

President Ramaphosa said government is already developing plans on a transition towards a low-carbon economy, starting with the electricity sector which, according to the President, contributes to 41% of the country’s emissions.

“It will be the quickest industry to decarbonise and will have a beneficial impact across the economy. We will be decommissioning and repurposing coal-fired power stations, and investing in new low-carbon generation capacity, such as renewables.

“We will also pursue ‘green’ industrialisation, such as manufacturing using green technology and a shift to the production of electric vehicles,” the President said.

In line with this, President Ramaphosa announced that the State power utility will transform a coal-fired power station into a renewable power production plant.

“Eskom will be undertaking a pilot project at its Komati power station, which is due to shut down its last coal-fired unit next year, to produce power through renewable energy. Komati will serve as a good example of how this shift from coal dependency could be achieved,” he said.

The President said in Mpumalanga’s mining towns, government is working with different sectors in pursuance of moving towards less dependence on coal, assessing its impact and making sure that “communities are protected against the risks and benefit from the opportunities presented by this transition”.

“There are economic challenges and risks. There are huge economic opportunities that we must seize. South Africa is endowed with abundant resources that can be harnessed to open up new frontiers of investment and growth and build a new economy in areas like green hydrogen. By pursuing these opportunities, we can ensure that our just transition yields new innovative opportunities that will create new jobs.”

Cooperation is key 

The President said in order for the country to meet its target of reaching net-zero carbon emissions by 2050, developed nations will be required to keep promises made to financially support energy transitions in countries like South Africa.

In this regard, government is working with international partners to secure a financing facility for the decarbonisation effort.

“This is not about charity. It is about fairness and mutual benefit. Countries with developed economies carry the greatest responsibility for climate change as they have historically been the biggest polluters, while developing economies are the worst affected. That is why wealthier countries have an obligation to provide significant financial support for developing economies to adapt to climate change and reduce emissions,” President Ramaphosa said.

South Africans too, are required to commit to the transition to a low carbon-emitting economy.

“The climate transition is something that affects every South African and we all need to be part of its design and implementation. We have undertaken widespread consultation and there is broad support among social partners for an ambitious, realistic and, most importantly, just transition.

“We have to act now if we are to achieve sustainable and inclusive growth, secure the health and well-being of our people and safeguard the future of our planet,” he said. – SAnews.gov.za

View more

International climate deal could solve SA’s energy and economy crisis

Some of the world’s richest nations recently met with South African cabinet ministers to discuss a climate deal that could see billions of dollars put toward ending the country’s dependence on coal.

The delegation is trying to hammer out an agreement that can be announced at the COP26 climate talks, which start in Glasgow, Scotland on 31 Oct, two people familiar with the talks said. The discussions with South Africa — the world’s 12th-biggest emitter of greenhouse gases — include representatives from the US, UK, Germany, France and the European Union.

While South Africa is under pressure to cut its dependence on coal, which accounts for more than 80% of its power generation, it needs finance to facilitate the transition to cleaner energy. Developed nations may also need to find a way to address the challenges faced by South Africa’s state-owned power utility, which is burdened by R400-billion of debt.

The envoys met with South African ministers including Pravin Gordhan, the public enterprises minister whose portfolio includes oversight of power utility Eskom Holdings, Barbara Creecy, the environment minister, and Ebrahim Patel, the country’s trade and industry minister, the people said, asking not to be identified as a public announcement has yet to be made. Talks will be held with South Africa’s politically powerful labour unions, business leaders and the Presidential Climate Change Coordinating Commission, three people familiar with the arrangements said.

The South African ministers pressed for details on what finance was available, but the envoys favour an incremental approach and more commitments from South Africa, the people said. While Gordhan urged support for Eskom, other options such as transitioning South Africa and its car industry toward electric vehicles were also discussed, they said.

Albi Modise, a spokesperson for the environment ministry, confirmed that a group of ministers met with the envoys but declined to comment further, saying a statement will be issued later. 

Some senior members of South Africa’s government are pushing hard for climate mitigation measures. President Cyril Ramaphosa chairs the climate commission he created last year and its more ambitious emissions reduction target was adopted by cabinet this month. Creecy has said developed countries need to boost energy transition and climate-adaptation funding to developing nations.

“South Africa is well-positioned to obtain concessional finance both for the country-wide climate transition and the electricity transition in particular,” Gordhan said in a response to queries before the meeting.

Still, the pivot from coal faces opposition within South Africa. Gwede Mantashe, the country’s energy minister, has advocated for the construction of new coal-fired power stations. Mantashe, the former head of the National Union of Mineworkers, is the politically influential chairman of the ruling African National Congress.

The move to reduce South Africa’s reliance on coal comes as Chinese demand pushes prices toward record highs. The dirtiest fossil fuel, which was struggling against cleaner energy sources, is now seeing its biggest comeback ever, complicating international climate talks set to begin in just a few weeks. 

Courtesy of Bloomberg.

BY: BLOOMBERG

View more

Eskom has launched renewable energy tariff

Eskom has launched the Renewable Energy Tariff pilot programme to assist many businesses that have corporate renewable energy commitments. This enables customers to source a blended electricity supply with up to 100% of their electricity from one of the utility’s renewable sources.  

The Renewable Energy Tariff pilot programme gives customers a mechanism to achieve their renewable energy commitments to purchase this energy from Eskom, without the initial capital investment of having to own a renewable energy generator or to enter into long term Power Purchase Agreements (PPAs). The offer allows customers to have a 24-hour blended renewable supply to their facility and allows them the flexibility to relocate premises without needing to move renewable energy assets. 

Eskom generates green power from some of its renewable electricity plants such as the Sere Wind Farm and run-of-river hydro facilities. The Renewable Energy Tariff pilot programme is initially limited to renewable electricity generated from the Sere Wind Farm and only available to Eskom’s customers. 

During the period of the pilot programme, Eskom offers a maximum of 300GWh per annum to customers supplied directly by Eskom, on a first-come-first-served basis.

COST-EFFECTIVE AND FLEXIBLE

Monde Bala, Group Executive Eskom Distribution Division explains, “The Renewable Energy Tariff is designed to provide a cost-effective and flexible option for Eskom customers to consume renewable power. It further provides flexible, convenient and short-term power purchases for when you move your facilities. It will be available to Eskom supplied customers whose electricity accounts are up to date.” Bala says the tariff will be available to Eskom business customers who have green targets and who would like to use renewable power in their facility or production processes.

All participating customers will have an option to select any percentage of their current electricity usage to be green. The Renewable Energy Tariff can also supplement wheeled electricity from a third party or own renewable electricity generated on-site to help customers achieve their clean energy target. The tariff is designed as a declining block tariff.

MORE GREEN LESS GREEN

The more green energy a customer purchases (as a percentage of total consumption), the lower the rate, more detail on the tariff pilot is available from the Eskom website (https://www.eskom.co.za/eas/renewable-energy/).  Eskom customers, therefore, have an option to select an affordable contract, which is charged monthly, based on the percentage of renewable energy they consume, and this percentage will be charged monthly as specified in the contract. 

At the end of 12 consecutive months, Eskom will evaluate the amount of renewable energy in kWh consumed against the contracted percentage, and if the actual capacity is less than the contracted capacity, Eskom will adjust the Renewable Energy Tariff based on the actual percentage. The renewable energy charge payable by the customer will be adjusted accordingly.

The customer’s next electricity account will be adjusted to reflect the difference. Eskom’s Renewable Energy Tariff pilot programme will last for a two-year period ending 31 March 2023, after which the company will make a decision whether to take the tariff for formal approval.  

For more information visit the website at https://www.eskom.co.za/eas/renewable-energy/

View more

Shedding the light on Eskom and its mountain of debt

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

By Sithembiso Garane, Head of Listed Credit @ Futuregrowth

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

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

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

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

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

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

Financial highlights FY20/21

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

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

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

Futuregrowth

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

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

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

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

Some encouragement but concerns remain

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

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

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

View more

Large-scale private power generation gets the green light – or is it amber?

By Jason van der Poel, Alexandra Felekis & Mzukisi Kota from Webber Wentzel (With technical input from Andrew Johnson of Zutari)

The recent gazetting of amendments to Schedule 2 of the Electricity Regulation Act (ERA) of 2006, which will increase the licensing threshold for embedded generation projects from 1 MW to 100 MW, is not only good news for South Africa’s biggest energy users. It will also bring eventual energy security to smaller businesses and consumers, who can look forward to a reduction in loadshedding and less reliance on Eskom in the future.

The main amendment to Schedule 2 of ERA is in paragraph 3.1, which now provides that operating an electricity generation facility, with or without storage, with a point of connection to the transmission or distribution grid, with a capacity of no more than 100 MW, is exempt from licensing by, but will require registration with, NERSA.

In practical terms, this means that the following facilities are now exempt:

  • Non-wheeling facilities – located close to or adjacent to the end user customer or purchaser of the energy where there is import and export at the same point of supply (otherwise known as net-metering) or that connect “behind the meter” (the generation facility connects and feeds energy within the purchaser’s connection infrastructure). The operator of the facility does not use the transmission or distribution systems to convey energy to the purchaser’s system;
  • Wheeling facilities – situated away from the purchaser, with wheeling arrangements in place to convey the electricity to a purchaser through the transmission and/or distribution system. The generator or owner of the facility must have a connection agreement with the relevant distributor or the transmission company; and
  • Other facilities – generation facilities that do not export or import electricity onto or from transmission or distribution systems.

There are additional exemptions, including for facilities that only provide standby or back-up electricity or that do not have a point of connection. Other activities exempt from licensing, and which require registration under paragraphs 3.2 to 3.5 of the amended Schedule 2 of ERA, include demonstration facilities and a distribution facility up to the point of connection that connects an exempted generation facility where there is wheeling (Distribution Licence Exemption).

Also, a reseller of electricity will not be required to obtain a trading licence to buy electricity from an entity and resell it, as long as the price paid by the customer is not higher than the price that would have been charged by a municipal distributor or Eskom in that distribution area, and the reseller has entered into either a service delivery agreement with a municipality or other distributor, ratified by NERSA (Trading Licence Exemption).

However, certain issues are still unclear.

Firstly, it is uncertain whether an exempted electricity generator can sell electricity to multiple end-use customers. The language in paragraphs 3.1.1 and 3.1.2 of the amended Schedule 2 provide for the exemption where the generation facility is operated to supply electricity to “an end-use customer“.  The Interpretation Act of 1957 provides that “in every law, unless the contrary intention appears words in the singular number include the plural, and words in the plural number include the singular“.  In the absence of any evident contrary intention, we believe an exempted generator is empowered to sell electricity to multiple end-use customers.  We would, however, recommend that clarity be sought on this from the Department.

Secondly, generation facilities that are commonly referred to as off-grid facilities seem to be covered by the exemption that provides “the operation of any generation Facility with or without energy storage provided irrespective of capacity, the facility does not have a point of connection“.  But there is also the exemption of “other facilities” – which might be intended to cover “behind the meter” connections.

Thirdly, it is unclear whether the reference to “where there is conveyancing of electricity through the transmission or distribution power system” in the Distribution Licence Exemption is intended to exclude the operation of distribution lines that connect behind the meter. In this instance, the electricity exported to the purchaser’s system would not be conveyed through a distribution power system.

Fourthly, in respect of the Trading Licence Exemption, “reseller” is defined as a person who purchases electricity from a trading entity to sell it to a customer, but “trading entity” is not defined. It is not clear which sellers of electricity would qualify as trading entities.

Fifthly, it was generally expected that the final law which will come into effect would be published, but the use of the phrases “intend to amend” and “intend to determine” in paragraphs (a) and (b) of Government Notice No. 737 suggest that this notice may merely indicate an intention to amend Schedule 2 of ERA, as if the Government Notice and its Annexure do not yet constitute the amendment, which will follow at a future date.  While on balance it seems that the amendment to Schedule 2 of ERA in the Government Notice and its annexure are in fact intended to take legal effect on the date of publication, the uncertainty caused by the “intent” language is less than optimal for such a significant development in the energy sector.  We would recommend that clarity be sought on this language from the Department and a correction notice be published.

Finally, it is questionable whether the operator of an exempted generation facility would be required to obtain a trading licence in order to sell electricity to an end-use customer.  In our view, the answer is negative.

The licensing exemption will only have real import for the electricity sector once the registration requirements are issued by NERSA. We expect that NERSA’s current registration requirements for facilities with an installed capacity of 1 MW are likely to apply, with some additional requirements.

Amendments to allow less-fettered large-scale electricity generation to represent a seismic change of law and a major step towards deregulating South Africa’s electricity supply industry. They are welcome news for businesses whose operations have been hampered by Eskom’s capacity constraints.

View more

ESKOM REPORT: No further available capacity for RE to be connected to the Northern Cape grid

The Generation Connection Capacity Assessment, a report published by electricity provider Eskom, points to the potential of new energy projects soon needing to consider locations outside of the Northern Cape.

“Eskom recently published an updated Generation Connection Capacity Assessment (GCCA) which illustrates the capacity that is available for the connection of new generation capacity to the national grid. This report indicates that there is no further available capacity for renewable energy to be connected to the Northern Cape grid, which means any new PV or wind projects will need to look at other provinces such as the Western Cape, North West, Free State or even Limpopo,” says Jan Fourie, General Manager in Sub-Saharan Africa of Norwegian renewables giant and recent Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) tender award winner, Scatec.

This could create the opportunity for the advantages of the ‘just energy transition’ process to spread across more parts of the country, to the benefit of more communities in other provinces.

Most of the current renewable energy projects in South Africa are located in the Northern Cape, where it makes use of the abundant wind and solar resources that are available. It is estimated that 70% of new PV and 60% of wind projects developments are located in this province.

Fourie says the update published by Eskom describes a congested provincial grid, which cannot take any on additional projects without a substantial upgrade of the grid itself.

“Considering the urgency of our country’s need to transition to renewable energy, I don’t foresee this being a practical option in the short term. The alternative is for developers to look at other provinces where solar and wind resources are also available.

“This creates an opportunity for a more socially just transition to cleaner energy, which can also result in a fairer distribution of skills and jobs across more provinces. The development of new projects in other parts of the country brings with it the opportunity of new job creation and it can also redeploy those currently employed in the coal sector.”

The major factor that determined the location of a renewable energy project, says Fourie, has for a long time been the access to wind and solar resources which explains the popularity of the Northern Cape.

“Developers will now need to consider grid capacity perhaps more than access to resources. South Africa is in a fortunate position to have an abundance of solar and wind resources, and there is now the potential of a very welcome cash injection for other provincial economies which will ultimately be in everyone’s best interest,” says Fourie.

The Generation Connection Capacity Assessment of the 2022 update Transmission Network (GCCA-2023 update) provides stakeholders with an indication of the available capacity for the connection of new generation at the main transmission system (MTS) substations on the Eskom transmission network that may be in service by 2022 based on both approved and proposed new transmission infrastructure projects.

View more

Nersa to oppose Eskom High Court application

Nersa to oppose Eskom High Court application to review energy regulator
decision on the regulatory clearing account and supplementary applications for the 2018/19 financial year

The National Energy Regulator of South Africa (NERSA) confirms that at its meeting held on 28 April 2021, the Energy Regulator resolved to oppose the High Court application brought by Eskom Holdings SOC Limited (Eskom) against NERSA to review and set aside the Energy Regulator’s decision pertaining to the approval of a Regulatory Clearing Account (RCA) balance of R13.271-billion for the 2018/19 financial year, and the Energy Regulator’s decision to grant Eskom’s supplementary revenue balance of R1.288-billion in respect of the 2018/19 financial year.

The Eskom judicial review application was received on 12 April 2021. In arriving at the decision to oppose the application, NERSA considered the factual matrix, applicable regulatory and legal principles. NERSA further considered the impact of Eskom’s continuous court review applications on the Government’s economic recovery plans, as well as hardships on customers. In this regard, interested stakeholders are welcomed to join NERSA in opposing the review application if they consider that the Court decision may negatively affect them.

NERSA will be opposing the judicial review application within the required time frame and process.

View more

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.


View more

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?

View more

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.

View more