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How to remove the Eskom albatross from around SA’s neck

Business Day, 22 JANUARY 2018 – 07:01 TOBIAS BISCHOF-NIEMZ AND JOHAN VAN DEN BERG

Eskom’s current debt is R350bn; it needs to raise an additional R150bn or so over the next three to four years. This is almost certainly impossible, even with a government guarantee, say the writers. Picture: Getty Images

There is a simple way to stabilise electricity prices, cast off Eskom’s crippling debt, boost SA’s credit rating and liquidity, kick-start our economy and yet maintain public sector ownership of critical assets in the electricity sector, all while becoming profoundly green.

It requires a shift of perspective, and so we have developed a metaphor: imagine the country as a modern cargo ship in the middle of the Atlantic. It is driven by both sails (wind) and diesel engines. The engines have broken down and there is no wind — the ship is literally in the doldrums.

A mayday message has been sent and a tugboat has arrived, but has run out of fuel. The ship is leaking and sinking deeper in the water. There is inertia: the tugboat cannot pull.

Time passes, the ship sinks deeper. What to do? The situation seems intractable and a pessimistic mood is becoming despair. It seems a matter of time before the ship sinks and the tugboat saves itself by severing the cable.

The cargo could gradually be thrown overboard, but this would only postpone the inevitable.

Then, magically, someone points out that in addition to gold and diamonds, much of the cargo consists of diesel. If the diesel is transferred to the tug, the tug could pull, the ship would get lighter, its speed would gradually increase, the doldrums would pass, the sails would kick in, the ship would safely reach harbour with everything and everyone intact — bar the diesel.

If we regard Eskom generation (specifically its coal power stations) as an eternal asset like gold or diamonds that must be guarded in perpetuity, the ship (the South African economy) will sink.

If, however, we see it as something with a limited lifetime that must be best used before ceasing to exist (like diesel), all will be well.

Marooned ship

Eskom’s current debt is R350bn and it needs to raise perhaps another R150bn over the next three to four years. This is almost certainly impossible, even with a government guarantee. Eskom cannot stay afloat without a gargantuan government bail-out.

The low electricity price increase, announced by watchdog Nersa in December, has mostly passed the responsibility for funding Eskom from the electricity rate payer over to the taxpayer and the fiscus.

It has been widely reported that Eskom will run out of cash by end of February. Just last week Finance Minister Malusi Gigaba said Treasury did not have the funds to bail Eskom out.

Treasury might break it down into periodic components, fund the most immediate need for some months and hope the problem goes away, but the electricity price is well below what Eskom requires for sustainability, and the question will return again and again.

The build programme for Medupi and Kusile may have to be suspended. We will come to the inevitable choice between a slow submerging and a very unpalatable turn to the International Monetary Fund or World Bank. These institutions would likely impose conditions on lending that would conflict fundamentally with government policy and South African opinions on sovereignty. It would be the impasse of the ship, slowly sinking with no solution in sight.

Fuel for safety and prosperity

The equivalent of the diesel in the hold is the Eskom generation fleet, consisting of 15 coal-fired power stations. These all have limited lifetimes and were built to serve the country and economy before being retired and replaced. Scheduled decommissioning dates start soon and end in 2050 or later.

Given that these assets were meant to be extinguished over time for the common good, we can choose to do so in the most beneficial manner. This would be to remove them from the Eskom fold and to dispose of them to public or private entities as described below.

How it would work

1. The existing power stations would be grouped into three categories:

• Category 0: The oldest, which have recently been calculated to be more expensive to keep than to shut them down immediately: Camden, Hendrina, Komati, Grootvlei and Arnot

• Category 1: All others but Medupi and Kusile: Kriel, Matla, Duvha, Tutuka, Lethabo, Matimba, Kendal, Majuba

• Category 2: Medupi and Kusile

2. Power stations of category 0 would remain with Eskom for controlled immediate decommissioning over the next five years (in sync with Medupi and Kusile coming fully online).

Power stations of categories 1 and 2 would be sold in a staggered manner, one by one, over the next five years in competitive auctions.

3. What is up for sale in these auctions is the power station itself, all its power station-specific obligations (staff contracts, coal-supply contracts, supplier contracts, environmental obligations, etcetera) lumped with a power purchase agreement at a predefined, power station-specific tariff.

4. The power purchase agreement is a contract that entitles the new power station owner to supply a specific amount of electricity annually, an electricity budget, over the power station’s lifetime to the Single Buyer Office (hosted in Eskom’s Transmission System Operator division) at the predefined tariff. The amount of electricity will equate to the expected output at normal system-friendly operations.

5. There will be payment for electricity delivered (and only for electricity delivered) and a penalty for not being available (a “capacity nonavailability penalty”). The new owner of the power station will be fully responsible for maintaining and operating the power station, while the Eskom System Operator, in its national control centre, would be responsible for the day-to-day system-optimal dispatch of the power stations within the technical restrictions and the agreed annual electricity budget, broken down into monthly sub-budgets.

6. The agreed electricity budget would constitute both an entitlement and an obligation. The new power station owner would be entitled to have at least the agreed electricity budget bought or paid for (ie, a “take-or-pay contract”), making the power purchase agreement “bankable” — that is, financeable. On the other hand, the new power station owner would be obliged to produce at least that agreed amount of electricity per year if requested by the System Operator, or face penalties.

7. The power station-specific power purchase agreement tariff would be high enough to cover all coal, employee and operational costs and leave a margin. The present value of that margin over the lifetime of the power station, minus the present value of the expected rehabilitation cost, is the amount of money that can be raised through the auction.

8. From the revenue of electricity sales, the new owner must set aside ring-fenced, insolvency-safeguarded funds for closure and rehabilitation of the power station at the end of its lifetime (and the synchronised end of the power purchase agreement lifetime). The cost of rehabilitation is estimated at a substantial R10m per megawatt, which would be available at the time of closure as a fund to pay for the rehabilitation process. For a typical power station that is between R30bn and R40bn.

9. The duration of each power purchase agreement would be linked to the planned decommissioning date, but would be capped at 20 years. The reason for the cap is that additional years at the tail-end of the power purchase agreement contribute little to the achievable sales price, while power purchase agreements of longer than 20 years would lock the country in unnecessarily long, in light of the fact that in 20 years in all likelihood new solar photovoltaic and wind power, plus batteries, will be significantly cheaper than existing coal-fired power stations.

10. In terms of the bid conditions, staff and existing coal contracts would be maintained as before and would be transferred to the buyers. The purchase sum would be payable upfront in a lump sum. Those prospective buyers able to operate most efficiently would be able to bid highest and would win. That means whoever offers the highest lump-sum price for the power station with all its obligations plus the power purchase agreement would be the new owner.

11. One power station of category 1 could be sold first as a trial. After adjustments to the bid rules for lessons learnt, the remaining power stations could then be auctioned one at a time, in the ascending order of their remaining lifetime. No entity may own more than 20% of the overall electricity budget of roughly 200TWh a year, to prevent anticompetitive behaviour.

12. Category 2, Medupi and Kusile, would be sold in a package with higher tariffs, and resulting higher margins, to take into account the fact that enough capital must be raised through the sale to be able to pay back the associated loans on Eskom’s side. They would also be sold last, after full commissioning by Eskom. It is assumed that Eskom would finalise only units 1-4 of Kusile and scrap units 5 and 6, as it has recently been shown it will be cheaper not to complete than to finish them.

13. Eskom continues to own and operate the pumped storage and peaking plants plus the nuclear power station Koeberg, and otherwise to exist as before, being primarily responsible for planning, operating, expanding and balancing the grid.

14. As old power stations are decommissioned by their new owners at the end of the respective power station and power purchase agreement lifetime, new power plants are procured (also on long-term power purchase agreements) that are the lowest cost addition to the electricity at the time while keeping the security of supply at the accepted level. Based on present market conditions and also trends, this overwhelmingly would be solar PV and wind power, mixed with flexible power generators, demand-response and (in future) battery storage.

Cash injection for SA

The proceeds of the auctions would be a function of where the electricity tariff in the power purchase agreements is pegged. The lower the price, the lower the proceeds. The higher the predefined power purchase agreement tariff, the higher the proceeds from the auction. We have chosen to use moderate, but still cost-reflective, rather than subsidised electricity tariffs. The proposed tariffs per power station are sufficient to cover all operational expenses and would leave a margin whose present value over the lifetime, minus the present value of the funds set aside for rehabilitation, determines the achievable sales price.

In category 1 this margin is pegged at 20c/kWh, leading to power purchase agreement tariffs of between 54c/kWh and 72c/kWh, the variance resulting from the different coal costs per power station.

In category 2, Medupi and Kusile, the proposed contribution margin is 60c/kWh, to be able to achieve a sales price sufficient to repay the associated loans on Eskom side. At such margins and tariffs, the country could raise about R450bn from the series of auctions. This would extinguish all Eskom debt and leave some valuable cash to upgrade the grid and recapitalise the new Eskom.

Price and grid stability

A major benefit would be very stable, affordable and predictable electricity prices.

SA has long been beholden to Eskom’s inefficiency and poor governance. These have had to be paid for by the rate payer or taxpayer. It is a bit like trusting someone with a credit card and hoping they will be responsible: if the trust proves to have been misplaced, the only option is to grimace and pay. This pattern has recurred.

With a sold-off Eskom coal fleet, inefficiencies would lead to losses for new owners but not for the public.

The average electricity price is overwhelmingly driven by the cost of Eskom’s coal fleet. This is about 55c/kWh today. The grid (Eskom transmission and Eskom distribution), customer service, metering, billing and all overheads adds roughly another 30c/kWh, for a total of about 85c/kWh. Medupi and Kusile are costing significantly more than 100c/kWh. As they are completed, the average tariff will increase.

New solar photovoltaic and wind power stations cost only about 60c/kWh to 65c/kWh. If we embark on a least-cost expansion path, replacing old coal predominantly with solar PV and wind, the long-term electricity tariff in SA will stabilise at about 100c/kWh: 70c/kWh for generation and 30c/kWh for the grid and all other costs.

Our grid can easily accept an aggressive roll-out of variable renewable energy until at least 2030, given the current coal capacity installed. Between 2025 and 2050, as this winds down, we’d have to assess the state of international progress on electricity storage and dynamic grid management already developing internationally in grids dominated by variable renewable energy. If required, the country can then invest in storage capacity and/or generation capacity that fits well with renewables, like gas or regional hydro.

Government control of key economic assets

It is axiomatic in the prevailing policy discourse that the government should retain ownership or control over key economic assets, of which electricity is one. The present proposal leaves space for this to occur, in two ways:

• Control over the grid practically constitutes control over the electricity industry. It is a natural monopoly and Eskom would retain that control. The government can control where the grid goes, who it serves, who supplies electricity into it, how it is maintained and how it is built to serve broader objectives like the National Development Plan. The electrons travelling on the grid are similar to the cars travelling on the national road network. It isn’t necessary to own every car in order to control transport in the country. Electricity can be procured from independent power producers while retaining control over the electricity system in the country. This has been proven in many countries.

• Beyond this, there is every possibility that public sector entities like the Public Investment Corporation (PIC) could invest in the auctioned Eskom power stations either through equity or debt or a mix of both, and pay a specialised service provider to operate them on its behalf. They would in fact be exchanging a very open-ended and precarious Eskom bond for an equity investment in a long-term infrastructure asset with a very predictable, long-term return — a much better position to be in. While no entity may own more than 20% of the fleet, to ensure fair play, there are different public sector pension funds that might be interested, while it might also be possible to finance equity for the trade unions.

Effects

Taking this route, Eskom generation would cease to be an unbearable drag on the economy. Its sale would stabilise electricity prices, greatly improve liquidity in the country, and bolster our credit rating and leverage investment through a better economic outlook and certainty about the future electricity price. The energy-intensive mining and beneficiation sectors would benefit particularly. Treasury would be rid of a R350bn albatross around its neck and would be left with far lighter offtake guarantee for the electricity delivered to the grid operator (as it would be performance-based — “no electricity, no payment”).

The PIC could greatly lower the risk profile of its South African investments. Mismanagement of any of the coal power stations would lead to lower profits for the owner but would not affect the electricity price. The scope for corruption would have been curbed significantly.

Eskom would be able to concentrate on what it can do very well: design, build and maintain the grid, and operate the power system as a whole. That capability of Eskom is a national asset and could be leveraged to help electrify the continent. Eskom could become the “super grid company” of Africa and one of the largest in the world.

There is precedent for this: in China, grid and generation have been separated since 2002. The former State Power Corporation of China was divided into one grid company, responsible for building, maintaining and operating the grid, and several generation companies. The purpose was to create competition between the generators. The State Grid Corporation of China today is by far the largest utility in the world with almost 1-million employees, and now provides grid services to multiple countries outside China on concession.

In this proposal, rehabilitation of retiring stations would be fully funded and open to scrutiny. As new power came online, SA would gradually become (again) a country with some of the lowest electricity prices in the world, due to superior wind and solar resources, and would converge on a zero-carbon electricity sector.

At a macro level, government would retain control of the electricity sector, jobs would be safeguarded and we would be able to turn our attention to other challenges the country faces in its journey to greater prosperity and equality.

• The authors were appointed to the inaugural Ministerial Advisory Council on Energy. Dr Bischof-Niemz was the founding head of the Energy Centre at the Council for Scientific and Industrial Research and previously worked for Eskom on the Integrated Resource Plan. He is now head of global business development at Enertrag. Van den Berg is an advocate and former CEO of the South African Wind Energy Association who is now MD of Skrander.

Eishkom and avoidance of intervention

Richard Worthington, Daily Maverick, 15 January, 2018.

There are many points of entry for addressing the dire situation within our “public enterprise” responsible for electricity supply, particularly within Eskom Generation and the self-serving cabal within this corporate behemoth – a league of unknown extent that I shall refer to as Eishkom.

The ongoing refusal by Eishkom to conclude power purchase agreements (PPAs) that government committed to with renewable energy power producers over two years ago – and thus obstruction of more than R55-billion of investment – is probably even more damaging to the economy (inter alia via investor confidence and credit ratings) than the arbitrage that has been exercised over coal procurement and driven up fuel costs. This merits urgent intervention by the state: an immediate illustration of an ability to cut through capture by vested interests and honour fiduciary commitments made by the state.

The commission of inquiry into State Capture just announced by the president looks unlikely to be a promising point of entry for timely and effective remedial action, particularly if the advice of the public protector is followed, as reported in Greg Nicolson’s article.

Is it not patently absurd to suggest that terms of reference for an inquiry should “ensure that no stone is left unturned … in order to avoid any further allegations of State Capture being lodged with the Office of the Public Protector,”?

Talk about scope creep. How about the possibility of allegations of improper influence being raised regarding the recent deal or agreement with Russia for financing exploration for natural gas in SA territory, with associated consideration of importing their gas? Should the terms of reference seek to avoid such allegations being lodged?

As for Zuma’s call to uncover “… all those who may have rendered our state or parts thereof vulnerable to control by forces other than the public…” – One might as well then combine it with the process of ANC introspection, and indeed a performance (and outcomes) review of all our politicians, as well as state bureaucracy, the financial sector…

The DA apparently wouldn’t mind this being a fishing expedition and doesn’t seem able to drive immediate remedial action, or to be solutions-oriented beyond advocating privatisation. Nersa has failed to insist that Eishkom publicly disclose all the information upon which this monopoly made its application for tariffs, despite requests by many stakeholders, and has yet to publish the reasons for approval of the increase that was granted (far less than requested) late in 2017.

The parliamentary inquiry by the Committee on Public Enterprises was looking rather encouraging in 2017, although a key witness in hearings appears to be targeted for constructive dismissal by Eishkom – Jessica Bezuidenthout reports Company Secretary Suzanne Daniels saying “ the case against her had been “concocted’ and that it may have been a “ruse” to get her out of the way.”

It seems doubtful the committee could force remedial action by the recalcitrant minister.

It is widely agreed that Eskom is on a path to bankruptcy (some say on the brink), primarily due to the management of the generation division, particularly the costs (incl. of delays) of building the two coal behemoths Medupi and Kusile. Coal procurement seems to have become a patronage playground, under the guise of black economic empowerment, but without seriously threatening monopoly capital (and some players off-loading risks in the process).

Various mainstream commentators and industry representatives are flagging the dangers of a utility financial death spiral as electricity sales remain below the 2007 level and costs of operating the existing generation fleet continue to escalate. Is anybody considering scenarios for Eishkom taking down the whole corporate entity, e.g. for Eskom to be put under business rescue, say if Treasury (and the PIC) does not provide another massive bailout?

As important as it is to uncover past wrongdoing, we need to prioritise damage control and solutions and beware of impediments to radical intervention, including judicial processes that may be used to generate legalistic procrastination. The viability of our public energy utility is surely more important and urgent to the credibility of the currently ruling party, not to mention the economy, than ensuring that the scope of any inquiry is exhaustive? …

… Could it be that business rescue is the most promising point of entry to tackle the Eishkom malaise? What structure or institutional arrangement could succeed where government’s secretive “War Room” on Eskom achieved only some co-operation on demand management? It would certainly seem that the potential source(s) of capital have the best prospect of forcing changes that cannot await the outcome of comprehensive inquiries.

Here is the full article

Energy Indaba 2017

5 December, 2017

(Ed. note: This is a draft of the agenda. This Indaba is supposed to be open to the public, but it isn’t apparently. One has to be invited and “pre-approved”, the media as well. This is NOT a public consultation, it appears to be part of the drive by Messrs Zuma, Mahlobo and others to drive through a distorted IRP in order to be able to force in nuclear. This although the modelling by the DOE itself, and Eskom, and the CSIR all conclude that nuclear is not needed until 2030 or later, and even then it has to be forced in by constraining renewable energy – at a high cost to electricity consumers and stretching our debt load even more. However, don’t expect sense to prevail at the Indaba!).

Final-Energy-Indaba-programme-3-Dec-2017

Minister of Energy on government’s plans in energy sector Day 1

PMG, Energy, 21 November, 2017.

Energy

Chairperson: Mr F Majola (ANC)

Meeting Summary

Here is the presentation at the PCE Portfolio Committee on Energy – David Nuke Mahlobo

The Portfolio Committee on Energy was briefed by the Minister of Energy on the government’s plans relating to key and strategic matters in the energy sector until 2030.

The Minister said that the government’s energy policy was based on the country’s natural endowments and that while adjustments were made, the overall policy would remain the same. The Department of Energy (DoE) sought to ensure security of supply for the country, as well as to bring South Africa into line with its international obligations, namely the Paris Climate Agreement, and the overall government policy framework, the National Development Plan (NDP). This would require increasing overall energy capacity while decommissioning some coal power plants to reduce emissions. Increases in the overall share of electricity produced by nuclear power plants and renewable energy sources were planned to increase capacity while reducing emissions. Additional capacity would be needed in refineries and in knowledge production in the energy sector.

While some Members of the Committee praised the comprehensive nature of the Minister’s report, others expressed concern that there was limited explanation of the costs, particularly for the nuclear programme. There was concern that the Integrated Resource Plan (IRP) was being rushed and had limited public input. Members asked how the Minister could justify nuclear power when members of his own Cabinet said it was too costly, and other research showed that it was not needed, nor was it the most cost-effective energy option. They questioned the Minister’s appointment amidst rumours of Russian influence.

Questions were asked about the procurement process for nuclear amidst reports that procurement was continuing unabated, despite a court order which set nuclear procurement aside. The Minister was questioned on perceived mismanagement at ESKOM and the Department’s role in supporting Independent Power Producers (IPPs). Members observed that some businesses and private consumers were getting off the grid due to the rising price of electricity, and asked what the implications were for ESKOM and the energy sector.

Meeting report

The Chairperson said the Minister’s presence was required to respond to questions and comments from the Committee. The issues addressed were not new, but he hoped that those issues would be dealt with comprehensively. The Committee needed certainty and clarity on where the Department was and where it was going, specifically with the proposed nuclear programme and reports of restructuring of an important company.

Minister of Energy: Government’s plans for the energy sector.

Mr David Mahlobo, Minister of Energy, said the Department of Energy (DoE) was pleased that there was a lot of interest in the work the it did, since energy was in the national interest. The Department intended to convene an energy indaba later in the year, as government could not make decisions on its own. Some of the issues would be resolved by the end of the ANC conference, where the party elects leaders and decides on policies.

The Department derived its mandate of energy security from the National Energy Act. It needed to ensure diversity in sources of energy, and this was reflected in its mixed energy policy. The energy sources were decided in terms of South Africa’s natural endowments. Sustainability and security of supply were key issues in the wake of the energy crisis of 2008 to 2010, where the Department and government could not always guarantee access. Affordability was a key issue due to the negative impact of high energy costs on economic growth and stability. The Department must also consider the environmental impact of its decisions so that future generations did not have problems.

The Department would develop legislation, policies and programmes with stakeholders to see what their issues were. South Africa’s energy policy had never changed, and never would. This policy was based on endowment – both non-renewables and renewables. South Africa was blessed with uranium to produce nuclear power, and coal. Gas was not in abundance, but the need to do further research and exploration was stressed, with the example of methane banks in the sea being mentioned. Sun, wind, and hydroelectricity as sources of renewable energy were mentioned, although not all parts of the country had reliable access to these energy sources.

Mr Mahlobo stressed that at some point, natural endowments for energy production would be depleted and that these resources must be used responsibly. Government must justify choices in this regard, and when this policy was implemented government needed to look at clean energy. By 2025, 30% of South Africa’s energy must be clean, since SA was a signatory to the Paris Climate Agreement. The environment must be clean to pass on to future generations. This work was informed by laws that Parliament had passed. The National Energy Act (NEA) was the overarching framework, but other legislation had been passed and sectoral planning completed. The Department cooperated with other parties in this regard.

Mr Mahlobo elaborated on the work of the Department of Energy (DOE) and its subsidiaries. Sectoral work was done in the nuclear, gas, liquid fuels and electricity industries.

Looking at major local energy developments between 2017 and 2030, the aim was to align decisions with the government’s National Development Plan (NDP) by 2030. The NDP would speak to the Integrated Resource Plan (IRP). Between 2024 and 2028 ,several coal power stations would be decommissioned because of their age, environmental implications and the availability of coal. By 2025, the government must meet its Paris Climate agreement targets. There would be job losses because of the decommissioning of coal power stations, particularly in Mpumalanga, and the government must be able to cater for this.

Non-renewable energy production moved in phases, and could take between five and 13 years to implement. This capacity must be built well in advance, and additional capacity would come to the grid based on work which was already under way, such as Kusile unit 5 and 6, which would bring additional capacity. The government must plan around compliance before 2025, and new technologies must be judged according to the criteria of pace, scale, availability and affordability. Government should not build something that would not be used. Costs should not be a constraint, and there should not be a burden of unacceptable prices on the end user. There would need to be planning around where the energy source would come from. Systems would need to be operated and maintained. There would need to be a regulation of prices and a return on investment.

The Minister continued his presentation by focusing on global energy sector trends and their implications for South Africa. Greenhouse gas emissions remained a concern and long-term planning would favour cleaner energy sources, including nuclear, renewables and gas. Looking at global energy demands and future energy mix projections to 2040, fossil fuels remained dominant at around 60%, and the South African figure would remain the same. There would be less coal use as gas began to replace it. Coal had environmental impacts, and if the use of coal persisted, technology would become important. If turbines used less water and produced less sulphur, they could still have a place. He acknowledged uranium for nuclear energy as part of South Africa’s natural endowment, and said that the renewable energy sector would grow, but there was the question of availability of renewable energy sources. There was a need to invest in infrastructure now.

Regarding domestic energy sector developments, the move towards clean fuels would impact on existing energy systems. The importation of finished liquid fuels impacted on the balance of payments and affected jobs in the refining industry. South Africa was a net oil importing country, but he hoped that one day it might be able to produce its own oil. He noted that international oil companies were divesting from downstream liquid fuels, which might create space for DoE subsidiaries to participate in this sector.

Mr Mahlobo presented the natural endowment profile, which showed the total installed capacity for each source of energy. 47 000 MW were provided by coal; 1 332 MW by hydroelectricity; 2 255 MW by gas or diesel ; 103 MW by wind ; 3 200 by renewable Independent Power Producers (IPPs); and nuclear provided 1 800 MW.

The Integrated Energy Plan (IEP) was a coordinated expansion to meet demand. South Africa had hydroelectricity, coal, nuclear and gas, and must coordinate in terms of scale, pace and affordability and must be more precise in its planning. The government had approved an Integrated Resource Plan (IRP) in 2011 for the period 2010-2030. IRP planning was driven by the gross domestic product (GDP), although there some issues. Intense energy users had begun to improve efficiency and generate their own electricity due to complaints about the price, making demand more difficult to estimate. Changes in environment and input would result in IRP planning needing to be reconsidered. He stressed that this was not about changing policy, but rather changing the scaling and pacing.

The Revised Balance Scenario (RBS) was a scenario based on simulations around cost optimal solutions for new build options in energy. There was a constant need to drive down costs, and the RBS must contribute to job creation, skills development and participation by marginalised groups. The RBS estimated that 39 000 MW of additional capacity would be needed, with the revised IRP doing the adjustment. The RBS included 9.6 GW of nuclear, 6.3 GW of coal, 11.4 GW of renewables, and 11 GW would come from other sources. The criteria used for rebalancing were reduction in emissions, new technologies and the time to build. Since water was always an input, how much was needed would factor into where builds would take place. Transformation was considered in terms of job creation, expansion of the skills base and access to economic opportunity. Mr Mahlobo stressed that South Africa was not in a vacuum and that it needed to plan for the region and look at security of supply.

He elaborated on changes to the IRP model. Renewables had been disaggregated. The footprint of wind was not the same everywhere, the sun was available only in the day, with energy consumed mainly in the evening. Proponents of renewables should not wish non-renewables away, as each had its pros and cons. The figures for proposed energy resource mobilisation from 2010 to 2030 would see coal drop from creating 90% of South Africa’s energy to 65% in 2030. Nuclear would increase from 5 to 20% in the same period. Hydro would remain at 5%, but the government would engage with the Democratic Republic of Congo for importing energy. Gas would increase from 0 to 1%, and renewables from 0 to 9%. Renewables had already been in the system since 2010.

The Minister updated the Committee on the current review of the IRP, saying that there was lower demand than envisaged due to the economic downturn, drought in parts of the Southern African Development Community (SADC) region, additional capacity, some plants not operating at 100%, environmental obligations and changes in technology. The reference point for the current revision was the IRP from 2010 to 2030. The objectives and fundamentals of the IRP remained the same — the only changes were in pace, scale and affordability. The fundamentals of the IRP were security of supply, affordable cost of electricity, job creation, localisation, minimal negative environmental impact, minimal water usage, diversity of supply sources and promotion of energy access. There were still people without access to electricity, and electricity provision had impacts such as freeing up time for people and the end of smoke-induced respiratory problems, as well as providing light to read and study.

The revised IRP had been approved by Cabinet in October 2016, gazetted in November 2016, and in late 2017 the Department had gone around to engage South Africans. The process had taken a long time, from April to October, which he felt was unacceptable. It was important to conclude the process so there was certainty. People could not wait for energy, since it was linked to security, stability and development. He aimed to go to Cabinet before it closed. He also proposed an Energy Indaba on 5 or 6 December. He would present the IRP to the ANC at its national conference and once the ANC was on board, the party would make progress on it.

The Minister said the government must bring the nation into its confidence as to how the Integrated Energy Plan (IEP) issues would look. The IEP was the over-arching master plan, and was a requirement of the Nuclear Energy Act (NEA). It provided a roadmap for the future of energy and guidance on infrastructure, technology, environmental issues, national priorities and interests. Energy had an economic and security component linked to sovereignty, and a political component linked to jobs. The IEP seeks to ensure security of supply; affordability; job creation; minimalization of negative environmental impacts; water conservation; diversity in sources of energy; efficiency and access. There was consistency in the message in all plans, and no uncertainty in policy.

Focusing on petroleum oil and gas, he said South Africa was a net oil and gas importing country. The Department felt there was a need to explore offshore acreage to become an oil and gas producing country for the sake of South Africa’s sovereignty. There was growing optimism in the potential of Africa’s oil and gas development due to the increase in prices for these commodities. The challenge the country faced was to improve knowledge systems and decrease its dependence on other countries by producing local skills. Local production of energy technologies would support job creation. Social equity could be achieved through expanded access to energy and support to those who needed it. There was a need to expand South Africa’s refining capacity, as there were only six refineries, of which four were crude oil refineries. South Africa imported an increasing share of refined products. There was a need to upgrade refineries to new clean fuels specifications. The private sector wanted government to fund this, but there was a reluctance to invest in an asset the government did not own — that this would amount to an increase in efficiency, but not capacity. He felt that government should build additional capacity for security, not to run out of gas and oil capabilities. Increased capacity should allow new entrants in the energy sector to participate, and there should be support for them. The government must make sure new entrants into the energy sector did not make mistakes and did not end up buying a depreciating product. He said that some refinery owners wanted to exit the business, citing the high cost of upgrades. Looking at PetroSA, he asked where its presence was and suggested the state should level the playing field. The dependence on big corporations must be transformed. A policy option of a refinery developed in partnership with BRICS national oil companies, was suggested.

Mr Mahlobo discussed renewable energy and Independent Power Producers (IPP). The policy on IPPs would not change, and only the pace, scale and affordability of implementation would be up for discussion. He would not promote one energy source over another, reaffirming the Department’s commitment to a mixed energy policy. He asked how much of each energy source the country should use and how this should be done without giving one supplier an edge. Eskom, which had been around for 100 years, should not be abandoned but current challenges must be addressed. The Department must decide by the end of the month and that decision must be for the country, not certain people.

Nuclear energy had political, economic, environmental and security concerns. While concerns should never be dismissed nuclear products had made advances and nuclear technology had played a part in global development. South Africa already housed the only nuclear power station in Africa. Uranium for nuclear was part of the country’s natural endowment. An environmental impact assessment must be allowed to run its course. Nuclear energy would ensure security of supply while enabling the country to meet its environmental obligations. He reaffirmed the Department’s commitment to a mixed energy policy, and supported the use of nuclear energy due to other sources of energy being intermittent. The 2010-2030 IRP mentioned 9.6 GW of nuclear energy, which would be revised down like the other figures. He would not talk about the High Court ruling, saying that it had never decided that the government could not generate nuclear power, but only that the process was flawed.

New nuclear technologies would be used, and nuclear energy was the lowest emitter of carbon among energy sources. He praised developments in nuclear countries and the scientists who had been working hard to improve safety, reduce emissions and drive costs down. The South African National Energy Development Institute (SANEDI) must be at the cutting edge, finding solutions and developing local knowledge. He felt that the biggest issue was security, with countries able to hack into South Africa’s system and make it fail.

Mr Mahlobo praised the possibilities around nuclear energy and technology, and noted its achievements. The Committee needed to look at an energy source and the value chain from extraction to processing, he encouraged Members to check the abundance of opportunities around nuclear. Nuclear waste would have to be managed, treated and stored. Civic education would be needed so scientists could engage with people and win them over.

Addressing the issue of costs, the Minister said he would not speak about the trillion-rand figure, since it was not his figure. He reaffirmed that energy was a catalyst and enabler of growth, peace, stability and development. The cost should be affordable to the poorest of the poor, but competitive to promote growth and boost investor confidence. South Africa had a strong regulatory mechanism, which was admitted regionally and globally. The laws were sound. as were the professionals working in the sector. The cost must not be talked about outside of the implementation, and focusing on one point in the value chain would be misrepresentative. Cost must be assessed holistically, from sourcing to infrastructure to operation, maintenance and decommissioning, taking all the economic activity into account at each stage. He cited the 2010 World Cup as evidence that the government had experience in planning and costs, and that the Department plans for each project.

Mr Mahlobo addressed the repositioning of the Central Energy Fund. He said that there were issues to be dealt with. He raised issues of stabilisation of administration and governance – with there being too many interim boards and too many positions which had not been filled permanently. These entities needed to recruit and stabilise. He lamented the poor performance of organisations such as PetroSA, saying that it should be a leader on the continent and asking how government could ensure more opportunities for them on the continent.

He needed more time to work on the repositioning of the Central Energy Fund, but there was one immediate issue, namely that the strategic fuel reserves had been taken. An investigation had been conducted which should have been completed by December. He claimed the report had been finalised without speaking to relevant people and had requested a complete investigation be done. He questioned using KPMG without a reliance audit. A decision on the strategic fuel reserves needed to be made — if it was not, it would affect security of availability. The price of crude oil was increasing so if the state bought back this stock it would lose money. He asked whether South Africa could deal with losing that money. If the report indicated any wrongdoing, those people would be pursued.

Discussion

Mr M Matlala (ANC) expressed concern with the male dominated delegation from the Department of Energy. He asked the Minister to address this issue as well as the issue of male-dominated entities, saying it was in contravention of ANC policies and that he would like to see a female-dominated delegation in the future.

One of the slides in the presentation had indicated a repositioning of the Department, but it had not been spoken about. He asked whether there was any progress, saying that he had heard different stories for a long time and insufficient answers from the Director-General and previous Ministers.

He praised the Minister for answering some of the difficult questions he had in the presentation itself, and for not postponing answers or evading questions. He congratulated the Minister on a job well done.

He asked about the secondment of the Director General, expressing concern that many of the positions had not been made permanent and that acting appointees may not have a hands-on approach if the post might be reshuffled.

Mr J Esterhuizen (IFP) said that some of his comments may be a bit unfair, since the Minister had inherited a lot of problems. He was concerned with the fast-tracking of the IRP. Having waited six years for the IRP, he felt that the public engagement was rushed and short, and that the advertising of public participation had been inadequate. He asked why the Department was running the IRP and Integrated Energy Plan (IEP) processes parallel to each other when the IRP should follow the IEP. Public participation should not close before policy adjustment commenced — the public must be able to comment on the amended draft and on the policy adjustment.

Mr Esterhuizen, referring to page 16 of the presentation, felt an increase of 40% based on nuclear was very optimistic. Page 20 spoke of minimising the cost of energy. The review of the IRP on page 19 was different to the 2010-2030 IRP. He questioned why appendices referred to in the presentation were missing, come of them have been removed. The IRP, in his view, was selective and seemed to create a bias towards the inclusion of nuclear energy.

He said that there was no fixed policy on oil and gas currently. He referred to the NDP, which he felt changed every day and was dependent on the global economy. Currently there was an excess of power available for growth. He asked the Minister to explain how the person responsible for PetroSA drilling vertically instead of horizontally — and missing the gas pocket — had received a R2.3 million bonus.

The world was moving towards renewable energy, yet the government paid millions defending nuclear energy in court. The Western Cape High Court’s decision stated that there was no immediate need for nuclear.

Mr Esterhuizen expressed concern at the cost of energy, noting that the operating cost of ESKOM had increased 400% since 2011, yet there had been no increase in capacity. The Minister and Eskom now wanted to increase prices by 20% to customers and 27% to municipalities which owed them money, which would bring in an extra R63 billion. He felt that the Department and Eskom were trapped in a debt spiral with rising prices and declining sales.

The Chairperson said that the Committee must say if it wanted to ask questions on everything, because he thought it had agreed to ask questions only about IRPs and IEPs.

Mr G Mackay (DA) expressed his disappointment with the presentation, since he had been “hyped up” about seeing the draft IRPs, since these were the building blocks towards a legitimate procurement process. The Committee knew no more about an IRP update than it did before the briefing. The Minister had indicated he was speeding up the process of delivering the IRP, but had not given an indication of what South Africans could expect the IRP to look like.

He felt that the Minister had failed in his obligation to Parliament. The Minister had reiterated that the 2010 IRP would be enforced and updated, despite it being highly contentious. The rushed update in 2013 said the proposed nuclear programme could be postponed. The previous year’s IRP document by then Minister Peterson had made it clear that the country did not need nuclear. If the new document said that the country needed nuclear, then Minister Mahlobo needed to explain how he justified it.

Mr Mackay asked whether whoever had conducted the interviews were present to explain the large amount of comments about nuclear, saying that the meetings he had attended were pro-renewables and very critical of nuclear energy. He expected an updated IRP to fundamentally confirm the postponement of nuclear to 2035. The NDP itself said nuclear could be postponed, so the Minister was going contrary to overall policy and the draft IRP. The Minister had stated that he would take the IRP to Cabinet and the ANC despite the court order ruling that the procurement process must be detailed and made public before any procurement process could commence. If the IRP was the first basis in the procurement process, when would the Department tell the Committee what the procurement process would look like, and when this process would be made publicly available?

Mr Mackay noted that on 7 November, Dr Calvin Kim of the Nuclear Energy Corporation of South Africa (NECSA) had stated on record to the Committee that the procurement process had never stopped. By his statements, NECSA and ESKOM were in violation of a court order which set aside the nuclear deal in its totality, including the request for information (RFI) and request for proposals (RFP). Dr Kim had confirmed that the RFP was ready to go. Mr Mackay asked how the RFP was ready to go when the Department should not have been working on it since the court judgment was passed in April. He asked if the Department could tell the Committee what processes it had undertaken and continued to undertake despite the nuclear deal being set aside.

Mr Mackay observed that the court had said nothing about the government being unable to procure nuclear, but said that the processes which were followed were illegal and that he would be deeply troubled if Eskom and Necsa had continued procurement in violation of a court order. Civil society was now seeking a declaratory order from the Western Cape High Court to determine if this was true. He felt it should not be left up to civil society to determine if government was adhering to court judgments, saying that this was hugely problematic. This spoke to a process that was fundamentally flawed and a political process with the singular aim of delivering nuclear to South Africa, come hell or high water. There must be a rational option, because nuclear was not cost effective and was therefore not an option to be explored. The actual IRP document delivered in November showed five different options — only one included nuclear, and it was brought forward to 2020. This assumed that the Department would prevent the growth of IPPs and specifically renewables, which was a false option.

Mr Mackay stressed that the Minister needed to say what assumptions underpinned the IRP, how the document would be different and when it would be publicly available. By law, the IRP must reflect public comment and be presented to the Committee for discussion. He asked if the Minister could commit to a date when he would deliver the IRP to the Committee for a technical discussion and how he would justify nuclear, expressing his disappointment that this information had not been made available.

He asked the Minister to explain what his understanding was of the difference between a section 34 determination and the IRP/IEP. The IRP must be the preceding document to a section 34 ministerial consideration. Could he issue a ministerial determination without an IRP?

Mr Mackay reiterated that the court was clear that any attempt to procure nuclear must be made public and fully explained. He expressed concern about the energy indaba, asking if the Minister felt that this equated to the court-mandated public participation.

He felt that the Minister had skirted around costs, and said that the trillion-rand figure had come from the former Minister, who was in the ANC. There would be significant upward pressure on electricity prices due to the adoption of nuclear. He asked for costing details – how much consumers and business would have to pay for electricity, and how the electricity pricing path would affect the competitiveness of the economy. The Committee wanted figures, not broad or vague costs, and a National Treasury report on costs must be made available. He asked if NECSA and ESKOM had applied for exemption from procurement regulations, and why.

Mr Mackay said there was tacit support for IPPs from the Minister, unless this threatened ESKOM. There needed to be competition for ESKOM in terms of costs and efficiency. The Minister had understated renewable energy, which was cheaper than nuclear. The Minister was not serious about his commitment to renewables. He felt that the Committee could not make decisions without a pricing path. Information on the costs of nuclear must be made available. He was disappointed with the presentation, as the Committee had received no new information and there was no new movement on IRPs and IPPs. He asked if the Minister could be trusted to do the right thing for South Africa.

Mr G Davis (DA) agreed with the sentiments of Mr Mackay. He questioned the affordability of nuclear, noting that Finance Minister Malusi Gigaba had said that nuclear was unaffordable, and that there was already excess capacity. He asked the Minister if he disagreed with the Finance Minister, and where the money for the nuclear programme would come from, if not Treasury.

He asked if any intergovernmental agreements had been signed, when the Minister expected to sign them and when the agreements would be ratified before Parliament. The Council for Scientific and Industrial Reesearch (CSIR) had found no need to include nuclear energy in the energy mix, finding that the best cost option was a blend of solar, wind and gas. He asked if the IRP differed from the draft version, and whether it would be submitted for further public participation. He expressed concern that the rushing of the IRP had to do with the ANC National Conference, noting that the previous Minister had given a date of 2018.

He referred to the controversy over the appointment of the Minister amidst reports of meetings with a Russian delegation and another report of a 2014 meeting between Zuma and Putin in Russia. He asked the Minister if his appointment was related to an intergovernmental agreement signed a month later, and if he knew of anyone in government receiving money because of nuclear procurement.

Dr B Ndzimande (ANC) agreed with Mr Matlala that the Minister seemed to have grasped the issues quickly. The issue of human resources and staff shortages, according to the financial report, had not been addressed in the presentation. He asked if the Minister had started thinking about how to address this, saying that some Departments pass most of their budgets on to other institutions. There were advantages and disadvantages to how government located policy departments and capacity, with institutions often having more capacity than those which departments could oversee This was worse when there were vacancies, with the biggest staff shortages being in the clean energy programme, as well as policy and planning.

He felt that the Committee should welcome the idea of an energy indaba, and asked to what extent the Department had engaged all interested parties, including those who disagreed with the government. He asked the Minister how he intended convening the indaba, and who would be invited.

He expressed concern with how long the IEP was taking, and was suspicious that it had to do with including nuclear as an important part of the planned energy mix. He cautioned against rushing the process.

He was concerned about reaching people and companies who had got off the grid, asking if the Committee was grappling with this and its implications. The Department may run the risk that Eskom connected only the poor who were unable to pay. This needed serious study, as it may develop a meaningless IEP, pointing to the example of Sasol in Secunda, which generated its own energy and sold its surplus to ESKOM. He requested timelines for the IEP.

Ms Z Faku (ANC) praised the presentation, saying that she was satisfied with the IRP. She asked the Minister to explain the ‘trillion rand’ energy figure, and to elaborate on the unpredictability of solar and wind power.

Mr R Mavunda (ANC) congratulated the Minister for providing understanding of what needed to be done. He expressed concern that the state-owned enterprises (SOEs) were not creating jobs, especially for young people with qualifications, since SOEs were established for job creation. He asked what mechanisms SOEs were using to recruit in rural areas, since the migration of people from rural to urban areas was a problem.

He asked why the Department did not disconnect Koeberg, if nuclear was nt needed,. He said that if a few people had what supported them, those people were not interested in the poor. He asked what benefits nuclear gave to people, especially the poor. His concern was getting people out of the cycle of poverty, and it was in the interests of South Africans for the Committee to negotiate the way forward.

Mr S Mbuyane (ANC) supported the proposed Energy Indaba. He stressed that the National Energy Act and other policies must be adhered to by Parliament. He asked how energy would assist economic growth, what the impact of the Paris Agreement would be and what impact the decommissioning of plants would have on unemployment, job losses, infrastructure and the energy balance.

Mr Esterhuizen (IFP) said that the same standards should be applied for all sources. Koeberg’s electricity price was low because it was built a long time ago, and nuclear would not cost less than R1.45 per KWh. He felt that it was unfair that the IRP’s public participation period was from December to January, when everyone was on leave or on holiday.

Minister’s response

Mr Mahlobo thanked Members of the Committee for their questions, encouragement and criticism, observing that energy was highly contested due to economic opportunity and interests. Energy was an important input into people’s lives and had implications for security and sovereignty, and as such government must protect the interests of its people.

He said that discussions needed to be based on fact. About the issues being raised around IRPs, he reminded Members that the country had to respond to a crisis and create a document which did not exist before. It was a living document with definitions up for debate. The country, not by choice, had endowments such as coal and uranium. It did not have an abundance of gas, which was why it had only a small part in the presentation. South Africa had sun, but it may not have the intensity. The Department did not wish to promote one source over another, since all sources had issues. He asked whether thermodynamics could be stored, saying that the batteries in Germany had not been sufficient. He asked whether wind was everywhere, and said that dust particles may affect the quality. He asked what happened if there was no wind.

The energy policy was based on endowments, and the resources were finite, which was why planning had to take scale, pace and affordability into account. The ministry could not afford to promote one energy source over another. Planning must factor in transformation and participation in economic benefits, since more than 30% of the GDP depended on energy inputs. Planning must take future generations and neighbouring countries into account. He said there had been reviews within the decisions already made, and that policy would not change – only scaling, pace, environment and affordability. Amendments had had to take the economic downturn into account, as well as drought and lower commodity prices. The presentation had stated that Vusile would come into the grid between 2017 and 2030, and that some power plants would be decommissioned. He asked what would happen to the communities where the power plants used to be, and how government would ameliorate the situation, and responded that the revised IRP would answer that.

Mr Mahlobo said he had not brought the revised IRP to the Committee because Cabinet must conclude it. The document had followed the right processes and had been gazetted for public participation. The Department had engaged society through submissions and going around provinces for a total of 120 days, with the consultation ending in March 2017. The Department was not rushing but consolidating inputs, and it was good to conclude the matter and create certainty. Government’s position was not to promote one energy source, but to use all the available sources of energy.

He was pleased that Members of the Committee welcomed the idea of an energy indaba, and clarified that it was not a process of finalising the IRP but rather an opportunity for people to talk about their future and for the Department to listen. The indaba would be an opportunity for the Department to discuss policies it was making.

He clarified that the IRP must be reviewed every two years, and that it was an overarching plan to address eight key issues. It would be available once Cabinet was done with it. It did not make any major changes, only changes in scale.

The Minister asked Members of the Committee not to tell untruths about energy prices. He gave the example of coal as an input, which must be mined and produced economic activity. It was then put into a system which required developing a plant with materials and skills that created towns and opportunities. Jobs and skills were then created in the operation and maintenance of the plant. The cost should not be reduced to the price per kilowatt hour, but should rather factor in all economic activity.

The nuclear discussion was misplaced, since government was found wanting on issues of process. He said that there was no nuclear deal on the table, and that the Department was not saying there would not be nuclear, but that it must be done in a responsible way. He reiterated that the Department did not promote one energy source over another, noting that a tender had been issued, with renewables taking on R100 billion. Renewables had been brought in on a bigger scale after 2011.

Addressing the issue of independent power producers, he asked how IPPs could be introduced to promote competition without killing ESKOM. The Department had never said what portion of the energy supply IPPs would produce, but the IRP would guide them on this.

He thanked Mr Matlala for raising the issue of the male-dominated delegation, saying that it did not look good. Since 1994, South Africa had produced many black scientists who had to be given a chance, and that only government could do so. Government would make this part of a shareholders’ agreement. He expressed the need to tighten capacity, noting that suspensions contributing to many positions not being permanent. The Department needed a mix of skills, and institutions such as SANEDI must produce capacity.

The Minister said that he must get a sense of where South Africa was strong regarding clean fuels. He replied to Mr Esterhuizen that it was not true that the NDP changed every day — it was informed by the Freedom Charter. There would be changes in implementation, but the presentation showed linkages with the NDP framework.

He explained the need for a reserve margin in responding to questions about excess power. Output could be reduced, which would mean the capacity, rather than the energy, was there. The reserve margin was needed to prevent a crash. He expressed concern about the migration away from Eskom, saying that as in healthcare, rich people had their own system.

He did not want to get into details about nuclear, stating that the Department was not saying it would not procure, but that it would move when plans were approved. He said the claims there was no need for nuclear were a mystery. He would not give credence to stories, but rather account based on what he was presenting. He had not seen the statement from the Chairperson of NECSA. He claimed the team working on nuclear had been attacked, with some quitting their jobs, and that the issues were not around nuclear but who got the tender. The procurement process would be transparent and government would impose transformation imperatives. He challenged the claims that the procurement process had not stopped by stating the matter should go to court, and he would tell the court that procurement had not started.

Mr Mahlbo said that he would not speak to section 34 determinations, and that he would discuss the idea that nuclear could not compete over a cup of coffee. There was a need to balance development and the environment, and at one stage he considered the environment to be more important.

Replying to Minister Gigaba’s comments, he said that the fiscus had challenges but that he would address the nation once the IRP had been approved. He said that he had not seen the CSIR statement. He claimed the ANC would win the elections in 2019, and that he must get a mandate from them about policy matters.

The Minister responded to questions about his appointment by challenging Members of the Committee to prove Russian involvement by providing names and airports. The reassignment and appointment of ministers was governed by the constitution. He had met presidents and high-ranking officials, and he liked the ones which had helped South Africa during apartheid, expressing his love for the people of Russia, Zambia and Zimbabwe in particular.

He responded to questions about corruption by challenging Members of the Committee to report instances of corruption. He agreed that SOEs should create jobs and must function better.

The Chairperson asked the Minister to clarify the years in which decommissioning would take place, saying that he had always heard 2021-22, rather than 2024-25. He also asked whether the deadline for the end of the month applied to just the IRP, or the IEP as well.

Mr Mahlobo replied that it applied only to the IRP.

The Chairperson said that as soon as the Minister had finished his process, the Committee must start its own processes to ensure participation. He assumed the IRP would be finalised before the IEP. He requested clarity on whether the figure given for nuclear power in the presentation was the scaled down figure.

Mr Mahlobo replied that the dates 2023 to 2029 were written for the record. He agreed that representatives should not leave people behind, and said that the next round of the IRP review should engage people. The 4 000 MW for nuclear was subject to an environmental impact assessment. Once the section 34 determination had been done, other processes like procurement would start.

The Chairperson noted that there were many questions about costs, and asked the Committee if it wanted to ask about nuclear.

Mr Davis thanked the Minister for clarifying that no section 34 agreements had been made, but asked if any intergovernmental agreements had been made

Mr Mahlobo replied that the Western Cape High Court had made a ruling about the process and that the Department had not arrived at that point, but that it should soon.

Mr Esterhuizen said that renewable energy costs 77 cents per kilowatt hour, and reminded the Committee that there was no grid to the rural areas but that renewable made that energy. He spoke about maladministration at Eskom, noting an 83% drop in profits, a R3 billion increase in spending and claimed it was flouting laws.

The Chairperson asked the Committee for questions on energy costs and IPPs.

Mr Mahlobo responded to Mr Esterhuizen’s question, saying that the Department had made a choice that villages and certain industries could use renewable energy. There were lots of advantages, such as jobs, but it was not a sustainable system for high intensity users. The Department had rolled out renewable energy to people with no electricity.

He said that corruption was a cancer South Africa and other countries faced, both in the public and private sector. To curb corruption, the Minister of Public Enterprises was being supported by the Minister of Energy and the Minister of Finance in dealing with Eskom. Responding to the lack of permanent positions, he said it was not good for organisations. He stressed the need for people with integrity, saying that if investigations were done, people should act on the reports and send a message to those who were found guilty that crime did not pay.

The Minister said the country could not celebrate when Eskom collapsed, because the implications would be catastrophic. Eskom was owed a lot of money from municipalities, which was contributing to its woes. Government needed to resolve the challenges of Eskom and other SOEs.

The Chairperson asked if the Committee could cover energy costs, nuclear and IPPs as the last three topics. He mentioned that people were returning to older forms of energy production and companies were moving off the grid, and asked if the Department could quantify the rate at which this was happening. What would this mean for Eskom in five to ten years’ time, and what would Eskom’s role in renewables be?

Mr Davis said that the Committee had not been presented with any models for energy costs, just generalized statements. He felt that it was hard to interrogate costing if it had not been presented to the Committee, and noted that the CSIR model had found the lowest cost was blending solar, wind and gas. He asked what model the Minister used to justify nuclear, and for an update on the nuclear new build programme.

Mr Mavunda asked what the terms of license for independent producers were, and whether it lasted a lifetime. He queried what happened if their system collapsed.

Mr Mackay said that Mr Rob Davies, Minister of Trade and Industries, had just tweeted that South Africa could not afford nuclear. There was no Cabinet consensus. A nuclear programme had to be based on transparent data which needed to happen, and had not. He felt that nuclear was a political project from a faction in the ANC. He asked how government would proceed with nuclear if ministers in the economics cluster could not agree on it.

He said the 1998 White Paper on Energy spoke of liberalising incentives in the energy market for competition. The Department was not answering whether the energy sector would be partially or totally liberalised. No one wanted a stranded asset in Eskom, but if it could not be competitive it should be sold, broken up or nationalised. He asked what the long-term plan for the energy sector was

Mr Esterhuizen asked how South Africa could afford nuclear, since it may face recession soon and the rand kept plummeting.

The Minister replied that he had clarified nuclear that in terms of resource economics, it was not a matter of choice but rather a matter of endowments. He could not speak about the nuclear new build programme because there was nothing new, just an expansion of existing capacity. The Director-General and his team had to discuss transformation. There was a Coal Transformation Forum court case against renewables.

He had not issued a section 34 determination on nuclear, and that he could not discuss tweets he had not seen. He reiterated that the energy policy would never change. Cabinet had made the decision to procure nuclear, and Cabinet had not changed. When the Department came to that stage it would answer, but it would not break the law.

He responded that the White Paper of 1998 had led to Act 34 of 2008. He addressed the question of IPPs by reconfirming the government’s mixed energy policy. He said that those with money would create other options for themselves, and expressed concern over the inequality between services.

The Minister said he would not discuss models. The fundamentals did not change. There was no update on procurement. On the issue of licences, he asked if it was sufficient to find a balance and asked what should be done if the state could not build on time and within budget.

He said he had answered all the questions and that the Committee needed to discuss the implementation of each energy source. He stressed that Eskom needed to succeed for future generations and implored the Committee to fix Eskom.

The meeting was adjourned.

Joint media release: What we expect from SA’s Integrated Resource Plan for electricity

Centre for Environmental Rights (CER), 9 november, 2017

Media reports indicate that the Minister of Energy has instructed the Department of Energy to publish the long-overdue update to the crucially important Integrated Resource Plan for Electricity 2010-2030 (IRP) within the next week.

Energy Minister David Mahlobo (as at 13 November, 2017 anyway). Image: moneyweb

At this critical juncture in South Africa’s energy future, our choices have to be based on sound, accurate, current, and accepted energy policy that will benefit all South Africans. The Life After Coal/Impilo Ngaphandle Kwamalahle Campaign (made up of groundWorkthe Centre for Environmental Rights and Earthlife Africa, Johannesburg) and Greenpeace Africa would like to reiterate our position on what we expect to see in the IRP.

 

We also express our alarm that, despite earlier  statements in Parliament by the Department of Energy that there would be provision for further consultation on the draft IRP, the Minister has since suggested that a final policy-adjusted IRP will be promulgated without further public participation. To date, stakeholders have only had an opportunity to consider and comment on the draft IRP base case and assumptions published a year ago in November 2016. An open and democratic IRP process requires first, a new base case taking account of those comments, and then open discussion of any variations that will be taken into account in the drafting of a policy-adjusted IRP.  A policy-adjusted IRP without further public participation can only be viewed as illegitimate.