LegalBrief 20 May, 2019
Radebe has promised that the update of the IRP will be concluded ‘very shortly’. According to a Polity report, he said government was still in the process of engaging with its social partners at Nedlac, but emphasised that the update was imminent. ‘Cabinet’s approval of the IRP for SA will define a tangible plan for energy security that also enables the participation of independent power producers side by side with Eskom and municipalities,’ said Radebe. He also pointed out that there was room for coal-fired power in the future, but placed an emphasis on the need for clean coal technologies. Radebe said the timing of the transition to a low-carbon economy – in line with the country’s accession to the Paris Agreement – had to be done in a way that was not insensitive to the potential impacts on jobs and local economies.
Speaking at the African Utility Week conference in Cape Town last week, Radebe acknowledged that Eskom cannot meet SA’s power capacity requirements on its own. A Moneyweb report notes that he indicated that capacity extension under the IRP is expected to cost in excess of R1trn in the period up to 2030. This cost relates to the building of ‘new power plants plus the requisite transmission and distribution infrastructure’. Radebe noted that the Renewable Energy Independent Power Producer (REIPP) programme, initiated by the Department of Energy, has sent out strong signals positioning SA as an investment destination for energy infrastructure development. ‘We have successfully implemented bidding rounds, to which the response has been over R250bn in investment to date,’ he said. Proposed projects at regional and national level include various interconnecting transmission grids as well as hydropower, gas, thermal, wind and solar developments.
Also addressing Africa Utility Week investors, Eskom CEO Phakamani Hadebe said that with a crackdown on carbon emissions, it was becoming increasingly difficult to find investors that supported fossil fuels. ‘The truth is, how will we fund fossil fuels if we remain on them? The trend in financial markets is that you see fewer and fewer investors still willing to fund fossil fuels,’ he told the opening plenary. ‘In SA, out of the four biggest banks, three have stated that they won’t be funding us,’ an Engineering Newsreport quotes him as saying. He emphasised a new mindset was needed in SA, which was heavily reliant on coal for power. He said SA was committed to reducing its use of coal progressively to 30% of the country’s share of energy needs by 2040. ‘We need to make a concerted effort for offgrid solutions and transformation of the traditional model through emerging technologies,’ said Hadebe. Hadebe also called on African countries to collaborate more. A Cape Times report quotes Hadebe as saying that regional co-operations such as the Southern African Power Pool agreement that assisted SA after cyclone Idai interrupted supply from the Cahora Bassa line in Mozambique could be key to the future of energy security. ‘If we hadn’t got this power we would have been in big trouble,’ he said. ‘A much more integrated regional power grid needed to be created, and a more conducive environment was required to be able to attract development finance institutions to finance new energy infrastructure.’
A climate change mitigation finance vehicle, based on carbon reduction, could raise billions to bail out Eskom. According to a City Press report, a unique financing vehicle, based on reducing carbon emissions, is being developed by the Eskom sustainability task team – appointed by President Cyril Ramaphosa last year – in order to raise up to R200bn to save the utility from its debt spiral. There is ‘huge interest’ from major development finance institutions in Europe and the UK, said task team member Grové Steyn. The vehicle, which is being tweaked as discussions with potential international and local investors progress, is being developed by Meridian Economics, where Steyn is Managing director, in consultation with the seven other members of the presidential task team. Steyn said the aim is to unlock between R150bn and R200bn from climate change mitigation funding, at discounted interest rates, in return for Eskom accelerating its shift away from coal-based power generation. This would reduce carbon emissions in SA’s power sector, which is one of the most carbon-intensive in the world. The deal would also include Eskom proceeding to unbundle its generation, transmission and distribution operations into three separate business units, and meeting its social responsibility mandate.