Eskom

There is life after Eskom — we just have to imagine it

https://www.dailymaverick.co.za/opinionista/2020-01-23-there-is-life-after-eskom-we-just-have-to-imagine-it/?tl_inbound=1&tl_groups[0]=80895&tl_period_type=3&utm_medium=email&utm_campaign=Business%20Maverick%20Friday%2024%20January%202020&utm_content=Business%20Maverick%20Friday%2024%20January%202020+CID_3dfbd3f4209f3bec835af7f35cdb9282&utm_source=TouchBasePro&utm_term=There%20is%20life%20after%20Eskom%20%20we%20just%20have%20to%20imagine%20it

Opinionista  Saliem Fakir  23 January 2020

There is life after Eskom — we just have to The economist Joseph Schumpeter once wrote: “There is certainly no point in trying to conserve obsolescent industries indefinitely; but there is a point in trying to avoid their coming down with a crash and in attempting to turn a rout into an orderly retreat”.

It is worth putting it out there that the whole Eskom saga — whether there is a clean Eskom or not — can lead to the utility’s eventual obsolescence. We do not need to try hard to imagine such a fate, as technological change has a life of its own. It is for this reason that we should open the cognitive space for new ideas, sooner rather than later, so that the shift to a new model of energy services can evolve in an orderly manner, rather than anarchically as more and more people defect from the grid.

Political wrangling and how these issues are resolved will determine whether we put the energy crisis to good use.

Eskom’s failures and woes are not that of a single person, no matter what people may want you to believe from their ideological or racist perches on social media. Eskom’s woes go back a decade or more.

Decisions were not decisive and much of the energy and focus has been on what to do with the gap in generation capacity, neglecting the decisions we still have to make on improving and expanding grid capacity.

It is clear from the number of CEOs and boards that Eskom has had over the past decade that the issue is not just governance, but political interference in the workings of Eskom — so much so that decision-making with clear heads is a troubling prospect at present. The recent resignation of Eskom’s board chair Jabu Mabuza was not surprising. It was yet another predictable recurrence because the underlying reason for interference from above has not gone away.

The same scenario is playing itself out at the Nuclear Energy Corporation of South Africa (Necsa) — board resignations and CEOs walking away with Necsa losing money. The culture of political interference is rife and has found no settlement nor is it contained in such a way that it brings stability to the running of South Africa’s state-owned enterprises.

So, do not be surprised if André de Ruyter, the newly minted CEO of Eskom, has a short life at its helm. The quest to move Eskom to the Department of Minerals and Energy suggests that the problem of governance and political meddling will not cease. If anything, one can predict it will get worse. If there was any accursed job, it would be that of board chair or CEO of Eskom. Good luck to all of them!

Eskom is not run by machines (although their performance is important in this equation), but humans and the factors that influence human decisions are their interests, organising patterns and ethics — and their vision and insights about the future are just as important. The world of energy services is not standing still. It is rapidly evolving and so dedicating all our energies to the all-consuming Eskom drama is taking our eye off the ball in preparing for the future. 

The future is distinctly not Eskom – it is the world and system outside Eskom. 

The limitation of the 2019 Integrated Resource Plan (IRP) is that its policy orientations are largely about what happens in the world of Eskom even if power is procured from independent power producers (IPPs). The IRP is largely a plan designed around future cost curves for electrons that can be supplied by different generation technologies rather than about the future of energy services and the system we need to meet this future. One additional glaring omission is a rigorous security framework that helps us think about what that future energy-services system architecture should look like.

Clearly diversity, the spreading of risks and relying on creativity and ingenuity in how this energy is supplied is the way to go.

The IRP should also be set within an energy security framework, as most countries are beginning to move towards this model because most network technologies are subject to diverse threats. A security framework takes into account three things: vulnerability, risks and offset mechanisms. Such a system shifts from a least-cost technology approach to a least-cost systems approach (even if the system may cost more to establish in the short term)  because its aim is to take into account the potential for disruptions — and the future costs of such disruptions directly to electricity infrastructure and the economy. 

Elevating energy security to national security may also help us make the cognitive leap beyond narrow technology special interests because then we are looking through a lens that has a wider picture in mind. Energy security and economic security are intertwined. A weak or damaged economy becomes a concern as it impinges on the capacity of the state to protect its sovereignty in moments of weakness from both market predation and foreign State Capture. 

Vulnerability speaks to system dependencies. In our case, high dependence on coal, the smooth operations of the coal supply chain and high performance from very dysfunctional, creaking old coal plants. Besides, vulnerabilities in supplies in primary energy sources and constraints in generation capacity can be extended if the types of power plants being built need long lead times and have capital intensity with a heavy debt burden and recurrent cost overruns — like Medupi and Kusile at present.

When a system is constrained with low reserve margins, flexibility must be extended through procuring generation capacity that has short lead times to commission and build. But, historical lessons never get learnt — as Bent Flyvbjerg, the Danish expert on megaprojects has shown, the planning fallacy lives on in those who are proponents of megaprojects and continue to try and persuade us that these projects can be delivered within budget, on time, and without cost overruns. The data tells a different story.

The French nuclear utility, Electricite de France (EDF), mostly owned by the French government, is facing the same challenge in having placed all its bets on the European Pressurised Reactor (EPR) as the next best thing in nuclear power. It also promised low costs, no budget overruns and to be able to stick to construction deadlines. Real projects, that are in contract, tell a different truth.

EDF’s four biggest EPR projects are in trouble, and like the UK’s Hinkley Point, France’s Flamanville and a project in Finland are running into construction problems and cost overruns, and project completion dates keep being postponed. The result is that EDF has a debt overhang of €62-billion making it difficult for EDF to expand its investments, let alone deal with problems in current construction projects.

Special interests, always, have a way of not hearing what they do not want to hear and when we commit to megaprojects, taxpayers are held ransom to projects and interests that end up being cash burners.

Risks involve disruption of supply due to sabotage, bad or extreme weather events (which will become common in the future), conveyor belts breaking down, or unplanned-for maintenance of coal plants. We should also include for our South African context, manipulation of procurement processes due to corruption. 

Offsets are ways to mitigate against severe dependencies by having recourse to other measures such as alternative sources of energy supply other than a total reliance on a single dependency. In the case of the South African grid system, offsets involve a strategy of negative offsets.

Since we do not have much flexibility in our current electricity system, we must rely on load shedding, pump storage and the hard running of diesel-guzzling peaking plants that make a significant dent in Eskom’s balance sheet. A security framework — in its expanded version — would also have to take into account a whole-systems risk approach. The entire grid, its upkeep and ability to also withstand events, whether it be sabotage, cyberattacks or extreme weather — as we have seen in the aftermath of Cyclones Idai and Kenneth in 2019, which led to some disruption of power supply from the Cahora Bassa line and led to load shedding in South Africa.

The debate about what kind of future we want for South Africa’s electricity system has to be broadened. It cannot just be about carbon emissions but also this nexus of the energy security framework that seeks to address vulnerability, risks and offsets as part of one conceptual frame and planning tool. 

We have to avoid channelling all our thinking into dead-end discussions about just saving Eskom, but think with greater open minds about electricity supply and management that has a more open-ended system as our vision for the future. 

In the short term, we have to decentralise the electricity generation market so that the country rapidly benefits from alternative sources of supply and suppliers. In the long term, we have to not only focus on generation, but the flexibility and integrity of the entire electricity system. 

In the recent ANC National Executive Committee (NEC) meeting, according to press reports, the NEC commission’s report for energy showed an enthusiasm to open the market for renewables and other generation sources outside of Eskom. But, like all political commission reports and statements, words still have to be translated into deeds. 

We wait and see. The dialogue about this broader future has yet to begin. DM

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