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Hello and welcome to the So What podcast, in which political economic analyst JP Landman

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discusses the issues uppermost in the minds of South Africans. You can find a written

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version of this content on JP's website, jplandman.co.za. I am Ruda Landman and I am your host.

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These first few recordings were done at our dining room table, but we will soon be moving

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into a studio.

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Hello, and as always, a very warm welcome to another recording which goes with JP's

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latest newsletter. This one is dated the 20th of January 2023. And it's about, what else

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could it be about at this moment, about electricity. JP, you start with a quote from Antonio Gramsci

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and the quote reads, the crisis consists precisely in the fact that the old is dying and the

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new cannot be born. In this interregnum, a great variety of morbid symptoms appear. Who

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was Antonio Gramsci and why is this relevant?

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Gramsci was imprisoned by the fascists in Italy in the 1930s. And he actually wrote

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these words from prison. He kept a journal of his writings while in prison and this quote

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comes from there. Why is it relevant for South Africa today? Because I think it expresses

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absolutely precisely where we are with electricity. The old system of electricity provision in

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South Africa is busy dying. ESCOM, as we used to know it, is busy dying. The way that we

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provided electricity to ourselves and the nation is busy dying. And the new system is

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being born. A system that will be much different from and encapsulate much more than ESCOM.

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But the new system is not quite in place yet. The old system is also no longer working.

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And we caught in between that interregnum between the old electricity system and the

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new system. And flowing from that, Rudha, I just want to make this one point very, very

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clearly. I don't think ESCOM can be saved in its current format. If we look back in

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five years time, ESCOM as we exist today will no longer exist. It will exist in a much diminished

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and different form. So ESCOM cannot be saved, in my view, but electricity provision will

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be saved. And that is what this piece is about. And then you make a point which I think is

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one wants to say it's obvious, but I think we need to understand that we have load shedding

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because South Africa does not generate enough power. What is the gap and how will it be

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closed? The capacity gap is between 4000 megawatts and 6000 megawatts. There's no 100% consensus

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about the correct number. ESCOM as recently as November, they said the capacity gap was

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4000 megawatts. What I do in this piece is I assume that the capacity gap is 6000 megawatts.

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And then I look at how one can whittle that 6000 megawatts down.

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And that is simply the gap between supply and demand.

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Yes, that is simply the gap between what ESCOM can produce when everything goes right and

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when everything runs well and what is demanded by the economy and by people and by households.

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And so that's the capacity gap. Now it's important to note that whether you use 4000 megawatts

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as your number or 6000 megawatts as your number, what we're talking about are baseload megawatts.

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Now what is baseload? Baseload simply means the power is available for 24 hours of the

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day. It's not just available when the sun shines or when the wind blows. It is there

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all the time. Now, if you want to compare apples with apples, 6000 megawatts of baseload

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will require about 18,000 megawatts of renewable capacity supported by storage and gas. That's

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the way to compare apples with apples. The baseload people try to argue that you can

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get baseload only from coal or from coal and nuclear. And that is actually not true. Technology

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is developed in a different way. And you can now, there's a wind farm in Bosnian-Berg

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in the Northern Cape, not a wind farm, a solar farm that is now for 12 months provided electricity

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24 hours per day from the sun using a salt technology. For storage. For storage. So with

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renewables you need storage, whatever technology and you can use gas to make up for the times

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when the renewables are not working. So 6000 megawatts of capacity gap is 6000 megawatts

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of baseload and that translates into about 18,000 megawatts of renewable capacity that

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is needed. Okay, but we've been seeing renewable contracts being given. We all see wind farms

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everywhere. We see solar farms if you drive through the Northern Cape. Where are we in

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making up that gap? Right. So we've got about roughly 7,000 megawatts of renewables installed

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in the country that is already being used by ISCOM and to plug this capacity gap of

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18,000 megawatts renewables, you have to install 18,000 new megawatts on top of what you probably

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have. So the numbers look as follows. 9,000 megawatts of capacity is being built at the

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moment by private companies putting up power facilities for their own use and for the customers

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that they share in the world that they sell it to. That is private sector driven. It's

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about a hundred projects countrywide, consists of wind and solar and batteries in many cases

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and the number is 9,000. Then we have about 3,000 megawatts that have been procured through

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the official procurement processes run by the government, run by the Department of Mineral

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Energy. If I say government, it's also, it includes procurement processes being run by

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local governments, but that's minuscule. You can for all practical purposes ignore that.

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There's a lot of talking and noise about what municipalities are doing, but so far it's

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a very, very small number. So 9,000 private, 3,000 public. That gives you 12,000 megawatts

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of new capacity that's in one shape or form in the process of being created at the moment.

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And you think by the end of 2024, most of that will be online?

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Yes, absolutely. Certainly the private processes, no question about that. I see there is a statement

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from the presidency suggesting that a lot of it will come online during 2023. That may

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be I'm working on 2024 as the outside date. So we've got 12,000 and then there's another

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2,000 that is being made available through ISCOM repurposing the land on which it's current

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coal fired power stations are standing. And what they've done is they've already leased

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out 6,000 hectares to private entrepreneurs to come and build renewable facilities on

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ISCOM land. There's no purchase agreement with ISCOM. They can sell it to whoever they

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want to and they have to pay ISCOM rent. But the upside of those sites is that they

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are already linked to the grid. Correct. Transmission is no problem because

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the coal fired power stations transmit the power. So that's another 2,000. So you've

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got 9,000 private, 3,000 through official procurement, the so-called bitwindows. You've

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got 2,000 from ISCOM that gives you 14,000. And then there is another 1,000 megawatts

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that will take the total to 15,000 of power that will be bought from existing independent

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power producers who have extra capacity. So you have a capacity for say 110 megawatts,

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but you're only selling 100 megawatts to ISCOM. So there's an extra 10 megawatts lying around.

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The idea is to buy 1,000 megawatts from existing independent power producers as well as the

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sub-African power pool. So we import power from other countries in sub-Saharan Africa

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which also belongs to power pool. Now the presidency or the National Energy

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Committee on electricity is of the opinion that 2,000 megawatts can be procured in this

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manner. I've cut that number in half and only using the number of 1,000. And that brings

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us then to a total of 15,000 megawatts that are currently in the process of being procured

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and which I think will be connected to the grid by the end of 2024 at the latest. And

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this full number of 15,000 are projects connected to the grid or who have grid capacity available

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to them. There's a problem with the grid as we can discuss later, but this 15,000 is covered

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by the grid. Okay, so we're left with 3,000 renewables

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or a bit less if it's baseload. Yes.

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And you... Where will that come from? You risk putting Madhupi and Kusili into the

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picture. Yes, Madhupi not Kusili. We shouldn't treat

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the two of them the same. Madhupi and Kusili, both of them have six units each. At Madhupi,

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three of those units are in full operation and two of them have been running at the EAF,

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an energy availability factor of higher than 85%. In fact, one of them has run for 12

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hours at 92%. So the three units at Madhupi are doing quite well. The place is being run

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by an old ESCOM veteran, Mr. Zivelli Wittboi. He's been there for more than 20 years and

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they're doing well. Two of the units at Madhupi are not at full capacity yet because they

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must be modified to deal with carbon emissions. Madhupi or ESCOM applied for an emission exemption

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from minimum emission standards. They didn't get the exemption, so they have to fix the

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plant to reduce emissions. And that's why two of the six units are not in full production

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yet. And then the sixth unit, as you know, was damaged in 2021 in an explosion. Two employees

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were dismissed because of that explosion, no longer works for ESCOM. And that unit should

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be in operation, giving us about 800 megawatts by September 2024. So as you put it at the

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beginning of your question, we've got 1000 megawatts of base load that we need. We can

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get 800 megawatts of that from Madhupi, bringing an extra unit online. Plus the other two units

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that are currently being fixed for emission standards will probably give us another 200.

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But again, let's leave that out of the equation. Kusili actually is not doing that well at

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all. Of the six units, four were in operation by June last year, June 2020 too. And then

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there was an explosion that took one of them out of action. Don't know what the cause of

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the explosion is. Then a month later in October, an accident took place. We took out two more

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units. So one unit is running. I think it is safe based on discussions I've had with

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people on the inside to say that Kusili will not make a contribution to power supply in

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the country in 2023 and probably also not for the biggest part of 2024. So I ignore

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Kusili and I assume that there are no megawatts coming from there, only from Madhupi.

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And then the role of all the homeowners, like ourselves, many people are putting solar panels

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on the roof and in many cases by lunchtime the batteries are full.

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Yes. Now, of course, not all panel owners have got batteries. One must allow for that

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too. Some people just use panels and that's all. But it is a big potential source. Industry

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players reckon that the 3,600 megawatts of renewable panels on homes and offices all

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over the country and it's growing at the rate of 1,000 megawatts per year. Now, if you take

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that 3,600 and you apply the formula, it will give you a base load of over 1,000 megawatts.

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That's more than what Kusili is producing. It's quite a substantial amount of power.

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And what happens, as you correctly point out, is people satisfy their power needs, at least

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partially from these solar panels. But then there's always a bit of a surplus. So you

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run your dishwasher or you use your hairdryer or you make coffee and the panels provide

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you with power. And then after you've made your coffee or after the dishwasher is run,

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well the panels are still working. The sun is still shining in most parts of South Africa

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and that power goes to waste. So what would be a logical thing to do, and Vietnam has

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done this, Germany has done this, many countries have done it, is you use that power by allowing

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people to feed the power back into the local municipal grid or if they're connected to

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ISCOM to feed it back into the ISCOM grid. That is the basic idea. Why do we not do it?

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For two reasons. The one is what is the price at which you feed it in? So the so-called

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feed in tariff. And that must be, tariff must be finalized. ISCOM has developed a tariff.

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They call it a residential tariff. That's for homeowners. They call it home flex, but

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NASA has to approve of that. My understanding is that NASA did approve it last week when

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they announced their infamous tariff increases for the next two years. So that's an important

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thing to clear. And then of course you have to, the meter in your house will have to change

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and the connection of the grid will have to change. Remember our grid has been built as

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a one way street, one way traffic, power coming into the house. If you now change it to bring

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power into the house, but at the same time also send power out sometimes, you change

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from one way traffic to two way traffic and that requires technical changes. So although

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the concept is easy to understand and although the concept is quite clear, you needed appropriate

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price and you need technical changes. But then you can, you can move along this road.

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I'm really delighted to see that the presidency and their statement have made it quite clear

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that this is a major area of work now for government. They want to finalize the feed

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in tariff and get the show on the road. And that will add another few hundred megawatts

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of base load to the national supply. But what about the municipalities? Not everyone buys

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directly from ESCO. Absolutely right. The municipalities are very keen to hold on to

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the source of income. So they also are not prepared to let go. In fact, Salga, the association

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of local governments have brought a court case against the government for the court

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to declare that only municipalities are allowed to distribute power in a certain municipal

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area. Now we're going to see where the court case goes. One can understand where they come

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from. And again, you know, the old system is dying. The new one is being born, but precisely

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what must be the rules of the new one. And you don't, you don't design these things

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by way of artificial intelligence. And then it's there. It's a process of moving through

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the obstacles. And I think what municipalities want and what they can get as part of that

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process. And deeply political. And it's very deeply political. You know, we are all on

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the page of let's use renewables, let's change the energy system, let's become part of the

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global move to a greener economy and so on and so forth. A lot of people in South Africa

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don't accept that. And they are fearful of the changes. They are fearful that the poor

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will be left behind and so on. All those problems can be overcome. It is possible to overcome

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them all. Countries have done it. We will also do it, but it's a process of working

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through the issues. I think that's important. Any short term possibilities? Look, there

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are only two short term possibilities that I can see. The one is that you use diesel,

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which is very, very expensive and it's not a sustainable option. But if Treasury can

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find the money, ISCOM doesn't have the money. Let's be clear about that. ISCOM doesn't have

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the money and it looks as if NERSA has not allowed ISCOM to increase tariffs to allow

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for diesel purchases. That is what the NERSA decision looks like. So if you want diesel,

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you want to buy diesel more than what is allowed for in the ISCOM budget, you'll have to get

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the money from somewhere else. But that diesel is one option if Treasury gives you the money.

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The other option is that we go back to the car power ship option. I call it the dreaded

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car power ship option in the written piece. Why dreaded? Because it involves 20 year contracts.

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It involves very little permanent infrastructure and it brings with it undesirable environmental

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impacts. So you can argue that none of these things, 20 year contract and so on, none is

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as important as reducing load shedding. And that's a choice the society must make. So

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you can do those two things, gas at a huge price or diesel at a huge price. I think the

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better way to approach this is simply to say publicly and openly, we will have load shedding

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for another two years. There is no ways around that. There's no quick fix. There's no quick

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solution. This idea that you can do things and next week load shedding will be over is

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really, really nonsense. Even if you use gas and even if you buy diesel, it will still

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take time and it will be prohibitively expensive. So no, I don't think there are shorter solutions.

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But as you say, there are people who argue that ISCOM's power stations must just pull

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themselves together. Yes, absolutely. And then it will be over by tomorrow. Yes, absolutely.

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And particularly the politicians are doing that. They say ISCOM doesn't have a money

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problem. It has a management problem, quote unquote. I think that's total nonsense. Other

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people say there's no capacity shortage. They reject the capacity gap argument. What they're

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saying is that ISCOM has got about 44, 45,000 megawatts of installed capacity and it's only

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delivering about 23, 24,000. So clearly there's a lot of capacity there not being used. I

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think the problem with that argument is that it ignores the energy availability factor.

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The ISCOM plant is old. The average age, if you exclude Madhubi and Kusili, is more than

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40 years. Now, if you will know from your fridge in your kitchen or the lawn mower in

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your garden, you use a 40 year old piece of equipment, it doesn't give you the same performance

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as a new fridge or a new lawn mower. Just as simple as that. Added is the fact that

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a lot of the ISCOM plant has not been maintained for a long time. We know that. How do we know

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it? Because an industry association, VGB, based in Germany, to which ISCOM also belongs,

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track and monitor the energy availability factor, the EAF, of power stations worldwide.

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The reality is that ISCOM was absolutely on par in its energy availability factor, its

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efficiencies with the world average, the global average, until about 2011. Since 2011, now

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that is now 11, 12 years ago. Since 2011, ISCOM's energy availability factor has simply

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fallen away from the global average. So there's clear empirical evidence that there's a strong

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problem with the efficiency of the ISCOM installed capacity. So to talk about we've got 24,000,

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we must just use it properly, is really, it is simply wrong. It is simply wrong.

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And the figures that you quote, the global average is 75% or more, EAF. ISCOM is 53.

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That's a very important point. The ISCOM fleet is running at below 54%, 53.9 to be precise.

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This year, last year, they ran also at those levels. There is an energy analyst, Mr. Clive

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Mallinson, who's done extensive work on the energy availability factor of the ISCOM fleet.

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And it's been coming down for a long time. And he is predicting that this will go down

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below 50. So nevermind the 53.9 that we're doing currently, it may drop even lower. And

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that has been the trend. So yeah, absolutely. We are way below what ISCOM used to be. You

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know, we must forget at the beginning of the 2000s, ISCOM was voted the best utility in

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the world. It was really a superbly run and producing organization. But that is 11, 12

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years ago.

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No, that's 20 years ago.

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That's 20 years ago. I'm sorry. It's 20 years ago. And things change. Things change.

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And machines get older and older and older.

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And machines get older and they get older quicker if you don't look after them. And

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that is precisely what happened here. So now I'm afraid the efficiency argument doesn't

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hold up.

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But then the next problematic area is the grid transmission.

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Yes. What came out clearly in December is something which people have been warning us

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about. And that is that there isn't enough transmission capacity, transmission lines

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to carry power up and down. Now, again, our grid, our national grid was developed to move

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power or electricity in one direction, one way traffic from the power stations in the

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eastern side of the country, Mipumalanga, to the rest of the country. What is happening

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now with renewables and power plants going up all over the show is you need a grid that

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can do electricity in two directions. Secondly, you need a grid that can cope with the intermittency

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of wind and sun. If the sun is shining, there's power. Cloud moves in before the sun, there's

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no power. That's a bit taxing on a grid. And you've got to adapt the grid for that.

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And a lot of the new of the renewable power stations are in completely different places

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now. Northern Cape, Eastern Cape. Yes. There's no, there are very few transmission lines.

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Well, they're not enough transmission. Let's put it that way. And this became very clear

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in December when the government announced the results of bit window, bit window six.

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The bit window was 4,200 megawatts big. There were 56 bits that came in. So people are interested.

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People are definitely interested. What the bits tell us is that people want to invest.

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For all the stories about people not wanting to invest in South Africa, blah, blah, blah.

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People with real money and real checkbooks have actually written the checks to participate

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in the bit and they've submitted bits, very competitive bits. But only of that 4,200,

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only about 850 or 860 in the end could be allocated because only those bits had access

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to the transmission grid. So you have 56 bitters, only six bitters had access. So you lost 50

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bitters, so to speak. You wanted to get 4,200 from the bit round, but you only got about

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850. There may be another 150 coming, calling it, call it a thousand, but the gap is quite

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big. So the round was a big disappointment. And I think what the round tells us is that

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the upgrade of the transmission grid is now really important.

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This sounds as if it could be expensive. It will be expensive. The ESCOM transmission

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division, which is due to be set up as a separate company, but reporting as part of ESCOM, they

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published a transmission development plan every year. And the last one was published

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in October last year for the next 10 years. And essentially what they are saying is that

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they, at the cost of about 72 billion Rand, they can add 16 and a half thousand megawatts

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of transmission capacity. And they've got a number of projects, 23 in one case and 13

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in another case. So it's more than 30 projects all over the country, which if they implement

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the projects, they can upgrade by the 16,500 megawatts I referred to. That will cost 72

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billion Rand. So where will the money come from? At this stage, the idea is that the

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money must come from the green climate funds that South Africa got in the deal that it

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signed at COP27. Now I wrote about that in December last year. If you look at the detail

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of that plan, 131 billion Rand is set aside in the plan to upgrade the South African transmission

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grid. And the president in fact has already said it, some press conference, that the first

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cash from that COP agreement or climate funds agreement will go towards upgrading the grid.

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So I don't think that it is a constraint now. It is a problem now. I don't think it's a

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permanent constraint. You can throw money at the problem, create the extra capacity

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and connect all the new producers and the money is available via the climate green funds.

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Do you think government is on top of this? Yes, they're on top of the issues, but they're

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behind in time. What I mean by that is the Ramaphosa government has made a number of

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important changes in electricity policy over the last four years. But the reality on the

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ground has developed faster and quicker than what the government has reacted. So yes, they

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are on top of it in terms of understanding the issues and what needs to be done. There

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is also division in government. We know that Greddy Mantashe wants to pull in one direction,

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but they hasn't stopped policy development so far. But load shedding is happening faster

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and quicker than what government policy is evolving. And I think that is the basic constraint.

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Government is not getting ahead of the problem. They are just always a few steps behind. And

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that's, I suppose that's in the nature of governments, but it is a problem for electricity

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provision. So what should happen this week to start getting us out of what you call the

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mess at one point? Well, first of all, the 9,000 megawatts of

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private power must be allowed and helped to become real. Don't put obstacles there. Don't

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prevent their progress. Ditto for the 3,000 megawatts of publicly procured power through

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the bit windows. Those bits have now been allocated. Everybody knows what the prices

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are, who is in, who is out. Allow those projects to go ahead. So basically dealing with the

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administrative issues around procuring power. That's number one.

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Number two, I think a feed in tariff from home and this must be put down and municipalities

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must be guided to change their approach and accept what needs to be done to make that

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happen. I think that is number two. If we're going to stop adding any of the capacity that

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I've referred to, any of that 18,000 megawatts capacity, then load sharing will persist beyond

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two years. If we can get the 18,000 megawatts of capacity, we can deal with load sharing.

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And then lastly, of course, we must get a clear effort to finance the upgrading of the

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transmission grid. That money from the green climate change funds, green money must be

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used to upgrade the transmission. So it's quite clear what needs to be done. Just sit

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down and do it and make it happen. That is really where we are.

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From your lips to, I won't say God's ears, from your lips to the relevant people in government's

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ears. Thank you very much and thank you for all the work that went into this.

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No, thank you. Go well.

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