Hello and welcome to the So What podcast, in which political economic analyst JP Landman
discusses the issues uppermost in the minds of South Africans. You can find a written
version of this content on JP's website, jplandman.co.za. I am Ruda Landman and I am your host.
These first few recordings were done at our dining room table, but we will soon be moving
into a studio.
Hello, and as always, a very warm welcome to another recording which goes with JP's
latest newsletter. This one is dated the 20th of January 2023. And it's about, what else
could it be about at this moment, about electricity. JP, you start with a quote from Antonio Gramsci
and the quote reads, the crisis consists precisely in the fact that the old is dying and the
new cannot be born. In this interregnum, a great variety of morbid symptoms appear. Who
was Antonio Gramsci and why is this relevant?
Gramsci was imprisoned by the fascists in Italy in the 1930s. And he actually wrote
these words from prison. He kept a journal of his writings while in prison and this quote
comes from there. Why is it relevant for South Africa today? Because I think it expresses
absolutely precisely where we are with electricity. The old system of electricity provision in
South Africa is busy dying. ESCOM, as we used to know it, is busy dying. The way that we
provided electricity to ourselves and the nation is busy dying. And the new system is
being born. A system that will be much different from and encapsulate much more than ESCOM.
But the new system is not quite in place yet. The old system is also no longer working.
And we caught in between that interregnum between the old electricity system and the
new system. And flowing from that, Rudha, I just want to make this one point very, very
clearly. I don't think ESCOM can be saved in its current format. If we look back in
five years time, ESCOM as we exist today will no longer exist. It will exist in a much diminished
and different form. So ESCOM cannot be saved, in my view, but electricity provision will
be saved. And that is what this piece is about. And then you make a point which I think is
one wants to say it's obvious, but I think we need to understand that we have load shedding
because South Africa does not generate enough power. What is the gap and how will it be
closed? The capacity gap is between 4000 megawatts and 6000 megawatts. There's no 100% consensus
about the correct number. ESCOM as recently as November, they said the capacity gap was
4000 megawatts. What I do in this piece is I assume that the capacity gap is 6000 megawatts.
And then I look at how one can whittle that 6000 megawatts down.
And that is simply the gap between supply and demand.
Yes, that is simply the gap between what ESCOM can produce when everything goes right and
when everything runs well and what is demanded by the economy and by people and by households.
And so that's the capacity gap. Now it's important to note that whether you use 4000 megawatts
as your number or 6000 megawatts as your number, what we're talking about are baseload megawatts.
Now what is baseload? Baseload simply means the power is available for 24 hours of the
day. It's not just available when the sun shines or when the wind blows. It is there
all the time. Now, if you want to compare apples with apples, 6000 megawatts of baseload
will require about 18,000 megawatts of renewable capacity supported by storage and gas. That's
the way to compare apples with apples. The baseload people try to argue that you can
get baseload only from coal or from coal and nuclear. And that is actually not true. Technology
is developed in a different way. And you can now, there's a wind farm in Bosnian-Berg
in the Northern Cape, not a wind farm, a solar farm that is now for 12 months provided electricity
24 hours per day from the sun using a salt technology. For storage. For storage. So with
renewables you need storage, whatever technology and you can use gas to make up for the times
when the renewables are not working. So 6000 megawatts of capacity gap is 6000 megawatts
of baseload and that translates into about 18,000 megawatts of renewable capacity that
is needed. Okay, but we've been seeing renewable contracts being given. We all see wind farms
everywhere. We see solar farms if you drive through the Northern Cape. Where are we in
making up that gap? Right. So we've got about roughly 7,000 megawatts of renewables installed
in the country that is already being used by ISCOM and to plug this capacity gap of
18,000 megawatts renewables, you have to install 18,000 new megawatts on top of what you probably
have. So the numbers look as follows. 9,000 megawatts of capacity is being built at the
moment by private companies putting up power facilities for their own use and for the customers
that they share in the world that they sell it to. That is private sector driven. It's
about a hundred projects countrywide, consists of wind and solar and batteries in many cases
and the number is 9,000. Then we have about 3,000 megawatts that have been procured through
the official procurement processes run by the government, run by the Department of Mineral
Energy. If I say government, it's also, it includes procurement processes being run by
local governments, but that's minuscule. You can for all practical purposes ignore that.
There's a lot of talking and noise about what municipalities are doing, but so far it's
a very, very small number. So 9,000 private, 3,000 public. That gives you 12,000 megawatts
of new capacity that's in one shape or form in the process of being created at the moment.
And you think by the end of 2024, most of that will be online?
Yes, absolutely. Certainly the private processes, no question about that. I see there is a statement
from the presidency suggesting that a lot of it will come online during 2023. That may
be I'm working on 2024 as the outside date. So we've got 12,000 and then there's another
2,000 that is being made available through ISCOM repurposing the land on which it's current
coal fired power stations are standing. And what they've done is they've already leased
out 6,000 hectares to private entrepreneurs to come and build renewable facilities on
ISCOM land. There's no purchase agreement with ISCOM. They can sell it to whoever they
want to and they have to pay ISCOM rent. But the upside of those sites is that they
are already linked to the grid. Correct. Transmission is no problem because
the coal fired power stations transmit the power. So that's another 2,000. So you've
got 9,000 private, 3,000 through official procurement, the so-called bitwindows. You've
got 2,000 from ISCOM that gives you 14,000. And then there is another 1,000 megawatts
that will take the total to 15,000 of power that will be bought from existing independent
power producers who have extra capacity. So you have a capacity for say 110 megawatts,
but you're only selling 100 megawatts to ISCOM. So there's an extra 10 megawatts lying around.
The idea is to buy 1,000 megawatts from existing independent power producers as well as the
sub-African power pool. So we import power from other countries in sub-Saharan Africa
which also belongs to power pool. Now the presidency or the National Energy
Committee on electricity is of the opinion that 2,000 megawatts can be procured in this
manner. I've cut that number in half and only using the number of 1,000. And that brings
us then to a total of 15,000 megawatts that are currently in the process of being procured
and which I think will be connected to the grid by the end of 2024 at the latest. And
this full number of 15,000 are projects connected to the grid or who have grid capacity available
to them. There's a problem with the grid as we can discuss later, but this 15,000 is covered
by the grid. Okay, so we're left with 3,000 renewables
or a bit less if it's baseload. Yes.
And you... Where will that come from? You risk putting Madhupi and Kusili into the
picture. Yes, Madhupi not Kusili. We shouldn't treat
the two of them the same. Madhupi and Kusili, both of them have six units each. At Madhupi,
three of those units are in full operation and two of them have been running at the EAF,
an energy availability factor of higher than 85%. In fact, one of them has run for 12
hours at 92%. So the three units at Madhupi are doing quite well. The place is being run
by an old ESCOM veteran, Mr. Zivelli Wittboi. He's been there for more than 20 years and
they're doing well. Two of the units at Madhupi are not at full capacity yet because they
must be modified to deal with carbon emissions. Madhupi or ESCOM applied for an emission exemption
from minimum emission standards. They didn't get the exemption, so they have to fix the
plant to reduce emissions. And that's why two of the six units are not in full production
yet. And then the sixth unit, as you know, was damaged in 2021 in an explosion. Two employees
were dismissed because of that explosion, no longer works for ESCOM. And that unit should
be in operation, giving us about 800 megawatts by September 2024. So as you put it at the
beginning of your question, we've got 1000 megawatts of base load that we need. We can
get 800 megawatts of that from Madhupi, bringing an extra unit online. Plus the other two units
that are currently being fixed for emission standards will probably give us another 200.
But again, let's leave that out of the equation. Kusili actually is not doing that well at
all. Of the six units, four were in operation by June last year, June 2020 too. And then
there was an explosion that took one of them out of action. Don't know what the cause of
the explosion is. Then a month later in October, an accident took place. We took out two more
units. So one unit is running. I think it is safe based on discussions I've had with
people on the inside to say that Kusili will not make a contribution to power supply in
the country in 2023 and probably also not for the biggest part of 2024. So I ignore
Kusili and I assume that there are no megawatts coming from there, only from Madhupi.
And then the role of all the homeowners, like ourselves, many people are putting solar panels
on the roof and in many cases by lunchtime the batteries are full.
Yes. Now, of course, not all panel owners have got batteries. One must allow for that
too. Some people just use panels and that's all. But it is a big potential source. Industry
players reckon that the 3,600 megawatts of renewable panels on homes and offices all
over the country and it's growing at the rate of 1,000 megawatts per year. Now, if you take
that 3,600 and you apply the formula, it will give you a base load of over 1,000 megawatts.
That's more than what Kusili is producing. It's quite a substantial amount of power.
And what happens, as you correctly point out, is people satisfy their power needs, at least
partially from these solar panels. But then there's always a bit of a surplus. So you
run your dishwasher or you use your hairdryer or you make coffee and the panels provide
you with power. And then after you've made your coffee or after the dishwasher is run,
well the panels are still working. The sun is still shining in most parts of South Africa
and that power goes to waste. So what would be a logical thing to do, and Vietnam has
done this, Germany has done this, many countries have done it, is you use that power by allowing
people to feed the power back into the local municipal grid or if they're connected to
ISCOM to feed it back into the ISCOM grid. That is the basic idea. Why do we not do it?
For two reasons. The one is what is the price at which you feed it in? So the so-called
feed in tariff. And that must be, tariff must be finalized. ISCOM has developed a tariff.
They call it a residential tariff. That's for homeowners. They call it home flex, but
NASA has to approve of that. My understanding is that NASA did approve it last week when
they announced their infamous tariff increases for the next two years. So that's an important
thing to clear. And then of course you have to, the meter in your house will have to change
and the connection of the grid will have to change. Remember our grid has been built as
a one way street, one way traffic, power coming into the house. If you now change it to bring
power into the house, but at the same time also send power out sometimes, you change
from one way traffic to two way traffic and that requires technical changes. So although
the concept is easy to understand and although the concept is quite clear, you needed appropriate
price and you need technical changes. But then you can, you can move along this road.
I'm really delighted to see that the presidency and their statement have made it quite clear
that this is a major area of work now for government. They want to finalize the feed
in tariff and get the show on the road. And that will add another few hundred megawatts
of base load to the national supply. But what about the municipalities? Not everyone buys
directly from ESCO. Absolutely right. The municipalities are very keen to hold on to
the source of income. So they also are not prepared to let go. In fact, Salga, the association
of local governments have brought a court case against the government for the court
to declare that only municipalities are allowed to distribute power in a certain municipal
area. Now we're going to see where the court case goes. One can understand where they come
from. And again, you know, the old system is dying. The new one is being born, but precisely
what must be the rules of the new one. And you don't, you don't design these things
by way of artificial intelligence. And then it's there. It's a process of moving through
the obstacles. And I think what municipalities want and what they can get as part of that
process. And deeply political. And it's very deeply political. You know, we are all on
the page of let's use renewables, let's change the energy system, let's become part of the
global move to a greener economy and so on and so forth. A lot of people in South Africa
don't accept that. And they are fearful of the changes. They are fearful that the poor
will be left behind and so on. All those problems can be overcome. It is possible to overcome
them all. Countries have done it. We will also do it, but it's a process of working
through the issues. I think that's important. Any short term possibilities? Look, there
are only two short term possibilities that I can see. The one is that you use diesel,
which is very, very expensive and it's not a sustainable option. But if Treasury can
find the money, ISCOM doesn't have the money. Let's be clear about that. ISCOM doesn't have
the money and it looks as if NERSA has not allowed ISCOM to increase tariffs to allow
for diesel purchases. That is what the NERSA decision looks like. So if you want diesel,
you want to buy diesel more than what is allowed for in the ISCOM budget, you'll have to get
the money from somewhere else. But that diesel is one option if Treasury gives you the money.
The other option is that we go back to the car power ship option. I call it the dreaded
car power ship option in the written piece. Why dreaded? Because it involves 20 year contracts.
It involves very little permanent infrastructure and it brings with it undesirable environmental
impacts. So you can argue that none of these things, 20 year contract and so on, none is
as important as reducing load shedding. And that's a choice the society must make. So
you can do those two things, gas at a huge price or diesel at a huge price. I think the
better way to approach this is simply to say publicly and openly, we will have load shedding
for another two years. There is no ways around that. There's no quick fix. There's no quick
solution. This idea that you can do things and next week load shedding will be over is
really, really nonsense. Even if you use gas and even if you buy diesel, it will still
take time and it will be prohibitively expensive. So no, I don't think there are shorter solutions.
But as you say, there are people who argue that ISCOM's power stations must just pull
themselves together. Yes, absolutely. And then it will be over by tomorrow. Yes, absolutely.
And particularly the politicians are doing that. They say ISCOM doesn't have a money
problem. It has a management problem, quote unquote. I think that's total nonsense. Other
people say there's no capacity shortage. They reject the capacity gap argument. What they're
saying is that ISCOM has got about 44, 45,000 megawatts of installed capacity and it's only
delivering about 23, 24,000. So clearly there's a lot of capacity there not being used. I
think the problem with that argument is that it ignores the energy availability factor.
The ISCOM plant is old. The average age, if you exclude Madhubi and Kusili, is more than
40 years. Now, if you will know from your fridge in your kitchen or the lawn mower in
your garden, you use a 40 year old piece of equipment, it doesn't give you the same performance
as a new fridge or a new lawn mower. Just as simple as that. Added is the fact that
a lot of the ISCOM plant has not been maintained for a long time. We know that. How do we know
it? Because an industry association, VGB, based in Germany, to which ISCOM also belongs,
track and monitor the energy availability factor, the EAF, of power stations worldwide.
The reality is that ISCOM was absolutely on par in its energy availability factor, its
efficiencies with the world average, the global average, until about 2011. Since 2011, now
that is now 11, 12 years ago. Since 2011, ISCOM's energy availability factor has simply
fallen away from the global average. So there's clear empirical evidence that there's a strong
problem with the efficiency of the ISCOM installed capacity. So to talk about we've got 24,000,
we must just use it properly, is really, it is simply wrong. It is simply wrong.
And the figures that you quote, the global average is 75% or more, EAF. ISCOM is 53.
That's a very important point. The ISCOM fleet is running at below 54%, 53.9 to be precise.
This year, last year, they ran also at those levels. There is an energy analyst, Mr. Clive
Mallinson, who's done extensive work on the energy availability factor of the ISCOM fleet.
And it's been coming down for a long time. And he is predicting that this will go down
below 50. So nevermind the 53.9 that we're doing currently, it may drop even lower. And
that has been the trend. So yeah, absolutely. We are way below what ISCOM used to be. You
know, we must forget at the beginning of the 2000s, ISCOM was voted the best utility in
the world. It was really a superbly run and producing organization. But that is 11, 12
years ago.
No, that's 20 years ago.
That's 20 years ago. I'm sorry. It's 20 years ago. And things change. Things change.
And machines get older and older and older.
And machines get older and they get older quicker if you don't look after them. And
that is precisely what happened here. So now I'm afraid the efficiency argument doesn't
hold up.
But then the next problematic area is the grid transmission.
Yes. What came out clearly in December is something which people have been warning us
about. And that is that there isn't enough transmission capacity, transmission lines
to carry power up and down. Now, again, our grid, our national grid was developed to move
power or electricity in one direction, one way traffic from the power stations in the
eastern side of the country, Mipumalanga, to the rest of the country. What is happening
now with renewables and power plants going up all over the show is you need a grid that
can do electricity in two directions. Secondly, you need a grid that can cope with the intermittency
of wind and sun. If the sun is shining, there's power. Cloud moves in before the sun, there's
no power. That's a bit taxing on a grid. And you've got to adapt the grid for that.
And a lot of the new of the renewable power stations are in completely different places
now. Northern Cape, Eastern Cape. Yes. There's no, there are very few transmission lines.
Well, they're not enough transmission. Let's put it that way. And this became very clear
in December when the government announced the results of bit window, bit window six.
The bit window was 4,200 megawatts big. There were 56 bits that came in. So people are interested.
People are definitely interested. What the bits tell us is that people want to invest.
For all the stories about people not wanting to invest in South Africa, blah, blah, blah.
People with real money and real checkbooks have actually written the checks to participate
in the bit and they've submitted bits, very competitive bits. But only of that 4,200,
only about 850 or 860 in the end could be allocated because only those bits had access
to the transmission grid. So you have 56 bitters, only six bitters had access. So you lost 50
bitters, so to speak. You wanted to get 4,200 from the bit round, but you only got about
850. There may be another 150 coming, calling it, call it a thousand, but the gap is quite
big. So the round was a big disappointment. And I think what the round tells us is that
the upgrade of the transmission grid is now really important.
This sounds as if it could be expensive. It will be expensive. The ESCOM transmission
division, which is due to be set up as a separate company, but reporting as part of ESCOM, they
published a transmission development plan every year. And the last one was published
in October last year for the next 10 years. And essentially what they are saying is that
they, at the cost of about 72 billion Rand, they can add 16 and a half thousand megawatts
of transmission capacity. And they've got a number of projects, 23 in one case and 13
in another case. So it's more than 30 projects all over the country, which if they implement
the projects, they can upgrade by the 16,500 megawatts I referred to. That will cost 72
billion Rand. So where will the money come from? At this stage, the idea is that the
money must come from the green climate funds that South Africa got in the deal that it
signed at COP27. Now I wrote about that in December last year. If you look at the detail
of that plan, 131 billion Rand is set aside in the plan to upgrade the South African transmission
grid. And the president in fact has already said it, some press conference, that the first
cash from that COP agreement or climate funds agreement will go towards upgrading the grid.
So I don't think that it is a constraint now. It is a problem now. I don't think it's a
permanent constraint. You can throw money at the problem, create the extra capacity
and connect all the new producers and the money is available via the climate green funds.
Do you think government is on top of this? Yes, they're on top of the issues, but they're
behind in time. What I mean by that is the Ramaphosa government has made a number of
important changes in electricity policy over the last four years. But the reality on the
ground has developed faster and quicker than what the government has reacted. So yes, they
are on top of it in terms of understanding the issues and what needs to be done. There
is also division in government. We know that Greddy Mantashe wants to pull in one direction,
but they hasn't stopped policy development so far. But load shedding is happening faster
and quicker than what government policy is evolving. And I think that is the basic constraint.
Government is not getting ahead of the problem. They are just always a few steps behind. And
that's, I suppose that's in the nature of governments, but it is a problem for electricity
provision. So what should happen this week to start getting us out of what you call the
mess at one point? Well, first of all, the 9,000 megawatts of
private power must be allowed and helped to become real. Don't put obstacles there. Don't
prevent their progress. Ditto for the 3,000 megawatts of publicly procured power through
the bit windows. Those bits have now been allocated. Everybody knows what the prices
are, who is in, who is out. Allow those projects to go ahead. So basically dealing with the
administrative issues around procuring power. That's number one.
Number two, I think a feed in tariff from home and this must be put down and municipalities
must be guided to change their approach and accept what needs to be done to make that
happen. I think that is number two. If we're going to stop adding any of the capacity that
I've referred to, any of that 18,000 megawatts capacity, then load sharing will persist beyond
two years. If we can get the 18,000 megawatts of capacity, we can deal with load sharing.
And then lastly, of course, we must get a clear effort to finance the upgrading of the
transmission grid. That money from the green climate change funds, green money must be
used to upgrade the transmission. So it's quite clear what needs to be done. Just sit
down and do it and make it happen. That is really where we are.
From your lips to, I won't say God's ears, from your lips to the relevant people in government's
ears. Thank you very much and thank you for all the work that went into this.
No, thank you. Go well.
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