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.
First of all, happy 2024.
Yes indeed, a very, very happy 2024 to all of you.
May it be a fulfilling and a healthy and a happy year.
Healthy above all.
As usual, this podcast goes with a newsletter which you can find on JP's website, which
is jplantman.co.za.
JP, your title once again, electricity.
What happened to make you revisit this topic yet again?
Two reasons.
One, it is the most important issue confronting the country, particularly the economy and
our ability to grow, create jobs and so on.
So it will be with us until we've sorted out the electricity issue.
It's extremely important.
Secondly, we have had a number of important announcements during the holiday period after
the country has already gone on leave, so to speak, which impacts quite seriously on
the electricity situation.
And if I can just briefly refer to what they were, the long awaited IRP, Integrated Resource
Plan of 2023, was released just after the end of the year.
Secondly, government has announced three different bit windows for new power, 5,000 megawatts
for renewable energy, 2,000 megawatts for gas and another 615 megawatts for battery
storage.
So those three bit windows opened.
And thirdly, government also announced during the holidays that in March of this year, it
will go to the market with a request for proposals, not for the bit window, but the request for
proposals on 1,000 megawatts of nuclear energy.
Now we'll have to see what comes out of the request, what the prices will be and so on.
I don't think we will have any clarity on that before the end of next year, so we don't
have to spend more time on that now.
So also it takes time, even if it went through the process tomorrow, it will take 10 to 15
years for a nuclear power station to come online.
So it's really academic at the moment.
Yes, absolutely correct.
It is academic in terms of load shedding and what will happen with our energy scene by
2030, which is the timeframe of the IRP.
And the health of ESCOM?
The health of ESCOM, we had figures for the year that came out after 52 weeks of data
from ESCOM, Chris Yelland, the energy analyst at the work.
And what he found was that the energy availability factor, the efficiency of ESCOM or the health
of ESCOM has declined from 58% in 2022 to 54.7% in 2023.
So there was more than a 3% decline.
Now the relevance is not just the decline, the relevance is also that this decline has
been fairly consistent now for a number of years.
And the fact that it's trending downwards to what 50% makes complete mockery of targets
of 65 and 70% energy availability factor, which was said by the previous board and some
politicians.
It's just not happening.
But the major piece of news was IRP23.
You call it visionless and without urgency.
That's harsh.
Yes, it is harsh because I think it's justified.
What the IRP foresees is that load sharing will be with us until 2027.
Now that in my view for a country which is in the energy crisis is simply not good enough.
Common sense dictates that you've got to submit a plan to the nation and to the country, which
will take care of this problem and solve it over the next while, not kick the can down
the road until 2027.
So that is why I call it visionless and not very ambitious.
I must just say that the one good thing about the IRP, it works with the energy availability
assumption of 49% to 51%.
Now given what happened to the energy availability factor in 2023, that's a realistic assumption.
There is one scenario in the IRP where load sharing can be sorted before 2027, but then
they work with EAF of more than 60%.
Now that's not going to happen.
So that is just wishful thinking.
Where does our hope come from?
The bottom line, Rudi, where our hope comes from is that there has got to be new investment
in energy.
You're not going to get the energy problem sorted by fixing ESCOM.
ESCOM I don't think is fixable.
You're going to get energy security from new investment in energy.
And that's precisely the point where the IRP is not very strong.
So let me give you a feel for what is proposed in the IRP.
They propose a total of 28,000 megawatts over the period to 2030.
That 28,000 megawatts consists of a number of things, which I'll come back to, renewable
gas and so on.
But you've got to compare that 28,000 with the 50 to 60,000 megawatts, which the Presidential
Climate Change Commission has recommended for the next 10 years.
Now if you need over the next 10 years 50 to 60,000 and the IRP gives you 28,000, there's
a 32,000 megawatt shortfall.
And there's no indication in the IRP of how that will be covered.
And it sounds as if the two sections of government are not talking to each other.
It certainly looks like that if you take the just energy transition plan and you take the
IRP next to it.
It does look as if they're not talking to one another.
Now just to take my criticism of the IRP further, as I've said, in December government released
a bid window for 5,000 megawatts of renewables.
That is not brought into the plan at all.
There's no provision for those 5,000.
More inexplicably, the minister still has the authority to issue another bid window,
bid window 8, for 5,000 more renewables.
So you had one in December, number 7, the ease capacity for number 8, that's 10,000.
You can see that that 22,000, 32,000 deficit can be cut down.
Just in terms of current plans, yet there is no provision for that in the IRP.
It's really inexplicable and it leaves one with the feeling that the IRP was manipulated
to force gas into the energy scene.
That's the comment.
May I ask why you say that?
Well because if you brought in these numbers, then we will still need gas.
There is room for gas in the South African energy mix, but not for the quantum, which
the IRP talks about.
The IRP at the moment in theory talks about more than 6,000 megawatts of gas.
That's not an overnight project.
It will take a long time to develop that capacity and bring it into the country's energy supply.
While the short answer, the quicker answer is to go for renewables.
Now if you have 5,000 and 5,000 renewables available so to speak, why not use it and
reduce the cash load?
What does the 28,000 megawatts in the IRP consist of?
Good question.
Basically, it's 69% renewables, that is wind and solar.
It's 21% for gas.
It's 5% for dispatchable capacity, simply meaning capacity which can be switched on
and off.
That can be batteries, it can be pump storage, it can be salt technology.
You generate electricity, you store it and you use it when you need it.
And then the last 5% is for coal.
Now let me just say the provision for coal is really nothing else but the last two units
at Madhupi and Kusili which will come onto line in the period of the IRP.
One of them this year and the other one next year 2025.
So there's no new coal?
There's no new coal.
I think that's an important point to note.
And also important is that in the previous IRP, the one from 2019 which is still current,
there was a provision or allotment for two coal fired power stations of 750 megawatts
each.
The minister has never activated those.
So in spite of all the things that he said about coal, he never opened the door for a
bit window on those two.
And they don't reappear in this new draft.
So yes, the only coal are those which are already in process at Madhupi and Kusili.
No new coal.
Then the gas allocation which is 21% of the 28,000 megawatts consists of three elements.
The first one is 1200 megawatts from car powership.
Now the funny thing is about two days after the IRP was published, ISCOM announced that
they've cancelled the grid capacity which they held in reserve for car powership.
Not just for car powership, also for another supplier, people who couldn't reach financial
close by 31 December.
And ISCOM said that's enough now, giving you enough time to build your plants.
You can't reach financial close, so we're cancelling the grid capacity.
So that can go to other people.
But the 1200 is in the IRP.
Then there is another 3000 gas for ISCOM.
Now 3000 gas plant will cost in the vicinity of 40 billion rand.
There's no ways that ISCOM has got the money to build that.
In fact the treasury in the bailout which they gave ISCOM made it a clear condition
that there will be no new capital expenditure except that which is necessary for urgent
maintenance.
So where you're going to get 40 billion to build a new gas plant, you know, is something
which the IRP drafters haven't explained.
The most realistic one is the last section of gas and that is 2000 megawatts of gas capacity
anywhere in the country on any technology.
It can be shale gas or imported or whatever for independent power producers.
Now that's a realistic thing.
I think people will come forward.
They will have projects and that could be built and connected to the grid.
Then there's last 1000 megawatts which is specifically a marked for the Eastern Cape.
But no but window has been opened for that.
But it sounds as if the IRP is already outdated.
It is.
Because realities have come into play which it just does not reflect.
No absolutely.
There's the car powership one, there's the ISCOM one, there's the but window 7 in December
5000 megawatts not being accounted for.
There's the capacity for 8 but window sometime in the future not being accounted for.
And I think the biggest wonder is the contribution from the private sector.
Now we heard this week, Narsha announced the National Electricity Regulator announced that
in 2023 4500 megawatts from the private sector was installed over the total of 392 projects,
392 different private sector projects and combined they generate 4500 megawatts.
And that's already online, it has already happened.
Well the capacity is being installed.
So whether they, I don't think they all came online by December last year but they certainly
will come online very soon.
Companies invest the money, they want the power, they're not going to muck around.
Now in the IRP there's an admission that more capacity will come from the private sector
but they put no numbers to it in the IRP which again is an oversight which makes the whole
thing a little bit outdated.
You call it a missed opportunity to spur re-industrialisation.
Why do you say that?
The components that we need for renewable energy, a lot of them can be produced locally.
So if you take a solar panel for example we don't have the photovoltaic film that goes
on top but that film goes on the glass panel and the glass panel fits into a gantry.
And the gantry and the glass panel can be manufactured here, the film you'll import
from China.
That's the kind of example of how we can do re-industrialisation.
Likewise for a wind farm, the windmills are not manufactured here but components can be
manufactured and you can assemble them here.
So it is an opportunity to re-industrialise, the same with transmission lines, the cables,
the towers that you need and so on, all these things can be produced locally.
So by going with the green revolution or the green power revolution or the renewable power
revolution you can actually do a lot to stimulate industrial manufacturing in South Africa.
But won't that happen in spite of the IRP?
Well the problem is…
I mean in spite of the silence of the IRP.
I think it will happen but in the ideal world what you would like is not for silence but
for a clear statement that says every year we estimate, we budget, we plan to install
so many megawatts of solar capacity and then people can do their calculations and say we
don't manufacture enough of that here in the country, we'll have to import a lot from
China or wherever, let's put up a factory.
Now you may recall that in 2016, quite a few years ago, but in 2016 Brian Molefe, who was
then the CEO of Eskom, suspended all new renewable contracts and he refused to sign them.
As a result of that the renewables program came to a screeching halt.
As a result of that, solar plant, plant manufacturing solar panels in KZN had to close down because
the demand for the product dried up.
So what you want is not number one a low allocation, which is currently the case, what you also
want is a fairly consistent allocation over time.
Now I give the numbers there in the note but at the moment for 2024 for example, the IRP
envisions only 1000 megawatt of solar renewable power and then in 2026 only 1040.
Now that's too little, it's too small.
Then suddenly in 2025, the year in between, they shoot up to 3000.
Now you cannot have industrial, you can't have factories when there is one year of demand
for 1000, the next year for 3000, the third year down to 1000 again.
Nobody is going to run the risk.
This document actually creates uncertainty.
It creates uncertainty where it should create certainty and it creates uncertainty where
it should put out a vision of where the country is going.
Now that leads us to the next question, what now?
How relevant is this plan?
Is it a completely lost opportunity?
Did they lose the opportunity for us or is something else going to happen?
Two things must happen.
First of all, this is a draft.
So the public has been asked to comment and I'm quite sure just as I've now had comments
here, many people in the country, much more knowledgeable, will bring strong data to the
department and they will have to update draft.
That will take quite a while.
That will probably take us into the second half of 2024.
So yes, it is possible that things could change, but that is in the future.
The second thing, which is in a sense much more important, is the changes that President
Ramaphosa has made in 2021 and again in 2022 to the regulatory environment.
What is essentially done?
We've written about this before and talked about it before.
He has deregulated or liberated, if you want, the energy market in South Africa.
We used to have a very strict state controlled system.
Now you've got a complete open free for all system as a result of the changes.
What does that mean?
It means that private sector people, whether it's a household or a small office or a factory
or a mine, anybody can now put up a power plant to service their own needs.
It can be renewable technologies.
It can be diesel.
If they want to go that route, it can be anything.
In this list of 392 plants that NASA released this week, there's for example a plant from
a big sugar company in KZN.
They use extra biomass surplus biomass from sugar to generate power, which they use in
their factories.
So the space has been opened up and that means private sector people will carry on doing
their own thing.
We know now that last year 4,500 megawatts, 392 projects.
I can guarantee you that'll happen again in 2024 and probably accelerate.
Why would it accelerate?
Here an important dimension comes in.
Load shedding is one reason.
People don't want to be exposed to load shedding and if you tell them load shedding will last
until 2027, they're going to make a plan.
Secondly, more and more companies are moving to renewable energy, not so much for load
shedding only, but because they want to become carbon neutral at some point in the future.
The world is moving and companies are moving alongside.
Take Anglo-American South Africa for example.
They have a target that by 2040 they want to be carbon neutral.
In order to get there, they must by 2030 install 5,000 megawatts of renewable power and they're
busy doing it.
Now 5,000 megawatts is big.
That's as big as a whole government bid window.
That's Anglo-American, but Anglo is not the only one.
You get this story from a number of companies who are under pressure from ESG considerations,
sustainability and environment considerations who are busy putting money in.
And then the third factor I've already sort of touched on, it's reflexivity.
George Soros' thing, the thinking that made Soros rich and the thinking basically says
whenever you take an action, it's already in that action, the beginning of a counter
action.
So if you publish the IRP and you say that they'll be loading until 2027, what will people
do?
We're in a hurry, we can't wait.
Let's do our own thing.
So for those three reasons, I think the private sector will use more than what they've done
so far, the space created by the president and they will put up their own plans and run
with them.
What about transmission?
Because that has been the big problem for more than a year now.
Absolutely.
Transmission is the big bottleneck and I think there are two data points to consider.
The one is it is getting money and number two, it's getting attention, which it has
never had before.
What is the money?
Two agreements have been signed by National Treasury for 300 million euro each with European
funders, European and Western funders and that money is allocated for growth expansion
or transmission expansion.
Is that part of the just economic transition money?
Yes, yes.
Absolutely.
That's the meaning of that, the first money under that plan.
So there is money available.
Also the minister of electricity, minister Ramajopa, has now been made responsible for
transmission.
There was previously uncertainty as to where the political responsibility lies.
He has now been specifically made responsible for it and in his first news conference of
the year he said he's got a mandate, quote unquote, he's got a mandate to look for private
sector money to be used in transmission.
So there's political attention and there's money and I think between those two we will
see substantial progress on transmission.
Can I just say the current transmission plan by ESCOM, 10 year plan, provides for 14,000
kilometres over 10 years.
It's about 1400 kilometres a year.
The previous highest point was in the 1960s when South Africa built 1200 kilometres of
transmission lines per year.
So we're clearly going back to that big expansion we had then.
The problem at which is still there at the moment is that most of that 14,000 is towards
the second five years of the 10 year plan and not in the first five years.
And the manufacturing industry have asked for some of those kilometres to be brought
forward into years one, two and three for precisely the same logic as we saw with solar
panels.
You want to have a consistent demand over time in order to build manufacturing capacity.
So I'm fairly happy that the transmission problem will be dealt with.
What difference will the new transmission company make?
Does it help with ESCOM's CAPEX problem?
Yes, it does.
Number one, ESCOM can, as I've said, are not allowed to have any CAPEX spending.
That doesn't apply to this new company.
That's number one.
Number two, the new company brings with it focus.
If you're responsible for transmission and generation and distribution, I think focus
get a bit diffuse.
This company will focus only on transmission.
That's their sole purpose for existence.
Thirdly, they take over from ESCOM, I think some 30 or 40 billion in assets, transmission
assets that can now be leveraged.
Money can be borrowed from the bank against those assets and you can expand the process
faster.
So, yes, I think it's a very good development.
It's been on the cards since 2019.
It's now happened four and a half years later, rather late than never.
The economic impact of electricity keeping dragging on.
Look, that's why I again started 24 by writing about electricity because it is so important
for the economy.
As long as we have load shedding, as long as we don't have security of supply, as long
as people have to spend money on it, you hold back economic growth.
So, what is the bigger picture?
The bigger picture is that we've now had 10 years behind us, all the way from 2014 to
2023.
10 years, where per capita incomes stagnated or declined.
And I calculate we don't have the numbers yet.
At the end of December 23, we were probably about 6 to 7% poorer than what we were at
the beginning of 2014.
And that poverty comes out in all kinds of ways.
Government can't collect the taxes that they want.
Companies can't make the profits and reinvest to the extent that they want.
Those are not being created to the extent that you need it.
You know, there's a price to be paid for getting poorer.
For 10 years now, we have been getting poorer.
I think the reality is that 2024 will be the 11th year in which we get poorer.
The population growth at the moment is 1.8% and nobody expects the economy to grow 1.8%.
So it'll give us 11 years of getting poorer.
That makes it all the more urgent that we sort electricity out and get back to a growth
rate of at least 2.5, maybe 3%.
Measure that against population growth of 1.8.
Then you start cooking with gas.
In a manner of speaking.
So in summary, so what?
The further decline in ESCOM's electricity availability factor to less than 55% or about
55% continues a long term declining trend.
And it tells you that the salvation cannot come from ESCOM.
ESCOM is not going to survive this crisis in its current format.
The salvation must come from somewhere else.
The way it is that somewhere else, it is from massive new investment in new energy capacity.
And we've got the numbers.
The Presidential Climate Change Commission told us 50 to 60,000 megawatts of new renewal
capacity and about 3,000 and so of gas.
The IRP23 with its 28,000 new capacity falls very far short of 50 to 60,000.
You need to plug that gap to get to energy security.
The good news is that the President's regulatory reform over the last two years have opened
up the electricity market completely.
People can now do their own thing, provide their own power and they are doing it as the
numbers are showing us.
Another interesting development is that we have more and more energy traders and energy
exchanges coming into existence.
I think NASA has by now licensed three or four traders.
Now the big thing about a trader is they can buy from a person with surplus energy and
they can sell it to a person who need the energy and you don't need the capex in the
middle.
It's an essential part of a liberated market and that market is beginning to develop.
It will spread supply and demand much, much wider.
Look, getting out of the electricity crisis is a huge opportunity for South Africa to
industrialize.
For that you need a clear line of sight for a couple of years into the future.
You need a clear plan.
The IOP 23 is not that.
What is that is the just economic transition plan, which is much clearer and I think a
much better foundation.
Therefore going forward, what we will do is to monitor implementation of the jet plan.
That is the way that we will see how we're doing with the roadmap.
We will talk about that in future.
Thank you very much.
Thank you.
Thank you for listening to the So What podcast.
If you enjoy this content, please don't forget to leave a review and a rating and please
consider subscribing so you don't miss any future episodes.
Also tell your friends.
There you can find a written version of all JP's content at JPLandman.co.za