| 1. Government commits to ultra-aggressive approach to rollout of renewable energyAt the first media briefing on 8 July 2024 following his appointment as minister of energy and electricity, Minister Kgosientsho Ramokgopa pledged that the new department of energy and electricity would be “ultra-aggressive” in its approach to the rollout of renewable energy in South Africa. This was followed by similar sentiments and commitments by President Cyril Ramaphosa in his speech at the opening of parliament on 18 July 2024, in which he stated: “Over the next five years, we will seize the enormous opportunity in renewable energy for inclusive growth” and “South Africa is undergoing a renewable energy revolution that is expected to be the most significant driver of growth and job creation in the next decade and beyond”. At the media briefing, Minister Ramokgopa spoke of a new “mega-bid window” for renewable energy, but was somewhat vague on the specifics. However, he did indicate that the mega-bid window would be bigger than the previous bid windows, that he expects it to be something unprecedented, and that he would provide further details in due course. Insofar as the draft integrated resource plan for electricity, IRP 2023, may be misaligned with the expectations of a significant body of stakeholders in respect of the rollout of renewable energy, the minister said that, if it was necessary, he is also prepared to review the draft plan. 2. Minister vows to confront local government service delivery failures head onAt the same media briefing on 8 July, Minister Ramokgopa vowed to confront electricity distribution industry (EDI) and local government electricity service delivery failures head on. Arrear debt by municipal electricity distributors for purchase of electricity from Eskom stands at R78bn, and is rising at more than R1bn a month, with no possibility of repayment. The debt relief programme initiated by National Treasury appears to have fallen apart, as municipal electricity distributors continue to default on their commitments to pay for their current electricity purchases. Spiralling electricity prices inhibit the ability of customers and municipal distributors to pay for electricity, increase electricity theft and non-payment, and increase municipal arrear debt to Eskom. While generation shortfalls are being addressed, the problems of transmission and distribution bottlenecks are now becoming more apparent, as a result of significant underinvestment and inadequate efforts in these areas. The municipal EDI also suffers from severe skills shortfalls, mismanagement, maladministration, corruption and poor service delivery. While acknowledging that he does not have the answers, Minister Ramokgopa called for high-level engagements involving the Presidency, National Treasury, the departments of Cooperative Governance and Traditional Affairs (COGTA) and Energy and Electricity (DoEE), NERSA, SALGA and other stakeholders, to deal with the issues as a matter of urgency. 3. Largest wheeling project in South Africa commissioned, with others in the wingsThe commissioning of the largest wheeling project in South Africa was announced last week. The project comprises two solar PV facilities in North-West Province with capacities of 126 MW and 130 MW, built, owned and operated by Sola Group. These two facilities generate renewable energy into the Eskom grid for offtake by five Tronox Mineral Sands mining operations, three of which are on the west coast of South Africa, and two in KwaZulu-Natal. As such, this is a “many-to-many” (multi-point) wheeling arrangement across the Eskom grid under a long-term power purchase agreement (PPA) between the solar PV generators and Tronox, with Eskom receiving payment for the use of its transmission grid for transport of the electricity. The projects are said to cover about 40% of Tronox South Africa’s power requirements, with the solar generation assets 100% South African-owned, 52% black-owned, and fully financed by local banks. But while this project is said to have set a new record for wheeling of renewable energy in South Africa, the record is not expected to last for long. In the same week, coal mining group Seriti Resources announced a 900 MW renewable energy project in Mpumalanga. The first phase of the project, comprising 155 MW of wind power, is said to have commenced through its renewable energy division, Seriti Green, with the ultimate planned capacity being 750 MW wind and 150 MW solar PV. Further large wheeling projects by Sasol/Air Liquide, Anglo American and others are also in the wings. 4. Shock opposition by Eskom to licencing of electricity traders by NERSAAt an online public hearing on 17 July 2024 in respect of applications by prospective electricity traders – Discovery Green, CBi Electric Apollo, Green Electron Market and Africa GreenCo – for electricity trading licences from NERSA, Eskom Distribution shocked and surprised all present, including the presiding Regulator members, by opposing granting of the applicants’ trading licences. Wheeling of electricity across Eskom transmission and distribution networks has been taking place for many years, with equitable payments to Eskom for use of its system. Several traders have been licenced by NERSA, and have well established electricity trading operations. Previous applications for trading licences involving wheeling of power across Eskom networks did not encounter opposition from Eskom, and it is unclear why it should now want to discriminate against the latest four applicants. The rights to non-discriminatory, third-party access to public infrastructure, with equitable tariffs for use-of-system, is established by parliament in law and government policy, to promote a diversified and competitive generation sector, through bilateral contracts, wheeling, trading, an electricity market, customer choice and competition, while retaining the monopoly structure of the wires and network operation businesses of Eskom and municipal electricity distributors. In the meantime, the unbundling of Eskom into three separate legal entities as subsidiaries of Eskom Holdings is proceeding apace. Operationalisation and trading of the nominally independent National Transmission Company of South Africa (NTCSA) commenced on 1 July 2024, and electricity market reform is in progress for the establishment of an electricity market in South Africa by 1 April 2026. 5. Further electricity price increases forecast as Eskom losses continueLeaks of Eskom’s draft multi-year price application to NERSA have revealed that Eskom intends applying for electricity price increases of 36.15%, 11.81% and 9.10% to its direct customers for its next three financial years, commencing 1 April 2025. News reports further indicate that Eskom wants to its increase prices to municipal distributors by 43.55%, 3.36% and 11.07% for the next three years respectively. Generally, Eskom submits its draft multi-year price application to National Treasury, to the South African Local Government Association (SALGA) and to municipal electricity distributors for comment and input prior to submission of the final multi-year price application to NERSA. Thus, the final application to NERSA may incorporate some changes from the leaked draft application. Furthermore, in the past, NERSA’s final multi-year price determination has invariably been lower than that requested by Eskom. However, despite massive electricity real price increases significantly above the inflation rate for the last 16 years, Eskom continues to assert that its tariffs are far from cost-reflective. This may be caused by inflated asset valuations, and excessive and/or inefficiently incurred coal, diesel, staff, finance and depreciation costs. In addition, Eskom is experiencing declining sales volumes attributable to its increasing electricity prices, a weak economy, a reduction of the energy intensity of the South African economy, energy efficiency measures, and customers switching away from Eskom generated electricity to other energy and electricity options. As South Africa waits expectantly for Eskom’s annual report for the financial year ended 31 March 2024, the Financial Times reports an expected loss by Eskom for FY2023/24 of R15bn. 6. Government approves nuclear life-extension, and plans new nuclear capacity amidst growing oppositionOn 15 July 2024, the South African nuclear regulator announced its approval of Eskom’s application to extend the operating licence of Unit 1 (900 MW) at its Koeberg nuclear power station for a further 20 years. This decision came a week after Energy and Electricity Minister Ramokgopa indicated he would proceed with plans to procure 2500 MW of new nuclear power as per the Section 34 ministerial determination by his predecessor, DMRE Minister Gwede Mantashe. On 26 August 2021, NERSA initially gave its conditional concurrence with Minister Mantashe’s Section 34 determination for 2500 MW of new nuclear power, subject to a number of conditions precedent. On 26 January 2024, NERSA subsequently confirmed its full concurrence following a report from Minister Mantashe indicating that all the conditions precedent had since been met. Minister Ramokgopa indicated that his department is now engaging with National Treasury in respect of obtaining the necessary approvals required in terms of the Public Finance Management Act (PFMA) to proceed with a formal request for proposals (RFP) from nuclear vendors. Ramokgopa further indicated that any legal challenges arising would be dealt with in the courts. There are at least two legal challenges on various grounds that have been initiated, one by the Democratic Alliance (DA), and the other by the South African Faith Community’s Environment Institute (SAFCEI) who successfully blocked a previous nuclear procurement of 9600 MW by Eskom and the DMRE in 2017. |
