Minister of Electricity Kgosientsho Ramokgopa.
Photo by Elmond Jiyane, GCIS
Electricity Minister Kgosientsho Ramokgopa says that a transmission development plan will be presented to Cabinet by October.While the energy action plan emphasises steps to address generation capacity, it is void of efforts to capacitate the grid, says Ramokgopa.Apart from finance, technical skills which may have been «haemorrhaged» in the public sector may be another challenge to grid expansion.For climate change news and analysis, go to News24 Climate Future.
A plan to support the expansion of South Africa’s transmission network is expected to be presented to Cabinet by October, said Electricity Minister Kgosientsho Ramokgopa.
The minister was speaking at a Transmission Financing Seminar in collaboration with the Johannesburg Stock Exchange on Thursday. Private sector investors, independent energy industry experts and government representatives are attending the one-day event, but government is open to continuing discussions with the private sector after the summit too, said Ramokgopa.
Ramokgopa said the Energy Action Plan (EAP) unveiled last year emphasises the need to address generation capacity gaps, but it is void of solutions to capacitate the grid needed to connect new power projects:
The Energy Action Plan has its own inherent weaknesses, and those weaknesses are such that we are not responding to the issues of transmission.
The EAP assumes that the transmission network is designed to accommodate new generation capacity in various geographies, said Ramokgopa. However, it is apparent that there are grid capacity constraints in provinces like the Western Cape, Northern Cape and Eastern Cape, where solar and wind resources for renewable energy generation are optimal.
In bid window six of the Renewable Energy Independent Power Producer Procurement Programme, the government was unable to award 23 wind projects bids, owing to grid capacity constraints. Only 1 000MW of solar projects were awarded — leaving out 3 200MW of wind projects.
The danger now is that problems in generation will be transferred to transmission, warned Ramokgopa.
He recalled how, in the 1990s, the government was warned that the country would run out of generation capacity to keep the economy growing.
«We have those same warnings currently about the grid. Although not yet pronounced – they will become more apparent in about six to 12 months,» he said.
«The similar amount of effort we place on the generation side requires that they also be placed on the transmission side.»
For this reason, a transmission development plan is being designed – in consultation with those involved in the energy industry and possible financiers. Ramokgopa said the hope is to submit to Cabinet the solutions that have been developed by October.
READ | JSE teams up with Eskom to figure out grid expansion financing
South Africa needs more than R200 billion to finance the expansion of the grid.
As it stands, Eskom’s balance sheet is constrained, which is why the government is looking to private sector finance to help plug that gap, explained Ramokgopa:
The Eskom balance sheet can benefit immensely from the liquidity that is sitting with the private sector, as long as it is properly structured. And we know the sovereign metrics have also deteriorated, and as a result, it has become difficult for the sovereign balance sheet to accommodate the expansion that is required.
The state also needs to create an environment that the private sector would want to participate in, he explained. The private sector, for example, would have to know that the risks of projects are «appropriately distributed», and it needs to know the state can be trusted.
Apart from finance, another issue will be the speed of execution linked to the capacity of both the public and private sectors. «It is not just financing issues, there are also policy issues… it is also about the readiness of the industry, it is about the technical skills that exist in both the private and sector,» said Ramokgopa.
He warned that there is a «good chance» South Africa has «haemorrhaged skills», particularly in the public sector – with engineers opting for opportunities in other countries because South Africa had not been aggressively expanding the grid in the past few years.
Grid expansion needs to increase 325% over the next 10 years — or about 2 000km of lines per year versus 800km in the past.
READ | Here’s how the DBSA and others think SA can fund its more than R210bn grid expansion
Among the public-private sector collaborations being considered is the concessioning of sections of the grid to a private entity to construct and eventually operate and maintain over a number of years – before handing it back to Eskom. In this model, it will be up to the private entity to raise capital, which means Eskom will not have to incur more debt.
The private entity would then recover the finance to pay back lenders or earn a return on their investment through a wheeling fee – or a charge to the municipality or customers using the portion of the grid to transport power from the point it is generated to where it is used.
Such private-public partnerships have been tested in countries like Brazil, explained Melusi Tshabalala, the founder and CEO of Mesama Energy, Tshabalala was speaking at the African Renewable Investment Summit on Thursday.
He said Ramokgopa had been meeting with energy companies – indicating an interest by government in having private sector participation in transmission development. Tshabalala said that these engagements had shown that government was more likely to opt for concessions of grid infrastructure- as opposed to outright selling it to the private sector.
Any private-public partnership should not contravene legislation or the constitution, he added. The private sector would want to be sure of policy certainty, especially if concessions are to span 20 to 30 years.