During the Minister of Finance's 2024 Budget Speech, a revelation emerged that should raise public scepticism. Beyond the R320 billion of sovereign debt guarantees for Eskom Holdings, South Africa’s purportedly "independent" power providers already burdened Treasury with contingent liabilities that total a staggering R277 billion.
The number is shocking enough, but unfortunately it does not end here, because it pales in comparison to Minister of Electricity Kgosientsho Ramagkopa's bailout plan for the “independent” power providers, which aims to burden taxpayers with an additional R400bn in Treasury liabilities.
Government guarantees for IPP’s now stands at R277 billion as per Treasury Contingent Liabilities. Eskom gaurantees at R320 billion. And about R400 billion is needed for additional transmission expansion pic.twitter.com/F1bR1kw9Qn
— Jacob Maroga (@jacob_maroga) February 26, 2024
Sputla’s idea, that would privatise profits and socialise losses, is to "de-risk" investments in transmission lines spanning 14000 km over 10 years—a distance equal to 40% of the Earth's circumference.
South Africa currently has roughly 50GW of installed power capacity, with Eskom's energy availability factor at 50%.
Effectively, if the broken coal fleet is either repaired or replaced with new capacity (whether coal, nuclear, wind, solar or methane gas) at their point of generation, load shedding would become a thing of the past.
Why then is the minister procuring additional transmission lines if the primary issue lies in a deficiency of generation and not transmission capacity? Why is Sputla so eager to invest the taxpayer’s money that we don’t have, in new assets that we do not need? If the investments were genuinely profitable, then wouldn't the private sector willingly shoulder all the risks?
The ANC's intentions with this plan may have been hinted at during the subsequent parliamentary speech of the Minister of Minerals and Energy, Gwede Mantashe, on February 13, 2024.
He disclosed that out of the 5959 MW of renewables projects procured under the 6th administration, 150MW, a mere 2.5%, were connected to the grid.
Under the 6th administration, 5 939 MW were procured resulting in:
— Gwede Mantashe (@GwedeMantashe1) February 13, 2024
•150 MW connected to the grid
•1 587 MW under construction
•1 360 MW preparing to reach commercial close
•2 842 MW failing to reach commercial close.#SONA2024 #SONADebate
Is Eskom, therefore, paying money for “independent” electricity that is not feeding into the grid? Are these assets effectively stranded? We only have to look at who is involved in South Africa’s “independent” power providers to know the answer.
In 2018, Marshall Dlamini of the Economic Freedom Fighters requested from the Minister of Minerals and Energy a disclosure of the directors and shareholders of companies awarded contracts under the renewable energy procurement program.
He questioned whether those involved in multiple companies had declared their affiliations to address conflicts of interest and collusion concerns in the bidding process. As it turned out, rather unsurprisingly, many of the IPPs had links to the ANC with notable “Black Economic Empowerment “ partners including:
- Thebe Foundation (which took over President Cyril Ramaphosa’s assets in Shanduka when he became president)
- Thebe Investments (with former Finance Minister Nhlanhla Nene on the board)
-African Rainbow Energy (owned by Patrice Motsepe, Ramaphosa’s brother in law) run by Brian Dames (a former Eskom CEO)
The EFF’s revelation also showed that many of the ANC's “equity partners” include banks such as Nedbank, Standard Bank, Absa, the Development Bank of South Africa and Old Mutual.
Additionally, the names of various companies with ties to South Africa's oligarchs like Thabisa Tenyani, and Paul Phakwe, as well as H1 Holdings owned by Reyburn Hendricks, appear on the list. Many of them have close ties to South Africa’s political elites.
Are these transmission lines planned to connect a few oligarchs, and corporate South Africa at the taxpayer’s expense? What was the logic behind them, especially considering Eskom’s revenue decline? How could a company with declining sales and electricity tariffs that isn’t cost reflective possibly repay such investments?
Instead of investing all that money in transmission lines, why not prioritise the expansion of rooftop solar at the point of usage?
Alternatively, Eskom could even focus on utility-scale solar projects in Mpumalanga, adjacent to existing coal plants. It would be far more affordable and less risky than the transmission lines vanity project.
With the majority of Eskom's customers being residential, it's not unreasonable to anticipate a future where the power utility primarily serves heavy industry users due to its inability to meet residential demand. The affordability of rooftop solar panels and batteries has made them accessible to the middle class, enabling easy installation beyond the distribution system.
South Africa has seen the expansion of rooftop solar reach up to 5 GW of nameplate capacity in the past year, with further expansion anticipated in 2024. At this rate, solar power in "the best locations" like the Northern Cape might not be necessary, as even less optimal locations in South Africa receive more solar irradiance than the best locations in European countries with higher rooftop solar penetration.
Incidentally, instead of investing in extensive and financially risky transmission lines, it would be more practical to promote the adoption of rooftop solar through a simple feed-in tariff scheme of around R1.50/kWh - as is currently the case in the City of Cape Town. The scheme can be managed with a cellphone app, and it can be a form of distributed wealth.
In parallel to the above, the South African government should prioritise fixing the coal fleet, and building grid-scale liquefied natural gas to help mitigate the intermittency of renewables at locations where grid-scale connections already exist, such as Matola in Mozambique and Richards Bay.
If we need to expand transmission lines it must be done at places such as Mossel Bay or Saldanha Bay.
The minister can even advance the long awaited Thyspunt Nuclear Power Plant in the Eastern Cape. None of these solutions to bring additional generation on the grid require such an expensive expansion of transmission lines.
With rooftop solar alone, South Africa could achieve 10 GW of renewables by Christmas without the need for these costly transmission lines. There exist more cost-effective, environmentally friendly, and sustainable alternatives than prioritising the connection of the politically connected oligarchs associated with the ANC, solely to make their stranded assets seem financially viable.
We do not need those transmission lines. It is a waste of taxpayer money.
Hügo Krüger, MSc in Civil Nuclear Engineering.
* The views in this column are independent of Business Report and Independent Media.
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