Out of the coal ashes of a dying Eskom, a new green, clean and leaner power utility could rise as the world looks to South Africa to set an example of how a coal-dependent economy can reinvent itself.
Coal is fast becoming the pariah of the world and there are valid concerns that South Africa’s carbon-intensive economy will scare off investors. South Africa emits roughly half the total carbon emitted by the African continent, and Eskom emits about 44% of the total South African carbon emissions.
Because Eskom produces two-fifths of South Africa’s greenhouse gases, it is at the centre of any plans the country has to transition to a green economy. Eskom this year has decided to flip the script, and attract new investors with the promise of new clean energy – a plan that could prove to be a money-spinner.
South Africa, with Eskom taking the lead, has worked hard on its Just Energy Transition Transaction (JETT) to achieve this. JETT will play a critical role at the UN’s climate talks in COP26 as South Africa woos investors to finance its climate transition.
Cost of shedding South Africa’s coal dependency
On its own, the financially addled Eskom is doomed. Straining under debt, it has no fiscal capacity to borrow the money it needs to ensure a smooth transition and reach its own goal of becoming carbon neutral by 2050. Eskom’s debt level is currently at over USD 27-billion.
Eskom agrees that a coal-to-renewables transition is necessary, but by its own calculations, the transformation could cost as much as $10-billion (or R146-billion).
Mandy Rambharos, general manager at Eskom’s Just Energy Transition office, explained that the transition is not a cheap expenditure back in June when the $10-billion was first floated to investors.
“It’s a lot of money, so what we are putting on the table is to say to funders: South Africa can offer you the biggest source of carbon emissions reduction in the world.”
She said it is possible to collectively reinvent and reimagine a future for South Africa, once again built on electricity, but this time based on clean and green energy.
Misery breeds opportunities
Eskom CEO De Ruyter, who started at the power-utility in 2020, is a strong believer that Eskom’s misery has to a large extent bred a new opportunity.
In a number of talks and interviews over the past three months, he has repeatedly made the point that Eskom as the largest electricity producer, was becoming “a desirable counterpart” for developmental finance institutions and lenders as it moved away from new coal-fired projects towards renewable and less carbon-intensive generation.
He believed investors could also be attracted to the fact that they were dealing with a single entity, rather than with multiple partners to achieve a meaningful reduction in carbon emissions.
De Ruyter, who left South Africa for COP26 on Monday, commented just before he departed that improving the state of renewables in South Africa could free up R3-billion which Eskom would otherwise spend on responding to emissions. He said South Africa needs 4000 – 6000 MW of capacity on the grid to support its economic growth needs.
Turning dirty dinosaurs into lean green machines
De Ruyter added the albatross that was Eskom’s ageing generation fleet was actually an opportunity because the utility needed new investment for new power plants, and these plants will have to produce renewable energy.
“Many power plants are reaching the middle or even the end of their respective lives,” he said.
According to De Ruyter, in an interview with The Conversation, Eskom’s fleet of coal-fired power stations, excluding Medupi and Kusile, are on average 41 years old, and have been run far harder than international norms, and have not been maintained as they should have been.
Eskom plans to shut down between 8 000 MW and 12 000 MW of coal-fired power plants over the next decade. By 2035 Eskom’s plans to have shed 22 GW of its coal-fired capacity. This is roughly half of the total installed capacity that Eskom currently has.
Yet De Ruyter believed that this made economic sense: operating unreliable, costly power stations requiring billions of rands to meet emissions standards, was just plain bad business.
Instead, he said, renewable energy could deliver a range of benefits such as cost competitiveness, reduced emissions and possible job creation. He believed the switch could create up to 300,000 jobs in a new green economy – if done right.
Transform or pay the price
As De Ruyter puts it, while the temptation existed to demand that the developed world should decarbonise, and allow developing nations such as South Africa to still fuel its growth with coal, this is a bad idea because of South Africa’s huge carbon footprint.
“Our economy, on a per capita basis, is 25% more carbon-intensive than China, and double the global average. South Africa emits roughly half the total carbon emitted by the African continent, and Eskom emits about 44% of the total South African carbon emissions. We, therefore, cannot ignore our carbon footprint.”
“It is becoming virtually impossible to secure funding for new coal generation projects, and insurance companies are targeting large carbon emitters with punitive premiums, or outright refusal to cover, as they seek to address the root cause of increased claims caused by climate change,” he said.
Investment in renewables will require new money and Eskom will need to borrow this or find investors. “These investments are inevitable and will have to be made regardless… Investors need a decent return on investment while assuming an appropriate degree of risk, just as any investor would do when building a factory.”
But the investment could be a win-win solution if structured correctly. “Investors get their return — which increases the tax pool for the government — and the country regains energy security and grows job opportunities. It’s a no-brainer.”