Addressing the South(ern) African ENERGY CRISIS

By Andries Rossouw, PwC Africa EU&R leader and PwC, partner/director

With the South(ern) African energy supply in crisis and the mining industry a proven solutions-driven force for change – it makes sense that public and private sector partnership will be key to initiate a proposed aggregated mix of power solutions, scaled through regional collaboration, to benefit all.

The mining industry continues to be a significant force for change in South Africa. Our history informs us that as an industry it has been at the forefront of not only assisting political but also economic change in the country. The energy crisis represents another key intervention point where the mining industry is already playing and can play a significant role in the redesign and modernisation of the power system. The mining industry already plays an important role in providing coal to the regional coal fired power stations as well as significant employment and revenue to the fiscus through the export of coal. It is a well-established fact that many mines have already initiated energy projects to partially address their own energy security. While this is, to some extent, taking pressure off ESKOM, these projects are expensive and invariably do not address the full challenge of energy security. Unfortunately, an unintended consequence of these initiatives, is the loss of well-paying customers to both ESKOM and Municipalities further placing pressure on the financial sustainability of these institutions.

The mining sector’s broad involvement in energy and societal matters remains critical to the economic growth and social stability of the country and region. This favourably impacts social cohesion through job and wealth creation, as well as secondary and tertiary economic sector development. To be even more impactful, this will require an alternative approach to balance the complex interests of all stakeholders drawing on the collective strengths of the public and private sectors.

The South African power sector, as we are all aware, is currently in the midst of a crisis that is placing the economy and society at risk. The power crisis is threatening the critical nexus of power, water and food security, placing the country at risk of civil unrest if the power system is not brought to stability and long-term sustainability.

There are many reasons for the current crisis. Positive achievements in electrification resulted in increased demand and amplified peak power consumption, with South Africans now at a c. 90% level of access to electricity from a pre-1994 level of only c. 40%. Poor generation, transmission and distribution planning; poor project execution; lack of maintenance and an extended period of unbridled graft and corruption linked to the national power utility Eskom and its supply chain are overwhelmingly responsible for the crisis.

The existing generation fleet consequently suffers from poor asset integrity, reflected in ever declining energy availability, which further stresses the operational fleet and hampers the ability to improve energy availability. The position is exacerbated by the average age of the existing coal fired power stations that is rapidly reaching 50 years and exceeds original design life. This makes the decommissioning of these power stations an unavoidable necessity, which will see the eventual removal of tens of gigawatts of baseload generation capacity from the power supply system.

In addition, South Africa has acknowledged the global call for decarbonisation and has committed to transforming its economy. This commitment, when combined with the challenges as described, presents an opportunity for the complete redesign and modernisation of the South African power system with an overwhelming bias towards green technologies, subject only to the need to provide a stable, sustainable and affordable pathway to do so. However, such a power system redesign holds dire implications for the current energy economy as millions of citizens are directly and indirectly dependent on carbon intensive sectors. The need for a just energy transition (JET) is therefore fundamental. The scale and complexity of the challenge is both urgent and long lasting. The material nature with regard to both the size of new generation capacity investment and the required supporting infrastructure will call for many trillions of rands of investment to deliver a wider mix of power system technologies, aimed at stability, decarbonisation, sustainability, modernisation and a just energy transition.

Fact-based analyses show that South Africa’s energy challenge requires both immediate action to arrest the current crisis and a need for longer term structured interventions to ensure a stable power sector to re-energise the economy and to support economic growth.

In the short term, every effort is required to bring new power into the system to provide Eskom the breathing space to be able to focus on its internal challenges. This should serve to stabilise its generation portfolio’s performance, increase the energy availability factor from its fleet and to soften the pace of unavoidable aged asset decommissioning. Such a dedicated effort must aim at unlocking every possible stranded kilowatt in the existing system by maximising the use of current infrastructure, ideally with minimal additional investment. Even then, it is evident that emergency power at scale will still be required just to give Eskom sufficient breathing space to plan and execute.

The sheer scale of both the short term and long-term power deficit to be addressed, coupled with the complexities of matching power supply to South Africa’s demand character, indicates that our power economy must pursue a full mix of all power technologies scaled through regional collaboration. The need for a continued and sustained coal fired system, augmented by accelerated renewables and big gas and ultimately nuclear, hydroelectricity and emerging technologies like BESS (Battery Energy Storage) is essential, which fact-based reasoned analysis clearly demonstrates. The debate cannot be emotive.

This scale and complexity argues for the effective harnessing of the collective strengths of the public and private sectors. A form of true collaboration between these parties is the only practical and sustainable mechanism to both arrest the crisis and to return South Africa, and the sub-region, to a stable power sector capable of bringing confidence back to the citizenry, business and the regional and global communities.

A well-established proof of concept for such collaboration already exists within the water sector with the Lebalelo Water User Association (LWUA) being a working example between the state and mining sectors, to the benefit of all stakeholders. The concept behind this execution model can be replicated within the energy sector. Lebalelo was established in 2002, to supply bulk raw water to both the mining sector and communities in the Eastern Limb of the Bushveld Igneous Complex in the Limpopo province. Lebalelo subsequently developed a collaboration-aggregation model to implement the Olifants River Phase 2 programme. This collaboration between government and the private sector will bring bulk raw and potable water to the Limpopo region to address both economic and social needs. The programme will impact approximately 400 000 people.

The Lebalelo water model aggregated water demand and established an execution approach that has found broad acceptance within government, communities, business and financiers. This proven aggregation execution model leverages commercial support from credible large scale off-takers to facilitate funding, de-risk projects and remove pressure on the fiscus.

Such a collaboration should strive for a system-based solution anchored on all technologies supported by the combined support of the state and the private sector. A truly united response to a regional issue of immense importance. The essence of this system-based energy model is that it would aggregate demand, using a series of sub-aggregation pilots, and design a best mix of technologies to provide stable power at best cost, including transmission/distribution considerations. This model can provide energy sector security at best cost, which means profit minimisation and an execution model on a cost recovery, non-profit basis.

The proposed model is governed by an execution office. The aggregator model ensures co-ordination within and across the various technology platforms. The structure of which follows:

This model ensures numerous benefits for all stakeholders including the mining industry, commercial off-takers, Eskom, municipalities and the greater South African economy.

---