Eskom is sinking the economy in the name of greening it

Written by Ciaran Ryan. Posted in Journalism

This article first appeared in Moneyweb.

Eskom’s renewable energy drive is a financial disaster for consumers and an economic disaster for the country, according to papers before the Pretoria High Court.

The Coal Transporters Forum is asking the court to have dozens of power purchase agreements (PPAs) signed with independent power producers (IPPs) set aside on the grounds that the National Energy Regulator of SA (Nersa) authorised them without proper public consultation.

Lack of public participation sank the proposed nuclear deal in 2017 when challenged in court by Earthlife and the South African Faith Communities Environment Institute. Coal transporters believe the Pretoria court should find in its favour on the same grounds.

The court papers provide a fascinating insight into the costs of alternative energy. Eskom is purchasing renewable energy for 214 cents per kilowatt hour (kWh) when coal can produce the same electricity for 32 cents.

Eskom is then on-selling this renewable energy to the consumer at 86 cents per kWh. This cost the economy R9 billion in 2016, a cost that will be repeated each year until 2021. It also reduces coal consumption by three million tons a year, rising to 10 million tons by 2021, the court documents state.

Massive risk

These IPP contracts expose Eskom to massive risk, says the Forum. Nersa’s 2.2% tariff increase for 2017/2018 effectively means Eskom is sinking deeper into liquidity problems, at the ultimate cost of consumers and taxpayers.

“This means government is providing guarantees to the IPPs to destroy jobs in the mining sector,” says the Forum, which tallies the economic cost of the renewable energy programme as follows: Eskom will be forced to shut down at least five coal-fired power stations, one million permanent jobs will be lost, and 17 towns in three provinces reliant on coal mining will become ghost towns. Many more thousands of workers involved in coal transportation will be retrenched.

In short, it threatens to sink swathes of the economy in the name of greening it.

How did we end up in this mess?

In its answering affidavit, Nersa concedes that it did not allow for a public participation process, but followed the then minister of energy’s decision to procure renewable energy. The type of energy to be produced by Eskom is the minister of energy’s decision, in consultation with the regulator. The then minister Tina Joemat-Pettersson pushed the renewable energy contracts even though Eskom had spare capacity of 23%, excluding imports, renewable energy and other power purchases, says the Forum.

In response to the Forum’s court challenge, the Department of Energy’s director-general Thabane Zulu argues that the Forum was aware of the intention to sign agreements with the IPPs yet avoided seeking an urgent interdict as it lacked the necessary legal grounds. The agreements are now legally in force and cannot be stopped. Zulu says the Forum should have sought a review of the minister’s decision rather than a non-urgent interdict. He also challenges the Forum’s legal standing to bring its case before the court.

Interestingly, then acting CEO of Eskom Matshela Koko refused to sign off on the IPP agreements on the grounds these would bankrupt the company. He resigned early last year after being given a resign-or-be-fired ultimatum. In an article in The Daily Maverick last year, Koko outlines some of the background to the rush to renewables, driven at cabinet and departmental level.

‘No logical basis’

There was simply no logical basis for committing to renewable offtake agreements to the value of R56 billion when Eskom has 23% reserve capacity, sufficient to last the country until about 2025 before additional capacity is needed, said Koko.

The IPPs, also cited as respondents in the Forum’s court challenge, argue that the minister’s decision, with the backing of Nersa, is an administrative action that can only be set aside on review.

The 2003 White Paper on Renewable Energy committed the department to generating at least 10 000 gigawatt hours of energy from renewable sources by 2013. In 2009, at the Copenhagen Conference of the Parties (COP 15), former president Jacob Zuma committed to a 34% reduction in SA’s CO2 emissions by 2020, and below 42% by 2025. This renewable energy drive was supposed to create 300 000 ‘green’ jobs by 2020, though energy experts have blown holes in this claim. Nothing like this has been produced.

The department’s Integrated Resource Plan 2010-2030, published in 2011, provides for a target of 17 800MW of energy from renewable sources by 2030.

There is an even bigger problem for the renewable energy independent power producers programme. The National Energy Regulator Act requires Nersa decisions to be in writing and to be based on reasons, facts and evidence. Most importantly, any Nersa decisions must be made available to the public.

No social or economic impact assessment appears to have been done prior to signing off on the IPP contracts. If such studies had been properly and independently done, some energy experts say that that many of these renewable projects would have been killed at conception.

The Forum’s court case will be heard in March.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.