Government unveils new electricity procurement plan

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JIMMY MOYAHA: Today [Wednesday] the Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, announced a new electricity procurement programme. Among other things, we are looking at more long-term planning for our energy mix in South Africa all the way through to 2037 at this stage.

I am joined on the line by the minister to take a closer look at this and see if we can make sense of it.

Minister, it is always lovely having you on the show. Thanks so much for taking the time. Obviously, South Africa’s electricity conversation has changed quite a bit from the days of load shedding. We now find ourselves with a different kind of problem: too much electricity.

DR KGOSIENTSHO RAMOKGOPA: Oh yes, Jimmy. Good day, good evening, and good evening to the listeners. Thanks for the invitation.

Yes, it is a better problem to have, but remember we are planning for the future, so we don’t have to be complacent. We need to ensure that we develop sufficient runway to facilitate economic growth, because electricity availability and affordability are going to trigger that growth that we are looking for.

So what is the current situation? We have moved from a period of aggregate deficit where demand was far outstripping supply.

Two interventions were very helpful.

The first one was to accelerate procurement of private-sector-generated electricity through the discipline of the IPP [Independent Power Producer] programme, and that intervention has delivered results.

Remember that the first generation of these – bid window number one around 2011, the procurement, and two, three years later we started to see the electrons. As I speak to you, over 8 000 megawatts are on the grid, and we do anticipate that in the next 12 months there is additional capacity that will come on stream, and a lot of these later projects will reach a commercial operating date.

And then on the other side has been the intervention at Eskom on the back of the generation-recovery plan. That has delivered spectacular results.

We now have an electricity availability factor [EAF] that is consistently performing at 68% – on occasion going over 80%.

So all of these things, when you net them, result in a situation where supply is far outstripping demand – and that’s also a risk to the system.

So what do we do? We curtail. Curtail means that we’re stopping the generators from giving us electricity.

But remember, we’ve got contractual obligations to those generators; it’s a take-or-pay arrangement. So if we don’t receive that electricity, it’s deemed electricity supply and we have to pay them – as the NTCSA [National Transmission Company SA] – just some of the numbers, about R2 billion over the financial year.

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On the other side, you also have a take-or-pay arrangement with the coal suppliers. Even if you say you are not burning coal – primary energy being coal – and converting that into electricity, the miners will continue to deliver the coal. So you are going to have stockpile after stockpile at this power station because it’s a take-or-pay arrangement.

So the solution is what? It’s not curtailment. The solution is to store that excess generated electricity.

Technology has advanced on the battery side, and that’s why we announced the storage of batteries. So we are doing 4 600 megawatts of battery storage.

Then the second intervention is to have dispatchable and flexible energy, and for this we’re going on with the gas-to-power.

Remember we had bid window number one; that process is at a tail end. The evaluation is being concluded. And then now we’ve gone out for 5 000 megawatts of gas-to-power.

That also helps us to address what is much talked about – the gas cliff projected to be at about 2030. But we also want to ensure that we stimulate industries that want to use gas as a choice.

What we have is suppressed demand; industries are using gas and their appetite to use that is a function of what is available.

So we’re looking to ensure that we are able to re-energise or reactivate the gas sector in the South African economy.

The best way of doing that is really to anchor it on gas-to-power solutions; so when the molecules come here they don’t just support gas-to-power; they can find other uses.

In total what we announced this morning is a Section 34 determination totalling 9 600 megawatts of new-generation, Jimmy – [the] storage and dispatchable flexible gas-to-power solution.

So that’s the intervention we are making to address what essentially is a situation we’re experiencing – the difficulty we’re having now with regard to excess generation, but ensuring that we continue to build sufficient headroom to accommodate and absorb any new demand that comes as a result of economic growth.

JIMMY MOYAHA: Minister, that sufficient demand that could arise overnight and that planning ahead now means that we potentially have a very different energy conversation ahead.

I want to take a look at the potential that this brings. You touched on the fact that there might be the potential to sell into markets like Zambia. But we also know that growing conversations are happening around things like data centres that are very energy-intensive. That could mean that South Africa could position itself as a leading hub for these data centres if we are to execute this Section 34 plan as you’ve outlined it.

DR KGOSIENTSHO RAMOKGOPA: Absolutely correct. If you look, an analysis was done by the International Energy Association which was trying to understand and focus on generation, an increase in generation across multiple regions. Of course the US was treated on its own.

The demand for electricity across the world is driven by industry. This is in China and India, and also a big part of Europe. But in the US that demand is driven by data centres. Eighty percent of the growth of demand in the US is driven by data centres,

But we know that there is a groundswell of public discontent in relation to data centres because they really consume a lot of electricity, making some of these states energy insecure.

And then the other development geopolitically is that data centres were also located in the Middle East, the Gulf States – Saudi, the UAE and Qatar.

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What we know about that is that that idea or appearance of a peaceful region has been decimated as a result of the war that we are experiencing there …

Because what the Iranians are doing as part of retaliation is to target this energy infrastructure, including data centres.

The next location is somewhere on the continent. The most ideal place is in South Africa.

So we are designing, if you like, an intervention ourselves, Eskom and National Treasury, to ensure that we have a scheme in place to incentivise the location of these data centres here.

We have excellent fibre connection here in the country and a number of these data centre providers. All of them are located and have a presence in South Africa, so it means there’s familiarity of the operating environment here in South Africa.

And then the second thing is in regard to new load centres. Essentially we are looking for markets for this extra electricity [for] the data centres, as well as pushing this into the continent.

Your earlier conversation was talking about critical minerals and beneficiation. You’ll beneficiate only if you have, first, available electricity and that electricity has to be affordable to make a case to locate closer to the source of the minerals.

What do we know about the region?

There’s a deficit in SADC, and South Africa continues to be the anchor of electricity supply in the region.

We have enjoyed that position historically and almost unassailably. We don’t want to be complacent; we want to increase this generation capacity going to the region’s support.

There’s the copper belt. We know there is huge mining activity happening in Zambia and up to the DRC.

As I speak to you now, Jimmy, my counterparts have placed before me a request for 5 000 megawatts. Now, why are we not able to fulfil it? The constraint is the regional interconnectors, so that is not sufficient. We are connected as a region, but the capacity is not sufficient.

So we are working with some of our fine financial houses here – the DBSA [Development Bank of Southern Africa], IDC [Industrial Development Corporation], the Southern African Power Pool – to ensure that we build that capacity, we improve the regional interconnectors.

On the other side of the interconnector we have a buyer, and most of those buyers facilitated through Zesco [Zambia’s largest power company] in this instance are the mines.

How do they produce now? They are relying on diesel; they burn diesel.

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I’m sure the price per kilowatt-hour is now about up to R7. We can sell that to them by, if you like, R3, and still make healthy margins. But for them, they have saved R4, and they become more and more profitable. Even with the current rate of burning diesel, they still make money, they still have markets.

But if they were to get this supply from South Africa I’m sure that their returns would be healthy. This is good for our environment.

What do we know about our environment? It is that that we have undermined a vertically integrated monopoly that is Eskom. We are introducing new generators.

So what is a given as a result of undermining a monopoly? It’s that the monopoly will lose its share of the market, and that’s what’s happening to Eskom. Look at their numbers: they are losing domestic share of the market.

I said they don’t have to worry.

Eskom must then focus, looking north into the continent to supply that electricity.

The other side of the border, whoever the offtaker is, will be more confident when you say that your supplier of electricity is Eskom, because they are familiar with this entity called Eskom.

But if you should say it’s Moyaha & Ramokgopa Associates who have built a solar park somewhere in the Northern Cape, they will not have that degree of confidence.

So Eskom has, if you like, the inside track. And that’s why Eskom going north, creating this space for new generators in the country, is going to make the market a bit more robust.

There are going to be huge investments here, so you’ll see that the electricity sector, of course, will be structurally reconfigured – which is good for the economy. We’re not relying on a monopoly that can get very complacent. We know the perils of monopoly; we just came out of load shedding.

So the future looks bright. Eskom will look north, and then we are able to redeploy this excess electricity, Jimmy.

JIMMY MOYAHA: The future certainly does look bright, and I for one wouldn’t mind going into an electricity venture with you, minister, because I don’t have the experience that you have. [Chuckling]

Thank you so much, minister, for the time. Always lovely having you on the show.

Minister of Electricity and Energy, Dr Kgosientsho Ramokgopa, joined us to take a look at the new Section 34 determination announced by the Energy and Electricity Department which relates to how we’re going to plan better for our electricity usage, consumption, and generation over the coming years.

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