Eskom’s plans for renewable energy for SA’s grid

With renewable energy increasingly being promoted internationally
as better for the environment, Eskom is in the process of incorporating renewably-produced electricity into the national grid. Eskom’s CEO, Brian Dames, explained this process to Lloyd Phillips.

Eskom’s plans for renewable energy for SA’s grid
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Tell us about yourself and your company.
I have been Eskom’s chief executive officer since July 2010. During a 25-year career with Eskom I have managed both nuclear- and coal-fired power stations as well as headed up Eskom Enterprises. Before I was appointed as CEO, I was Generation CEO. I come from the Northern Cape and joined Eskom from university. I have an honours degree in physics, an MBA and a Diploma in Utility Management.

My work entails leading Eskom to fulfil its purpose of providing the electricity which our country needs to power economic growth and development, and to improve the quality of life of all South Africans. Eskom supplies 95% of South Africa’s electricity, and this is more than 40% of the electricity consumed on the African continent. We are one of the largest companies in South Africa. We employ about 44 000 people and have almost 5 million customers.

We sell in bulk to municipalities, large industry, mining and agriculture, and directly supply about 40% of the households in South Africa. We are a growing company, connecting new customers to the grid and building new capacity. Since I became CEO, we have put a new strategy in place to transform the organisation’s performance and ensure it can become one of the world’s top five utilities.

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What are the current challenges facing Eskom’s supply of electricity to the South African grid?
The power system is tight and will remain so for at least the next couple of years, until we bring new capacity online. Our fleet of power stations is ageing, and the challenge is to ensure we can find the space to do the increasing amount of maintenance which is needed while also meeting demand.

As Eskom we cannot do this alone – we can do so only in partnership with South Africans and we have been urging customers to save at least 10% on electricity to ensure we can keep the lights on. We have put a series of initiatives in place over the past couple of years, on the supply and demand sides, to manage a tight power system.

What have been the traditional energy sources that Eskom generates, and why have these been the only sources?
Coal has historically dominated the South African energy mix and it was affordable, coal-fired power which provided the basis for industrialisation and economic development in South Africa. Coal-fired power stations account for 85% of Eskom’s capacity, but we also operate Africa’s only nuclear power station – Koeberg – which accounts for about 5% of our capacity, and we have about 600MW of hydro-electric power.

In addition to that are pumped storage schemes and our open cycle (diesel-fired) gas turbines, which we use mainly as peaking power (to manage the power system during peak when demand is high). We are building two very large new coal-fired power stations – Medupi (in Lephalale), and Kusile (near Witbank). This remains the most affordable choice of base-load capacity in South Africa.

But as Eskom we are clear that we need to diversify our energy mix and move towards lower emissions. We are investing in large-scale renewable energy. We have a 100MW wind project, Sere, in the Western Cape, construction of which is due to start soon. Another is a 100MW concentrating solar power project in the Northern Cape. Both projects have received funding from international development finance agencies, including the World Bank and the Clean Technology Fund.

We have also installed solar photo-voltaic panels at two of our existing power stations to provide auxiliary power, as well as at our Megawatt Park head office, and we plan to roll this out across our fleet of power stations and facilities. And we are moving towards cleaner coal – our new coal-fired stations will burn coal much more efficiently, with much lower carbon emissions, than the older stations. They are also dry-cooled and will use only a tenth of the water of a conventional wet-cooled power station.

What are the advantages and disadvantages of these traditional energy sources?
South Africa has huge reserves of coal and we have been able to take advantage of this to build an economy which is the largest and most industrialised in Africa and to provide access to electricity for more than 80% of households in South Africa. Look at Africa at night and it really is the ‘dark continent’ – except for the southern tip, which is lit up by Eskom.
Coal has the advantage of being a source of base-load power, which can power mines and heavy industry.

Nuclear, hydro-electric and gas-fired power stations can provide base-load power too, but South Africa is a water-scarce country and we don’t have natural gas resources, so those two sources of power are not immediate options for us. Our neighbouring countries have gas and hydro resources, which we would like to see developed.

A key disadvantage of coal is carbon emissions. It is estimated that South Africa accounts for about 1,6% of global greenhouse gas emissions, and electricity generation is responsible for over half of that. We have a strategy to address climate change and we are committed to reducing carbon emissions over time, in line with the commitments that South Africa has made.

Tell us more about Eskom’s renewable energy plans.
Eskom would like to be involved in further renewable energy projects and regional gas and hydro projects. In 2011, government put an Integrated Resource Plan in place which sets out the generation capacity which will need to be built out to 2030. The plan provides for South Africa to diversify its energy mix away from coal. Of the new capacity which would be built, 42% would be renewable energy and a further 23% nuclear. It is up to the government to decide who will build that capacity – the indication is that Eskom will build about 70% with independent power producers coming in to build the rest.

So the plan will not only diversify the energy mix, it will also introduce new players into the electricity market on a significant scale. The Department of Energy has already started the process of bringing new independent power producers into the market. It is procuring an initial 3 725MW of renewable energy, in phases. As Eskom we will buy that power and connect those producers to the national grid.

Earlier this month we signed power purchase agreements with the 28 bidders which the department chose in the first round of its programme. They will bring just over 1 400MW of wind and solar power onto the grid. This is the first large-scale renewable energy introduction and the first time in many decades that we have signed long-term (20-year) agreements with private power producers. So these are exciting times for South Africa’s electricity industry and for Eskom.

Why has it taken so long for Eskom to consider using alternative energy?
Government and Eskom have always looked at alternative energy sources. In the last 50 years, the availability and cost of coal meant that coal-fired power stations made sense to support a growing economy and to meet the need to extend access to electricity. In the latest Integrated Resource Plan, government has clearly articulated a need to diversify the energy sources that are used to generate electricity while ensuring that there is an affordable tariff trajectory.

It took some time for the appropriate policy framework to take shape, but the process is now well under way. And we should not only look at large-scale renewable energy which has to feed into the national grid. We at Eskom also believe that small-scale alternative energy has a big role to play – for example every commercial building in South Africa could potentially have solar panels on its roof.

We are encouraging consumers to invest in alternative energy through our rebate programmes. One such programme, Eskom’s Standard Offer, includes rebates for businesses investing in small-scale renewable energy projects, for example.
There is also our solar water heating rebate – more than quarter of a million of these heaters have already been installed under our programme.

We are also very keen to see the development of energy infrastructure in neighbouring countries, such as Mozambique. It has huge resources of natural gas and water which could be developed for the benefit of South Africa and for the local region.

Who will be the main generators and providers of renewable energy in SA?
Eskom will remain a significant player but independent power producers will play a bigger role. It is important that this process creates local industries and jobs. The Department of Energy is accountable for the process to determine how much power will be procured from the Independent Power Producers and how it will be done.

What are the advantages and disadvantages of these alternative energy sources for electricity production in SA?
Renewable energy is ‘clean’ energy in terms of carbon emissions, and it has a very important role to play in the energy mix.
The disadvantage is that it is intermittent, and there is no substitute for the steady base-load power from coal or nuclear. Without energy storage it is also not commercially available. Renewable energy is also significantly more expensive at the moment than coal-fired power generation, but prices are expected to come down over the next few years.

How will the electricity from these alternative energy providers be incorporated into the national electricity grid, and be paid for by consumers?
We have a new Grid Access Unit. Electricity tariffs are regulated by the National Energy Regulator (Nersa) and Nersa allows us to pass the cost of the buying power from those independent producers through to customers in the tariff.
You can see this in our tariff application for the next five years. We have applied to Nersa for 13% increases over five years for Eskom’s own needs, plus 3% to cover the cost of new independent power producers, mainly the renewables producers.

As we have disclosed in our tariff application, the power we will buy from renewable energy producers over the next five years will come in at an average cost of R2,12/kWh, which is more than five times the cost of the power generated by Eskom’s own power stations. The IPP is projected to account for about 7% of Eskom’s total costs over the five-year period while generating about 2% of the total energy. Eskom will remain the dominant electricity player in South Africa. We recognise that other players will enter the market in order to meet the needs and we welcome independent producers.

How much electricity does South Africa require during peak hours, and what is Eskom capable of producing using only traditional energy sources?

Peak demand this winter was just under 37 gigawatts (GW). Eskom’s capacity currently is about 42GW, and we are in the middle of a capacity expansion programme which will increase this to 53GW by the time it is completed in 2018/19.
Most of the new capacity will be coal, from Medupi and Kusile, but we are also building a new pumped storage scheme, Ingula near Ladysmith

How much electricity does Eskom expect will be collectively produced by alternative energy suppliers?
The Department of Energy’s current programme aims to procure 3 725MW of renewable energy, producing only 2% of the energy needs over the next five years. The availability of wind plants is generally well below 30% on average; solar is somewhat higher. The challenge is to find cost-effective methods of storing renewable energy that could make it a more viable alternative to traditional sources.

To replace Kusile with wind power, for example, could cost three times as much, at a rough estimate, and require that wind turbines be installed every 250km or so all the way along South Africa’s coastline. So while we need to diversify our energy mix, renewable energy can’t easily substitute for base-load power.

What will happen to electricity prices as a result of alternative energy sources being incorporated into the national grid?
As I said, 3% of the 16% tariff increase we are applying for at Nersa is to cover the cost of mainly new renewable energy
over the next five years, at an average cost of R2,12/ kWh, which is at least five times our own cost of generation. Put differently, 7% of the revenue we are asking for is to cover about 2% of the energy which will be generated over the five years. So nobody should think that this power is cheap.

But as a country we must diversify our energy mix and move towards cleaner energy sources. Over time, it will become cheaper and if we can find and exploit new sources of gas, for example, as other countries such as the US have done, there is potential for cost-effective alternatives to coal to be developed.

To find out more about Eskom and its renewable energy programmes, visit