Eskom boss says cost of SA electricity will come from taxes if not through the tariff

Andre de Ruyter, CEO, Eskom

THE current reality that South Africa’s energy users face is that they either have to support Eskom through paying higher tariffs for electricity, or that support will have to come through taxes, said the power utility’s CEO, André de Ruyter.

Longer term, if Eskom can address its debt challenge (and it is looking at a mix of solutions to cut its liabilities by R150-200bn), it will be able to restructure and facilitate a more efficient and competitive energy market. Competition should engender efficiency and eventually cap the rate at which prices increase, he said during a presentation at the Joburg Indaba conference on Thursday.

Still, lower prices are not evident in the current bidding rounds for renewable energy in the Independent Power Producers Procurement Programme (IPPPP), Joburg Indaba chair Bernard Swanepoel said.

“Our opportunity is to re-think the structure of how we procure,” De Ruyter said. “Should a private investor in generation get a government guarantee, annual inflation-linked increases and a take or pay contract?

“We need a structure that will enable private investors to assume a reasonable degree of market risk. That will be best achieved if we reconsider the model of Eskom as a single buyer.

“One of the reasons a Treasury guarantee is required is that we have a market of one. By changing how we allocate and identify market risk, we will be able to bring more affordable tariffs to the table.”

De Ruyter said four ‘Ds’ were sweeping the globe: decarbonisation, digitisation, decentralisation and democratisation. The old model of vertically-integrated utilities was moving to a decentralised structure employing more technologies, with a greener footprint, a greater emphasis on storage, and a more decentralised grid offering greater consumer choice.

Eskom has been decarbonising since 2019 and plans to generate 70% of its power from a mix of green generation technologies by 2050, from the current situation where 87% of its generation comes from coal.

“We think greener energy can help us to remove the constraint on growth on this economy, reduce the threat of carbon export tax and create new jobs in the economy,” he said.

But the utility faces enormous challenges in becoming a greener electricity generator. It will cost R300bn to make its coal fleet environmentally compliant. This money would be better directed towards building new generation, with cleaner and greener technologies. South Africa has some of the best and most cost-competitive renewable resources in the world, which offers an attractive proposition for “green” investors, De Ruyter said.

Mantashe dodging green funders …?

In an earlier session, minister of minerals and energy, Gwede Mantashe was asked why he had avoided a meeting with potential green funders for Eskom.

He had responded that, as a former trade unionist, he was suspicious of people bringing money. “I want us to have a programme and then get funding for it,” Mantashe said. “We should not collapse our economy because we are greedy for green funding. Anyway, the discussions were about COP26 and I am not a delegate.”

De Ruyter said the South African government had already issued a statement supporting green financing. “But I agree with the minister that we should not rush into this. We are tinkering with the aorta of the South African economy. We need to do this carefully.”