Plan to support grid expansion to be shared

A plan to support the expansion of South Africa's transmission network is expected to be presented to Cabinet by October, said Electricity Minister Kgosientsho Ramokgopa.

The minister was speaking at a Transmission Financing Seminar in collaboration with the Johannesburg Stock Exchange.

Ramokgopa said the Energy Action Plan (EAP) unveiled last year emphasises the need to address generation capacity gaps, but it is void of solutions to capacitate the grid needed to connect new power projects.

The EAP assumes that the transmission network is designed to accommodate new generation capacity in various geographies, said Ramokgopa. However, it is apparent that there are grid capacity constraints in provinces like the Western Cape, Northern Cape and Eastern Cape, where solar and wind resources for renewable energy generation are optimal.

In bid window six of the Renewable Energy Independent Power Producer Procurement Programme, the government was unable to award 23 wind projects bids, owing to grid capacity constraints. Only 1 000MW of solar projects were awarded - leaving out 3 200MW of wind projects.

The danger now is that problems in generation will be transferred to transmission, warned Ramokgopa.

He recalled how, in the 1990s, the government was warned that the country would run out of generation capacity to keep the economy growing.

Warnings

"We have those same warnings currently about the grid. Although not yet pronounced – they will become more apparent in about six to 12 months," he said.

"The similar amount of effort we place on the generation side requires that they also be placed on the transmission side."

For this reason, a transmission development plan is being designed – in consultation with those involved in the energy industry and possible financiers. Ramokgopa said the hope is to submit to Cabinet the solutions that have been developed by October.

South Africa needs more than R200 billion to finance the expansion of the grid.

As it stands, Eskom's balance sheet is constrained, which is why the government is looking to private sector finance to help plug that gap, explained Ramokgopa.

The Eskom balance sheet can benefit immensely from the liquidity that is sitting with the private sector, as long as it is properly structured. And we know the sovereign metrics have also deteriorated, and as a result, it has become difficult for the sovereign balance sheet to accommodate the expansion that is required.

Transmission

Eskom's general manager for transmission, Segomoco Scheppers, noted that in the short-term or five-year cycle, the capital requirement for transmission is about R70 billion, the power utility has not secured all the funding as yet. "The first three years is literally fully funded largely because of debt solution government put in place as well as other instruments already available," he said at a press briefing following the summit. Earlier this year, the government took on R254 billion of Eskom's debt – but it came with conditions such as the power utility not being able to develop new generation capacity.

Scheppers said Eskom will hold a public forum before the end of October to share the transmission development plan – which will provide an update on some of the projects under way.

Ramokgopa explained that the state also needs to create an environment that the private sector would want to participate in. The private sector, for example, would have to know that the risks of projects are "appropriately distributed", and it needs to know the state can be trusted.

Apart from finance, another issue will be the speed of execution linked to the capacity of both the public and private sectors. "It is not just financing issues, there are also policy issues... it is also about the readiness of the industry, it is about the technical skills that exist in both the private and sector," said Ramokgopa.

He warned that there is a "good chance" South Africa has "haemorrhaged skills", particularly in the public sector – with engineers opting for opportunities in other countries because South Africa had not been aggressively expanding the grid in the past few years.

Grid expansion needs to increase 325% over the next 10 years - or about 2 000km of lines per year versus 800km in the past.-Fin24