Solving South Africas Electricity Crisis Democratic Alliance Position Paper

March 2015

Introduction It must be understood that the electricity crisis South Africa is currently facing has been a result of poor policy choices over the course of the last fifteen years, culminating in the current breakdown of the system. These poor choices have been, in part, due to ideological incoherence within the ANC, coupled with the shameless self-enrichment that is a frequent characteristic of state-owned enterprises. Resolving a crisis of this magnitude will take time, particularly as many energy interventions have long lead times and are not open to quick-fix solutions. The aim of this position paper is to provide a clear understanding of the Democratic Alliances (DA) position on the current electricity crisis. To this end, the paper will discuss immediate, pragmatic steps and policy choices that would limit the impact of the crisis on the country in the coming years, and set it on the correct trajectory. At the same time, we will also outline the systemic interventions that need to take place in order to avoid a recurrence of this crisis in the future. This paper will begin by providing a brief overview of the crisis to date, particularly the role of state-owned enterprise, Eskom. Immediate policy decisions, which the DA endorses to address the situation, will be discussed. This part of the paper will also flesh out the DAs core assertion that the era of Eskoms monopoly stranglehold over the electricity sector has to be brought to an end through firstly removing the transmission grid from the utility, and placing it in a separate state-owned entity. Finally, a number of short-, medium- and long-term electricity generation options will be provided. Details pertaining to the drawbacks of each option, and their feasibility in the South African context, will be elucidated.

Eskom and the Electricity Crisis the current situation As stated previously, the roots of our electricity crisis have their genesis in poor policy decisions that were taken as far back as 15 years ago. The 1998 White Paper on Energy Policy specifically called for new generation capacity to be built by the private sector, and proposed a number of policy interventions in order to break the vertical monopoly of Eskom. The intention was the creation of a far more conducive environment for the private sector to invest in the energy sector. The ANC government at the time chose not to implement those recommendations, however, and predictably the private sector was not attracted to invest in new electricity generation in the face of Eskoms monopoly over the industry. The reluctance on the part of the ANC government to break the monopoly appears to come from a hesitancy to give up associated tenders, and other sources of enrichment, for its extended patronage networks. The result was that the government did not allow Eskom to build new generation capacity, and did not provide the necessary conditions for the private sector to invest. The result was that over a five year period, starting in 2000, no new investment in electricity generation took place. It was this five year lacuna that ultimately led to the countrys reserve margin being reduced to dangerous levels. Consequently, as explicitly predicted in the 1998 White Paper on Energy Policy, blackouts first started occurring in 2006. The condition of the

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electricity sector has since struggled to recover from this disastrous policy choice made 15 years ago, and has instead been made worse by further poor policy choices on the part of the ANC. Our current electricity crisis can be therefore be attributed, in large part, to Eskoms insufficient generating capacity; the never-ending delays in completing its new build programme; the lack of proper and regular maintenance of its existing plants; a lack of competence within the management of the utility; as well as insufficient political will to address the issue related to the prioritisation of political imperatives over the technical imperatives of the utility. The current situation is further exacerbated by the precarious financial reality the utility finds itself in. Generating capacity, maintenance backlog and political inaction Eskom has about 42 gigawatt (GW)i of installed power generation capacity, plus an additional 2GW of power purchased from independent power producers (IPPs) and exporters. At the time of writing, more than 8GW of power station generating capacity is unavailable at any one time due to equipment failures,ii or what are technically termed unplanned outages. A further 3.5GW needs to be reserved for maintenance in what are termed planned outages. Moreover, Eskom has lost roughly 6.3GW in terms of generating capacity since the 1990siii. This lack of reserve generating capacity is one of the reasons why plants have not been properly maintained in recent years. With reserve capacity of less than 5%, as opposed to an international norm of 15%, it is nearly impossible to take power stations offline for repairs without load shedding, particularly in the context of the high number of unplanned outages.

The cost of load shedding to South Africa

There are a number of ways in which the current crisis is challenging everyday South Africans. Some costs are direct, such as the massive effect the crisis has had on economic growth. Energy expert, Chris Yelland, has estimated that the cost to the economy of 20 days of Stage 1 load shedding for ten hours a day amounts to R20-billion a month! A knock-on impact of this cost to the economy is that jobs will be lost, as businesses become less productive, and economic growth so necessary for addressing unemployment is dampened. Small businesses are also likely to be subject to significant continuity disruptions. An anecdotal example of this is small trading shops, which sell perishable goods, losing stock during load shedding, and being unable to continue trading during electricity outages.

There are also a number of indirect costs. Significant instances of load shedding may lead to a real or perceived decrease in security, particularly in poorer areas which are more vulnerable to crime. Health facilities, particularly community clinics, are likely to suffer significant losses of medicines and specimen samples which require temperature controlled environments. Learners of all ages suffer disruptions to classroom activities and study schedules. These are just some of the examples of the far-reaching nature of the current crisis.

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Executives at Eskom, motivated by performance bonuses dependent on no load shedding occurring, have run Eskoms plants hard since 2008, deferring maintenance schedules against the backdrop of the 2010 FIFA World Cup and the 2014 general elections. There is a clear lack of political will in the ANC government to turn off the lights, even if the system desperately requires it. As a result of maintenance schedules not being adhered to over a number of years, many of Eskoms existing plants are therefore routinely breaking down as a result of being run too hard. Plant currently under construction Eskom has undertaken a number of projects to increase electricity generation capacity. These include building the Medupi and Kusile coal-fired power stations, two new gas-turbine plants, and the Ingula pumped storage plant. In addition to these new projects, the company has also begun recommissioning three previously mothballed coal-fired plants, as well as building new infrastructure including new transmission lines and two renewable energy plantsiv. The Medupi and Kusile stations, commissioned in 2007/08, are expected to add approximately 9.6GW to the national grid upon completion. There have been severe delays in the construction of both plants, which are years behind schedule, and experiencing massive cost overruns. In addition to these projects, a number of IPPs have begun contributing to the grid as part of the Renewable Energy IPP Procurement Programme (REIPPPP). This is discussed in more detail below.

Financial situation: Government debt and the insolvent monopoly Eskom is currently grossly undercapitalised, in part due to plant depreciation, erosion, and lack of maintenance. This is paired with the company also being heavily indebted. The utility is in the middle of a capital investment programme exceeding R350-billion, primarily for the Medupi and Kusile power stations, and the Ingula pumped storage plant, all of which have been hit by massive delays and substantial cost increases. The budget initially approved by Eskoms board for the construction of Medupi and Kusile was R69.1 and R80.6-billion respectively. The final costs to complete Medupi and Kusile are

The cost of repairing major plant current failures

Duhva Unit 3s water boiler exploded in March 2014 due to an operating error. Repair of the unit will only begin in earnest after June this year, and will take an estimated 36 to 48 months to complete. Media sources have estimated the cost of the rebuild at approximately R4.5-billion.

Majubas central coal silo collapsed in November 2014 due to incorrect design and build. The collapse has disrupted the entire coal feeder system at the plant. Reconstruction on the silo is scheduled to begin in April, and should be complete by March 2018, with an estimated cost, for mitigation efforts and rebuild, of R1.3-billion.

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currently estimated at R154.2 and R172.2-billion respectively, more than double the original approved costv. Additionally, the power utility is currently using open-cycle gas turbines, run on diesel, to generate electricity and minimise the impact of load shedding. The cost of producing power by this means is significantly higher than the alternatives. The cost of a kilowatt hour (kWh), produced by the open-cycle gas turbines, is R3 per kWh. This is compared to normal electricity operating costs of 62 cents per kWh. Eskom sells all electricity at a regulated blended price of 70 cents per kWh, resulting in a loss of R2.30 per kWh when using diesel generated powervi.

Highlighting the companys financial woes in early January this year, the Minister of Public Enterprises, Lynne Brown, confirmed the power utility was facing serious liquidity issues, and would need further government assistance to avoid bankruptcy. In his Medium Term Budget

Policy Statement in October 2014, Minister of Finance, Nhlanhla Nene, said that government can simply no longer afford to bail out the utility without compromising the countrys already precarious credit rating. Urgent policy action and strategic decision making While there is no quick-fix solution to the electricity crisis, there are a number of policy decisions which can and should be taken immediately. Failing to take these decisions will serve to further compound the current issue. First, it is key that the government ends the complete state monopoly control of the electricity industry. This state monopoly control is not only a product of Eskoms vertically integrated monopoly, which accounts for over 95% of electricity generation, but it also owns and operates the entire transmission grid and accounts for 42% of final distributed electricity. This state monopoly control is also characterised by the Minister of Energy determining what energy generating technology is built, and who ultimately gets to build it. These two conditions have jointly led to the complete absence of any form of an electricity market with the absurd situation where there are private generators willing to build and supply electricity, in the context of surplus demand in the country, but who are being prevented from doing so.

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What is therefore needed, is consensus on what is termed an end state for our electricity industry, in which state monopoly control is significantly reduced, and there is far more dynamism and responsiveness to market conditions. This will necessarily involve a complete overhaul of the system, which will also have to include a reform on the distribution side that has led to a R40-billion backlog on the maintenance of municipal distribution grids. This complete reform of the system will take many years to implement, and will have to be phased in through a number of legislative measures. The first step in this regard would be the long overdue passing of the Independent Systems and Market Operator (ISMO) Bill. The ISMO Bill would essentially remove the operation of the transmission grid from Eskom, and place it in a separate state-owned entity. The DA would ultimately argue for not only the operatio,n but also the actual assets of the transmission grid, being removed from Eskom. If need be, this can be done in various stages. This would have the effect of creating a level playing field in the electricity industry upon which Eskom and IPPs can compete fairly, without the inherent conflict of interest that currently exists. Both entities would remain largely state-owned initially, yet IPPs would be able to sell to a grid operator focused on procurement from the cheapest, most reliable source. A separate transmission company would also no longer have to rely on Eskoms poorly performing generation monopoly. Breaking up the Eskom monopoly is a vital policy decision, which the DA believes must be taken with great urgency. Indeed, Eskoms generation unit should also consider selling some of its aging assets to private investors, so as to level the playing field for IPPs. Scope must be created in the future for the privatisation of further generation assets held by the utility. This is another reason why the ISMO Bill should be reintroduced and fast-tracked. This is the most pressing policy decision to be taken as it will allow for a short- to medium-term reprieve for Eskom in two ways. Firstly, the company will be able to schedule additional and much needed maintenance once a substantial number of IPPs have joined the grid. This could then be done without having to increase the severity of load shedding. The importance of maintenance on existing plants, which have been run hard in the previous decade, cannot be understated given the catastrophic effect further plant failures would have on the country. Secondly, increasing power generation will lessen the utilitys reliance on diesel generated power, and so decrease the financial pressure on the company. As discussed above, parts of Eskoms generating capacity should also be privatised so as to reduce the cost pressure on the utility, and provide a much needed equity injection into the company. This would be particularly pertinent in terms of future large-scale projects. Second, the government must make clear its intention to release the latest Integrated Resource Plan (IRP) 2015. The 2013 Update Report, as opposed to the

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2010 iteration, has a distinct focus on those technologies that can be brought on stream in the shortest possible time. These include renewable energy technologies and gas fired turbines. These are particularly appealing alternatives to the planned nuclear plant, as they be implemented at comparatively lower cost, at a much faster pace, with a much lower environmental impact. Given the current crisis, the release of the 2015 plan is essential as a guide to how much generating capacity is needed, when and what the optimum energy mix should be. Third, government must urgently publish the Gas Utilisation Master Plan (GUMP), so as to give clarity to the market as to what investments into the gas sector are being contemplated, and similarly give policy certainty over mining property rights. The use of liquefied natural gas (LNG) must be fast-tracked as gas turbines can be brought on stream within a few years, and the provision of substantial quantities of gas can lead to the building of a gas economy. This will allow industrial customers and households to engage in fuel switching, reducing electricity demand. In the absence of publishing GUMP, the government and Eskom must provide adequate signals to the market to indicate that gas is a route of energy production which will be pursued. This can be done through issuing request for proposals (RFPs). Another legislative challenge to the gas industry is the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill, approved by the National Assembly in March 2014. The Bill requires a 20% government free-carry interest1 in all new exploration and production rights for oil and gas,vii among other worrying provisions2). The Bill has not yet been signed by the President, nor enacted into law. The President has since referred the MPRDA Bill back to Parliament over a number of concerns, none to do with the gas sectorviii. The governments proposed 20% free share of new gas ventures has a huge cost implication for companies interested in gas exploration, and acts as a massive disincentive to investment in the sector. Further to this, the delay by the President in signing the bill into law has created substantial policy uncertainty in the sector. This appears to be a concerted effort on the part of the ANC government to depress the gas sector in the country, a nonsensical action given the current electricity crisis. Fourth, the government must exhibit strong and unwavering political will in terms of fast-tracking the finalisation of the Medupi and Kusile projects. The construction of the plants should be of utmost national importance, and a similar approach to the completion of the 2010 FIFA World Cup infrastructure needs to be adopted. Government must enact regulations to bar Medupi and Kusile from labour

1 Free-carry interest means the holder of the shares enjoys all the benefits of a normal shareholder without having to contribute equity capital for the shares ownership. 2 The Bill also allows the government to expropriate an unspecified stake at an agreed price. See James Lorimer. MPRDA Amendment Bill: DA to object to suspension of parliamentary rules. 2014. Available online: http://www.da.org.za/archive/mprda-amendment-bill-da-to-object-to-suspension-of-parliamentary-rules/

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disruptions. The fast-tracking must not, however, be at the expense of international best practice for build quality and labour, particularly where practices affect the safety of workers, and the long-term integrity of the plants. Fifth, investigations need to be undertaken with regard to procurement processes for diesel and coal. A number of questions have been raised regarding the procurement process that Eskom uses when buying diesel fuel for its turbines. A transparent procurement process is vital to ensure middle men, benefiting from dubious tenders, do not enrich themselves at the cost of consumers. As mentioned in this paper, the cost of diesel is not only putting financial strain on the company, but is also a factor placing upward pressure on electricity prices. A recent media report, for instance, highlighted that at least two relatively new fuel companies were supplying diesel to the state utility, without proper contracts or requisite credentials to do so. These reports highlight the necessity for such an enquiry into the due process followed by Eskom when awarding diesel contracts to ensure that among other things, the utility is doing its utmost to source the cheapest fuel availableix. Furthermore, Eskom must implement processes, and make these transparent, to be able to purchase from multiple suppliers with the primary criteria being price efficiency. There should be further scope in such an enquiry to include other procurement requirements, particularly where procurement practices have direct cost implications for the consumer. An example of this would be the procurement of coal. In a recent report, Eskom was implicated in intending to buy approximately five million tons of coal which was of an incorrect quality for use. The coal would have had to undergo a costly blending down process in order for it to be used. The contract price of the coal alone, without the processing to make it useable, is estimated to be worth more than R3.7-billionx. Sixth, government must urgently implement an appropriate subsidy scheme for embedded generation so as to promote its uptake at both a commercial and a residential level. Embedded generation, such as rooftop solar systems, has a number of advantages in terms of alleviating our current electricity crisis. Firstly, it allows companies to implement a measure of energy security as it can provide electricity during a load shedding incident. Secondly, it can also save Eskom money, as less diesel would have to be burnt the more solar energy is produced. In order to incentivise the scheme the DA proposes a three year, nationally provided subsidy of around R1.10 per kWh being paid to every household and business that installs solar panels on their roof. This incentive could see as much as 500 megawatt (MW) of solar panels being i`nstalled per year, substantially reducing the pressure on the grid. Seventh, government must ensure that Eskom provides a detailed report on backlogged maintenance at all power plants, as well as instituting international best practice measures in a number of areas. This must be done with the aim to give an accurate depiction of the electricity crisis to the public for the sake of transparency,

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and to motivate power saving practices in households and businesses. Secondly, it is also a vital step in ensuring that the management of the company has identified tangible key performance indicators (KPIs) to be met at every plant. Management bonuses and salaries, at every level, should be linked to the achievement of these tangible KPIs. Thirdly, this will allow the portfolio oversight committee, government and the public in general an opportunity to become more involved in holding the utility to account during on-site visits with regard to current maintenance. Furthermore, government must impress upon Eskom the necessity of making reports on plant failures available to the public as a means of providing further accountability. The DA would further call for the National Energy Regulator of South Africa (NERSA) to have some kind of mediating and/or explanatory role in the release of this information. This involvement on the part of NERSA is key, given the lack of trust the public has in Eskom. In terms of best practice, the government must also impress on the utility the necessity of skills creation as part of all future projects. One of reasons that the utility has been so poorly equipped when commissioning new plants on time and at budgeted cost has been the lack of requisite artisanal skill. This should be addressed through company-run learnerships, which although not being a short-term initiative, can lead to a skills pool for future projects. Eighth, rational explanations need to be provided as to the salaries and bonuses which have been paid to Eskom officials. There is undoubtedly a perverse incentive architecture in the structuring of Eskom salaries and bonuses paid to officials. It has long been public knowledge that the companys top executives earn salaries vastly disproportional to the performance of the utility. They have also received significant bonus packages, which are also not based on performance. While on one hand the company has over-incentivised poorly performing executives, it has also failed on the other to offer to attractive salary and bonus packages to attract much needed artisanal and engineering expertise. It is the DAs position that bonuses must be paid to engineers, not cadres.

It is also important to highlight that skewed incentives for salaries and bonuses are also a product of goal displacement. A perverse outcome of the state being the sole owner of Eskom, is the ANC government has been setting the aims of the company, as opposed to multiple shareholders. These aims have not reflected efficient electricity generation, transmission and distribution, but instead ANC goals. In-line with this, Eskom executives and political appointees have received their salaries and bonuses based of government performance targets of keeping the utility profitable, and the rapid pursuit of a transformation agendaxi.

Ninth, NERSA must be required to make Eskom accountable for its tariff increases. NERSAs approved increase to Eskoms tariffs, of 12.2% from the 1st of July 2015xii, needs to be justified and coupled with assurances that it will occur in conjunction with meaningful cost containment practices on the part of the utility. Without doing

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this, NERSA is expecting citizens and businesses to bear the burden of Eskoms inefficiencies due to its monopolistic stranglehold. Particularly, the body should provide assurances to consumers that the price-hike will be accompanied by transparency in the companys purchase of diesel as well as in terms of other procurement procedures. NERSA should also provide assurance that there is an implementable plan associated with the tariff increase to lessen the reliance on diesel in the future, the use of which is a primary upward pressure on generation costs. In short, the onus going forward must be on Eskom to prove that it needs increased tariffs, and that their spending will be efficient and transparent. Tenth, government must rapidly support/reintroduce measures to increase generation capacity, decrease the demand for electricity and improve efficient energy use. Initiatives that support the uptake of high-pressure solar water heaters should be implemented as they can significantly reduce a households electricity consumption. Eskom has since 2008, run a rebate programme for low- and high-pressure solar installations. These have, however, mainly focused on low-pressure installations, in new-builds, which are part of social upliftment projects. These do little to reduce existing electricity demand. Going forward, and in order to reduce pressure on the grid, the majority of rebate installations should focus on existing households being fitted with the more effective high-pressure systems. In addition, it should be noted that Eskom recently announced that as of the end of January 2015, it would no longer be running its solar water heater subsidy programme. It was instead announced that the Department of Energy (DoE) would take on the programme from the beginning of Februaryxiii. The DoE has subsequently announced that it will continue with the Eskom style of rebate for solar water heaters with a cap of 5000 such installations. This will then be replaced by a sliding scale rebate system which offers higher rebates for solar installations with greater local contentxiv. The change of responsibility for the project from Eskom to the DoE, is poorly timed and implemented, and has created significant uncertainty in the solar industry. The lack of market certainty has not only halted solar installation projects, vital for the reduction of electricity demand, but has also placed South African jobs at risk. The DA strongly asserts that no further policy uncertainty be placed on the industry by the ANC government until the power crisis has been resolved. The DA further urges that the government make initiatives, which promote the independence of households from the Eskom monopoly, a priority. It must also give careful consideration to the requirements of the industry being met. Furthermore, energy efficiency must become a key part of governments actions, not just its rhetoric. Ceiling retrofit programmes for all RDP houses should immediately be actioned. Retrofitting government buildings with improved energy saving technologies should also be agreed to and implemented.

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Finally, government must recognise that the crisis extends to necessary work on the transmission grid. Government must take immediate steps, including splitting Eskom, to begin the expansion and updating of the grid, which will allow more IPPs to connect and begin contributing to generating capacityxv. This is one of the biggest pitfalls to the REIPPPP new projects have been unable to connect to the grid in places. In line with this, immediate, pre-emptive maintenance programmes should also be initiated on the existing transmission grid. These should aim to prevent the kind of plant failures which have so disastrously affected generating plants. Electricity generation solutions for the short-, medium- and long-term It is important to recognise that any solution to the countrys electricity crisis will be subject to constraints including cost, time and environmental impact. In terms of the impact on the environment, any power solution considered should take into account the use of scarce water resources, the emission of particulate matter pollution, the production of waste products, and the release of climate changing gases. The greatest effort should be made when implementing any of the suggested solutions to reduce their impact on the environment. Short-term initiatives Decreasing financial strain on Eskom from the purchase of diesel: In the short-term, the use of diesel generated open-cycle gas turbines will continue to be a reality. While the government has stated its intention to convert the two existing plants to operate on natural gas, this is in reality not a short-term solution. The duration of the conversion process remains unclear. It is clear that it will not be rapid. Given the current power constraints, it is not feasible to take either or both of the turbines offline for any period of time without serious load shedding as a consequence. Instead, solutions which will lower the cost of diesel for Eskom should be fully explored so as to avoid the possibility of the utility becoming insolvent, and to decrease the necessity of further state-guaranteed debt. One such solution, which would allow the government to indirectly finance the utilit, without further risking its credit rating, would be to sell diesel to the company tariff-free. There are currently a number of government tariffs levied on diesel which include the General Fuel Levy, Customs and Excise Levy, Road Accident Fund Levy, Equalisation Fund Levy, Demand Side Management Levy, Petroleum Pipelines Levy, Slate Levy, IP Tracer Dye Levy and the Incremental Inland Transport Cost Recovery Levy. While the Treasury announced in February 2014, in response to a Parliamentary written question, that diesel used by Eskoms open-cycle gas turbines qualified for diesel fuel levy refunds, it is unclear to what extent the utility is refunded. Furthermore, the DA would suggest that, for the short term at least, the utilitys purchase of diesel for fuel production be exempt, as opposed to being subjected to refunds. This would promote the companys short-term liquidity.

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As an immediate priority, the government should fast-track an enquiry into non-market distorting means of decreasing the cost of diesel provision to the utility for generation purposes. Increasing generating capacity over the next two to three years by issuing RFPs for a range of energy options including coal, gas and renewables. The DA supports a short-term action plan based on rapidly, and vastly, increasing the number and size of energy projects undertaken by IPPs as a means to increase South Africas power generation capacity over the coming three to five years.

In line with this, investing in renewables through additional rounds of the REIPPPP should be considered. In terms of renewables specifically, there are three reasons for this. The first and most important reason is that solar and wind power plants in particular, are relatively fast to build and are thus the best way to address the current problem, as opposed to a nuclear plan which will take more than a decade to complete.

The second is the tariff cost of these projects has decreased significantly since the inception of the government run REIPPPPxvi. These are more viable options than diesel generated open cycle gas turbines which are putting significant financial pressure on Eskom. Finally, IPP projects are financed solely through the private sector, meaning that Eskom does not need to assume further debt to bring them online, or be involved in the process. Highlighting the rapid rate in which wind generating capacity can be installed, South Africa had 560MW of new installed wind power capacity by the end of 2014, approximately three years after the first REIPPPP tenders were grantedxvii. Furthermore, a total of 64 projects have been awarded to the private sector in the three completed phases of the REIPPPP. To date, 26 projects from the first round of bidding, and seven projects from the second round, have already been connected to the grid. The total amount of generating capacity brought online with the finalisation of these projects is more than 1500MW, the same capacity as one and a half nuclear reactorsxviii. This displays the rapidity and efficiency of greater private sector involvement in power generation. The government must thus focus on providing the right signals to IPPs, including those in alternative energy generating sectors.

The Cost of Solar and Wind Power

Since the initiation of the REIPPPP, the average price of solar photovoltaic (PV) tariffs decreased by 68%, from R2.78 per kilowatt (kW), to R0.88 per kW and wind by 42% from R1.14 to R0.65 per kW over the three completed bidding phases. A notable feat of the REIPPPP was the fact that it achieved all of this over an 18 month period.

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Consider alternatives which could reduce reliance on diesel generated electricity such as Turkish Power Ships. Another short-term solution could involve Turkish power ships, or a similar concept. Internationally a number of countries have made use of electricity-generating vessels built by a Turkish subsidiary. Ghana has recently invested in these vessels. The cost of one such vessel was in the region of $600-million, but was pre-financed by an IPP, with Ghana having to pay every month. The ships are able to contribute up to 450MW of power to a countrys national electricity grid. The power ships initially use abundant Heavy Fuel Oil (HFO) to generate electricity, but could transition to natural gas. While the ships use HFO to generate electricity, Ghana will pay $0.19 for each unit per kilowatt. When they start to use natural gas, the cost will fall to $0.15 for each unit per kilowattxix. The exact pricing structure of this option is not clear and it may indeed be an expensive measure to adopt. Nonetheless, it is a viable option to consider should the countys power situation further deteriorate in the short-term. Although the cost of electricity from these ships is high, it could be a viable short-term solution, particularly given that the cost of unserved energy is calculated to be in the region of R75 kWh. Another short term solution would be the use/purchase of additional open-cycle gas turbines run on LNG. Open-cycle turbines can be purchased off-the-shelf from companies such as Siemens. While the cost of such a plant is considerable, they are cheaper to run than models which use diesel. As a result capital outlay can quickly be recouped by operating cost savings. While there have been discussions about converting the Ankerlig turbine, there are, as mentioned earlier in this paper, a number of concerns about the viability of taking these turbines offline for conversion. In addition, it has been noted a number of times by Eskom officials that their open-cycle turbines have been run hard to limit the impact of load shedding, making it likely that the cost and trouble of conversion may not be wise given the age and condition of the plant. Medium-term initiatives Investing in larger-scale renewable projects should be considered. Renewable energy projects are not just an option for short-term generation. The average plant life of these projects is estimated between 20 and 25 years, meaning investment in larger scale projects can also be medium- to long-term solutions. Thus far, the average size of solar (PV) projects awarded by the first three rounds of the REIPPPP has been 64.5MWxx. Internationally, there are a number of much larger projects which highlight the viability of such endeavours in South Africa. Sun Powers Solar Star project in the US state of California, which when completed in the 2nd quarter of this year (six months ahead of schedule), will have a generating capacity of 579MW. Construction on the project began in early 2013, again exhibiting the rapidity of private sector solar plant buildsxxi.

Commissioning new coal and natural gas projects, as well as the requisite infrastructure, is also a possibility. LNG is also a form of energy which should be considered for South Africas future power needs. LNG is beneficial because it can

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be used in both industrial processes and in homes as a power source, as well as being an alternate fuel to diesel when powering open-cycle gas turbines. LNG is also a cleaner and more environmentally friendly form of power production than coal. In order to use LNG, South Africa would need to build a terminal along the coast, the most viable positions being either Saldanha Bay or Richards Bay. There is also a possibility of running a pipeline down from northern Mozambique into South Africa. This may be beneficial if South Africa provided funding and assistance for the build, which could run through Mozambique, providing communities along its path with LNG. This assistance could be exchanged for preferential gas prices to the South African market. Fracking as a source of gas is also an avenue which could be explored. However, given the lengthy time feasibility studies will take, public opposition, and the medium-term nature of the infrastructural builds associated with the mining and transport of gas, this is not a short-term solution. It may be more fruitful to consider a pipeline from an existing producer. Nonetheless, no option should be off the table. If shale gas is discovered in vast quantities, the rules for fracking and the protocols for its safety should be fast-tracked. Any future energy plan for the country needs to include a significant focus on natural gas. The production of further coal-fired plants is attractive option due to the fact that they have significant generating capacity and long plant life. There are, however, a number of factors which must be considered before any further plants are commissioned. The first is the short- to long-term availability of coal. The majority of coal mines (as well as power stations) are currently located in Mpumalanga and Limpopo, and a number of questions have been raised as to the remaining reserves in these locations. Furthermore, there are no new mines being commissioned in this part of the country, due in part to policy uncertainty over labour and land ownership. There is speculation that Eskom is approaching a coal cliff in 2017-2019, when the companys long-term coal contracts come to an end. This means that current coal fired power stations may soon face a fuel crisis, particularly if transport infrastructure is not upgraded, and coal has to be transported to power stations from outside these provinces. Long-term initiatives Hydropower from the Grand Inga Project is a possible source of electricity generation in the long-term. The South African government has long signalled its intent to invest, by means of Eskoms involvement in an international consortium, in the Grand Inga Dam Projects, located in the Democratic Republic of Congo (DRC). The planned projects could lead to power generation of between 40,000 and 45,000MW produced by seven dams. The Inga I and Inga II projects, however, have been hampered by low output as a result of poor maintenance and political instability in the DRCxxii. It is not clear when the Inga III project, which will produce between 4,500 and 4,800MW, will begin construction. The government signed and ratified an agreement with the DRC in 2014 which will allow it to purchase the first

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2,500MW of power that the project produces, and will give South Africa the right of first refusal to purchase power in subsequent phasesxxiii. There are, nonetheless, considerable concerns about the timeframe the project will take once construction begins, and whether the DRC has the political stability to pull it off. There is also likely to be a significant loss of electricity as it will be transmitted over great distances, the actual electricity which South Africa would receive from the project must be clarified. Furthermore, it is the DAs position that Eskoms involvement in future generating projects should be limited as part of breaking the monopolys hold on the energy sector. Thus, it would be more beneficial for the government to seek public-private partnerships in any future endeavours to do with the Inga projects. Building further nuclear power plants: It should be noted that in principle the DA is not averse to nuclear power generation. The main issues the party has with the current purported nuclear deal include the affordability of the project, given South Africas poor fiscal management and debt, and the length of time before it will begin to provide generation capacity. It is the DAs position that government must commit that if the price of any proposed nuclear deal is too high, relative to alternate power generation options, the project will be abandoned. A transparent and credible case must be made for any future nuclear deal to go ahead, and this must be done through a reasonable argument. The DA is extremely concerned that the current push for such a large nuclear build programme is driven by political motives, rather than a rationally based economic argument. The implications of such a major financial investment, with some estimates putting it at over R1 trillion, could be dire and need to be considered more thoroughly. Moreover, the project is expected to take at least a decade, and will likely take a lot longer. The DA is also concerned about the huge potential for corruption in a deal of this magnitude. It should also be noted that at the rate of current technological development in power storage capability, particularly in terms of renewable energy, the need for nuclear power may be obsolete in 10 to 15 years. This further makes the lead time on the purported nuclear deal a significant drawback. Once the abovementioned policy initiatives/decisions have been addressed, and when there is enough spare generating capacity to carry out scheduled maintenance without load shedding, nuclear power can possibly be considered as a long-term electricity generation solution. Again, this consideration should only be made when it is clear that it will be a fiscally responsible endeavour, carried out via a transparent and competitive bidding process.

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Endnotes

i Eskom. Company information. Available online: http://www.eskom.co.za/OurCompany/CompanyInformation/Pages/Company_Information_1.aspx

ii The failures include Unit 3 at the Dhuva Power Station, the collapsed coal silo at the Majuba Power Station and the lightning strike and ash damage at Lethabo Power Station.

iii Realise that Eskom alone cannot solve our power crisis. Business Day. http://www.bdlive.co.za/opinion/columnists/2014/11/26/realise-that-eskom-alone-cannot-solve-our-power-crisis. This calculation has been based on the 95% of utilitys power stations being operational for power generation, vs the now less than 75% available.

iv Our Company. Eskom. Available online: http://www.eskom.co.za/OurCompany/CompanyInformation/Pages/Company_Information.aspx

v Medupi: Likely delay in first synchronisation of Unit 6. Daily Maverick. Available online: http://www.dailymaverick.co.za/article/2014-11-25-medupi-likely-delay-in-first-synchronisation-of-unit-6/#.VLjGliuUcvw

vi 21 days and Eskoms Broke. Mail&Guardian. Available online: http://mg.co.za/article/2015-01-08-21-days-and-eskoms-broke

vii Zandile Mavuso. MPRDA Concerns Linger as Industry Awaits Presidents Verdict. 2014. Legal Resource Centre. Available online: http://www.lrc.org.za/lrc-in-the-news/3111-mprda-concerns-linger-as-industry-awaits-president-s-verdict viii Martin Creamer. Parliamentary minerals law review limited to four points 2015. Engineering News. Available online: http://www.engineeringnews.co.za/article/parliamentary-minerals-law-review-limited-to-four-recommendations-2015-02-18 ix Business Day Live. Dentist, Beautician, among Eskom Diesel Suppliers, Says Report. 2015. Available online: http://www.bdlive.co.za/business/energy/2015/03/15/dentist-beautician-among-eskom-diesel-suppliers-says-report x Natasha Mazzone. Eskom Bids to Spend R3.76-billion a Year on Unsuitable Coal. 2015. Available online: http://www.da.org.za/2015/03/eskom-bids-spend-r3-76-billion-year-unsuitable-coal/ xi Business Tech. Eskom from Apartheid to the ANC. 2015. Available online: http://businesstech.co.za/news/general/82841/eskom-from-apartheid-to-the-anc/ xii Louise Flanagan. Plan around electricity price hike Nersa. IOL Business. 2015. Available online: http://iolmobile.co.za/#!/article/plan-around-electricity-price-hike-nersa-1.1819272 xiii Melanie Gosling. Subsidy System back on Track for Solar Geysers. (2015). IOL. Available online: http://www.iol.co.za/business/news/subsidy-system-back-on-track-for-solar-geysers-1.1814127#.VP646fmUcnU xiv The Department of Energy. Solar Water Heater Programme Update. Media Release. Available online: http://www.energy.gov.za/files/media/pr/2015/MediaRelease-Solar-Water-Heater-Programme-Update-4February2015.pdf xv Money Web. South Africas Power Crisis Choking Green Energy Drive. Available online: http://www.moneyweb.co.za/news/south-africa/sas-power-crisis-risks-choking-green-energy-drive/ xvi Anton Eberhard. South Africas Renewable Energy IPP Procurement Programme: Success Factors and Lessons. Public-Private Infrastructure Advisory Facility (PPIAF) report (2014). Available online: http://www.gsb.uct.ac.za/files/PPIAFReport.pdf

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xvii Global Wind and Energy Council. Global Wind Statistics 2014. (2015). Available online: http://www.gwec.net/wp-content/uploads/2015/02/GWEC_GlobalWindStats2014_FINAL_10.2.2015.pdf xviii Business Day Live. Department plans to tap new power sources. Available online: http://www.bdlive.co.za/business/energy/2015/02/18/department-plans-to-tap-new-power-sources

xix Anadolu Agency. Turkish power ships to generate 21% of Ghanas electricity. Available online: http://www.aa.com.tr/en/economy/402142--turkish-power-ships-to-generate-21-of-ghanas-electricity

xx Anton Eberhard. South Africas Renewable Energy IPP Procurement Programme: Success Factors and Lessons. Public-Private Infrastructure Advisory Facility (PPIAF) report (2014). Available online: http://www.gsb.uct.ac.za/files/PPIAFReport.pdf

xxi Sunpower. The Solar Star Projects. Available online: http://us.sunpower.com/utility-scale-solar-power-plants/solar-energy-projects/solar-star-projects/ and PV Magazine. SunPower Close to Completing Worlds Largest Solar Power Plant. (2015). Available online: http://www.pv-magazine.com/news/details/beitrag/sunpower-close-to-completing-worlds-largest-solar-power-plant-_100018332/#axzz3SkAByyHx

xxii Jansson, Kim; Ryynnen, Tapani. A three level research gateway for African renewable energy collaboration. (2013). IST-Africa 2013 Conference Proceedings. Available online: http://www2.vtt.fi/inf/julkaisut/muut/2013/OA-a_three_level_research.pdf

xxiii SouthAfrica.info. South Africa Pushes for Grand Inga Hydropower Project to go-ahead. (2014). Available online: http://www.southafrica.info/news/grand-inga-hydropower-project%20.htm#.VO7UnvmUcnU and

Ryk van Niekerk. Grand Inga Much More than Seven Dams. (2014). Available online: http://www.moneyweb.co.za/moneyweb-south-africa/inga-grand-much-more-than-seven-dams

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