5 tips for Eskom to fix its debt problem, from Greenpeace

Debt-ridden power utility Eskom has recently lost its CEO Phakamani Hadebe, and apart from relying on another financial bailout from the state, it also needs to keep up with global transitions to cleaner energy.

A study, commissioned by Greenpeace Africa, has endeavoured to map a way forward for the power utility, which has debt levels approaching R500bn. More than half (R350bn) of this debt is guaranteed by government.

“Eskom’s reform is almost laughably overdue; the utility is technically insolvent, inefficient, unable to guarantee security of supply, wildly unprepared for an energy transition to renewable energy and is the country’s biggest emitter of toxic pollutants and greenhouse gases, which are driving us towards a climate and pollution emergency,” said Greenpeace Africa’s senior political advisor Happy Khambule.

“The decisions that need to be taken about Eskom’s future will not be easy, but it is the government’s responsibility to ensure that a bold shift to renewable energies, with Eskom as a public good at the centre, becomes a reality,” Khambule added.

Earlier this year, president Cyril Ramaphosa announced Eskom would be unbundled into three entities – generation, transmission and distribution. Treasury has allocated R69bn over three years to financially support the unbundling, Fin24 reported previously. According to Greenpeace Africa, the restructuring of the electricity sector requires coal-fired power stations to be completely phased out by 2040 and the “just transition” plan must create room for consultation or engagement with all stakeholders in a social compact.

In the report, energy economist Professor Dr Uwe Leprich unpacks the details of the reforms needed at Eskom and SA’s electricity sector. The recommendations would allow Eskom to “stabilise” its economic situation, reduce its debt and be a significant player in promoting a transition to renewables, according to Greenpeace.

1. Gradual phasing out of coal-fired power stations

Greenpeace Africa supports the recommendations of Dr Tobias Bischof-Niemz for the energy transition. Bischof-Niemz co-authored a book titled South Africa’s Energy Transition, which recommends that the oldest power stations be decommissioned in the next five years. All Eskom’s power stations except Medupi and Kusile should be sold off one-by-one over the next five years – it is yet to be determined if private companies should be allowed to buy shares in coal plants or if public companies can participate in the auctions of the plants, the report read.

Further, Medupi and Kusile should be sold in a package in which enough capital can be raised through the sale to cover the debt obligations of the stations, according to the report.

Additionally, private generation companies cannot own more than 20% of overall coal plant capacity to ensure the market remains competitive.

“By selling the coal-fired power plants, Eskom could significantly reduce its debt burden and turn to sustainable segments of the electricity sector,” the report reads.

2. Open Independent Power Producer auctions for renewable energies to Eskom

Greenpeace also calls for renewable energies to be developed, accordingly with the draft Integrated Resource Plan 2018 for 2030. “No new coal should be allowed, and only a limited number of new flexible fossil-fuel plants should be put out to tender by an independent Transmission System Operator,” the report reads.

3. Eskom to retain role as Transmission System Operator (TSO)

Greenpeace Africa proposes that Eskom keep its role as Transmission System Operator (TSO). A TSO is necessary to ensure security of supply and access. “Because of its importance for the economy as a whole, it (TSO) should be in public hands and the owner should not have any interests of its own in the areas of generation and supply,” the report reads.

For Eskom to continue its independent role of TSO, it should further be emphasised that Eskom be separated from electricity generation.

4. Set up 6 regional electricity distributors

Electricity distribution grids are important as they link between power plants, the transmission grid and end-users. Regional electricity distributors must be publicly owned, through shares from Eskom, municipalities, cities and other public companies, Greenpeace recommends.

Greenpeace adds that the National Energy Regulator of South Africa should regulate the network changes for the distribution grid and the level of the sales margin to avoid a monopoly situation.

5. Create new services

Eskom could create new services for consumers, as a means to stabilise revenues in the retail sector, Greenpeace says. These offerings particularly are aimed at end-users relying on self-generation through solar PV panels as an example. “Without new service offerings for customers, it will not be possible to absorb the declining revenues,” Greenpeace notes.