/Section 34/
The Minister of Minerals Resources and Energy is granted certain powers in the Energy Regulation Act (no 4 of 2006). This section deals specifically with the Minister’s role in the process of procuring new generating capacity. Specifically, (1) (a) states that: “The Minister may, in consultation with the Regulator: determine that new generation capacity is needed to ensure the continued uninterrupted supply of electricity.
If Eskom is moved to the Department of Mineral Resources and Energy (DRME) domain, it will create an untenable situation because of the Minister Gwede Mantashe’s current conflict of interests. The minister is in control of the policies that maximise our use of mineral and energy resources, as well as determining the electricity generating future of the country’s biggest energy resources customer.
Let’s look at the National Energy Regulator of South Africa (Nersa) decision against giving Eskom license to build a 3,000MW closed-cycle gas turbine power plant in Richards Bay last year. That was beautifully detailed in a Joseph Cotterill twitter thread.
Here is an interesting case study of why South Africa’s state is struggling to overcome the energy crisis around Eskom, and in particular, to procure new energy *even from fossil fuels* – not just renewables. Based on the reasons for a regulatory decision published today. 1/
— Joseph Cotterill (@jsphctrl) January 18, 2023
Eskom made the application to the Minister, who then needs the regulator to concur. Except, it seems that the DRME request to Nersa included a contradictory statement that threatened the transparency of the project:
5. procurement of primary energy and its associated logistics infrastructure must be done in a manner supportive of the State’s participation through other State Owned Companies which have the relevant mandate(s)
The power utility naturally argues that flexible generation solutions like gas turbines and storage (grid-attached batteries and pumped storage hydro) is the only reliable way to balance peak demand. Nersa agreed with this sentiment and supports gas as a viable option to ensure grid stability.
Richards Bay was also chosen as a site for its proximity to a port and the Mozambique gas pipeline.
Some concerns were brought around the volatility of the Rand in relation to gas prices – which is set in dollars. South Africa imports the bulk of its gas and would have to pay market price for the commodity that saw a steep rise as European demand grew towards the end of 2022.
An interesting thing to note is that the project’s estimated electricity cost (R/kWh) range fell well below coal and nuclear, and almost reached wind and solar (PV) – currently around R1/kWh – at R1.05-R1.22/kWh.
There are some problematic semantics in Nersa’s findings, though. Eskom argues that it was unfairly named a procurer in the minister’s determination and should be named as developer and owner.
But the primary reason why the project was ultimately rejected seems to be that it deviates from what the DMRE stated in the outdated at the time Integrated Resources Plan (IRP2019) gazetted by the minister in October 2019.
Under the terms of IRP2019, 3,000MW is the total of new gas installed generating capacity by 2030 – broken down into 1,000MW in 2023 and 2,000MW in 2027. Previous versions of the plan had gas at 8,100MW.
As it turns out, Nersa has sent Eskom back to the minister to convince him to announce a deviation from the plan, which would then allow the project to go ahead. Which is an interesting turn of events given Manatashe’s assertations that he does not “build power stations.”
President Cyril Ramaphosa also bemoaned the red tape and regulations that slow down the country’s ability to add new capacity to the grid. Hopefully this changes in the near future.
