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Investec's Martin Meyer, Ayan Ghosh and Rudi Dicks, the Project management head in the office of the Presidency, unpack the multitude of challenges facing Eskom and the feasibility of the government plans to turn the overburdened utility around. 

Podcast transcript: scroll to the areas that interest you

  • IR: Iman Rappetti, journalist and host
  • MM: Martin Meyer, head of Investec Energy & Infrastructure Finance
  • AG: Ayan Gosh, Investec head of Cross-Asset Investment Strategy 
  • RD: Rudi Dicks, head of the Project Management Office in the Presidency
  • 00:00: Intro

    IR: Another day in South Africa and another news briefing from the Minister of Electricity, Dr. Kgosientsho Ramokgopa, about load shedding.

    Maintenance issues, corruption and mismanagement have all played their part in eating away at the state-owned power utility, Eskom, with dire consequences for the country's power supply and economy. It's no secret that bringing about change at Eskom will require momentous effort, and the global focus on sustainability will provide extra challenges.

    It won't be good enough just to deliver a stable grid. The power utility will also have to have a future strategy aligned to a green energy outlook.

    Welcome to The Current, an Investec Focus Radio series that delves into South Africa's energy transition. Over ten episodes, we explore the country's energy crisis, and how we can collectively shape a resilient and sustainable energy future. I'm your host, Iman Rappetti, and in this series, I'll be talking to industry experts from inside Investec and beyond about how South Africa can keep the lights on while moving towards more equitable and sustainable energy solutions.

    In episode one, we set the scene for South Africa's energy transition. And in this episode, we're tackling issues around Eskom, the core problems it faces, the solutions that are being put into place and how it plans to be part of a sustainable future. Let's welcome my guests.

    MM: I’m Martin Mayer, I head up Investec's energy and infrastructure team, working out of the Jo’burg office.

    AG: I'm Ayan Ghosh. I cover investment strategy at Investec Securities.

    RD: I'm Rudi Dicks. I head the project management office in the private office of the president. 

  • 02:04: Eskom's "chicken and egg" maintenance dilemma

    IR: We start on perhaps the most fundamental issues faced by Eskom. How it generates power and the problems around its infrastructure.

    RD: I must be frank and honest. The coal fleet is unreliable as it is. It's also aged, but we cannot walk away from that. So while we wait for more megawatts, we have to fix the fleet as we go along. So it's a question of making sure that we have the right quality of coal that is used. We have the right kind of water. A lot of that investment and repairs and maintenance needs to be done.

    If we do that and we have a focus, look at specific sets of areas that needs to be fixed. Thanks. I think we are able to turn around the corner.

    IR:Martin, I'd love to hear what's going through your mind when you hear what Rudi just said.

    MM: Ja, look, when you look at how coal stations are originally designed, they come with a maintenance plan.

    They come with regular maintenance. They come with major maintenance. And I think over the past These have been neglected. So you're sitting with a coal fleet that not only is it aged, but it also hasn't been maintained properly. And this is across the fleet. It's going to have a limited supply of resources.

    And when you try to do scheduled maintenance together with emergency maintenance, you do run into issues. So you may see reliability coming back, but what you're also going to see is trips that you're not expecting because of the state of the fleet. So that further puts constraint on capacity and. If we're just relying on the coal fired fleet to get us through this, we're not going to get there.

    IR: Rudi expands on the chicken-and-egg problem faced by the current maintenance program.

    RD: If you have to fix one power station, and you have to take it off from a structural point of view, you have to fix, for example, some of the auxiliary parts, you're looking at three to six months. Right? Can we Afford to lose three and a half thousand megawatts.

    This is the kind of situation that we were looking at. What you require is what we refer to as a reserve margin. So you need a high level of reserve margin, which is above 10%. It's really just the ability for S Com to be able to do, you know, long term maintenance, and that can only happen if you have spare megawatts.

    So you're sitting between a rock and a hard place or to put it, because you have to do the long term maintenance, but you don't have the spare megawatts because spare megawatts means more or higher stages of load shedding. 

  • 04:16: German VGBE consortium's damning report

    IR:  Echoing these thoughts are the damning findings of a 600-page independent report commissioned by Treasury in 2023 and conducted by the German VGBE consortium.

    The report revealed a startling number of issues with the coal-fired fleet that it attributes to a dysfunctional and overly complex management system. In addition to a massive administrative intervention, a cash injection will be a vital part of any rehabilitation program. But with such well-documented trouble, how difficult would it be to raise that money?

    I asked Ayan about some of the challenges in relation to garnering investment in South Africa's energy sector.

    AG: I think confidence is critical for any investment and that appears to be lacking among offshore investors at this point of time. So I think the government needs to address that first. The further few challenges that's worth discussing maybe on a very similar note, I think one skills crisis, the construction capacity, specific equipment supply, reduction of time frames for approvals and funding.

    Now, just to give you some colour on some of these constraints, especially when you look into transmission, what's shocking is South Africa's got one supplier of fabricated, structured steel that's used in transmission equipment. There is discussion to provide funding for a second and a third manufacturer supplier locally, while also considering international suppliers.

    The other shocking data point that I've looked at, South Africa's got one supplier of large power transformers.

    MM: A part of that, Ayan, is If you look at the history of REIPP and the history of building generation plants, it's been stop-start. We've seen investment into this area, but when you've got a five year hiatus in terms of awarding projects, these manufacturing plants, they can't sustain that.

    So, to the extent we start seeing regular REIPP rounds and regular construction of generating plants, I think that confidence should come back. You've certainly got international confidence in REIPP. Investing in the plants themselves, but those are project based. So you're not setting up a manufacturing facility and relying on a whole lot of future work to actually make that work.

  • 06:28: Investment in transmission is the most important factor

    IR: There's a very real economic force to which Eskom survival could be closely tied. Gross fixed capital formation used to invest into fixed assets like plant machinery and equipment purchases as a share GDP remains low. Currently, South Africa's gross fixed capital formation is around 15%, which is 5 - 10% lower than what foreign investors would like to see.

    For Ayan, a key part of improving this figure would be the upgrading of Eskom's transmission infrastructure.

    AG: The grid expansion has been far slower than what one would have anticipated. What this has contributed to is where we sit today. Eskom needs to reconfigure the grid at three times the capacity that they have done in the last 10 years.

    You need to upgrade Eskom’s aging infrastructure. The contribution from renewables needs to largely double or triple. And all this renewable energy now needs to be integrated with the grid as well. So I think transmission needs to come to the party. And that's where you need a lot more investment. I would say there's need for significant private sector participation, and that would close South Africa's investment gap.

  • 07:40: Eskom needs to decarbonise for economic and sustainability reasons

    IR: The wider inclusion of renewables that Ayan mentions is a vital part of the equation, and not just from a climate and sustainability point of view. Martin and Rudi explain.

    MM: Eskom also needs to decarbonise. A lot of the companies that we deal with on a bilateral basis, they need to decarbonise their products,  operations and buying through Eskom at the moment is not considered clean power. So that is a big aspect to what's going on here, but you need to weigh that up. Obviously from an economy, you can't have load shedding, but it's a balancing act.

    RD: Our largest single trading partner as a block is the EU. Firstly, EU is moving towards EVs. And secondly, they're going to determine the level of carbon intensity in your product, and then tax you on that. Think about autos, which is the major component of what we produce over here, and we export in excess of 200 billion Rand worth of autos every single year.

    So it means that if the way you produce energy is only coal driven, largely so it means the higher of the tax, which makes us uncompetitive. So it's quite an important thing. If you think through it from a. trading point of view for an EU that is going to impact on us.

    IR: So the adoption of renewables by Eskom has a far wider implication than just the grid itself. Fortunately, even at this relatively early stage, sustainable energy is an area in which we're starting to see some tangible changes, largely through the government's renewable energy independent power producer program, also known as REIPP. Since 2011, the plan has sought to attract private investment into renewable energy generation and some significant updates to the program are garnering results in tandem with private sector investment.

    MM: Government have been promoting investment into renewables into the power sector for some time. You didn't need to get a license for generating plant up to one megawatt, which is very small. There's no international investors going to be looking at coming in and doing one megawatt system. So government tested guys.

    Let's increase that to 100 megawatts and subsequently, let's actually not have a limit on how much you can generate for yourself. So that for me is a clear message to the private sector to say, guys, come and invest. You can build, we will accommodate that. So I think there's a very clear message to the private sector.

    I think. With REIPP 5, REIPP 6, now REIPP 7 being bid, we had BES round, which is the battery energy storage round. That's been bid and awarded. We have BES 2 coming, which is now in, in April too. We have the first gas round, which is going to be bid in August. So they're talking big numbers. It's not hundreds of millions.

    This is hundreds of billions in terms of how much needs to be invested in the, in these programs, which is positive. People are getting excited about it. We seeing a lot of international investors who are. keen to position themselves for these programs. So the messaging is right.

    RD: In the National Energy Crisis Committee. We're talking about 12 gigawatts. That's 12, 000 megawatts of private sector investment. Some of them have already come on board. But to give you a sense of the value of that, if I take the megawatt price from bid window five, We're looking at a total investment value of about 220 billion rand within renewables.

    Now what is that? That's jobs. That's building PV plants, that's building wind towers, that's jobs potentially locally and a whole set of different things. 

  • 11:08: Balancing FDI and local investment into renewables

    IR: There is also longer term financial gain for the country in developing a viable renewable sector.

    MM: Traditionally, the international investors have been involved in investing into these markets. And that's purely from a skills perspective, I think capacity as well as skills, they needed to bring that. We didn't have that in our country from a new perspective. We haven't had renewables programs until the RPP program. So the international brought that to the country. These investments are big and construction is complicated.

    You want a balance sheet that can support that. And what we are seeing is that internationals actually exit these investments after a certain point in time. And local investors then can get those long term stable cash flows in terms of the investment. So there is a switch, there is local investment going in.

    But we've also, we also get an FDI, which is important for the country. So I think there is a good balance.

    IR: Our conversation with Ayan, Martin and Rudi will continue after this.

    Promo: Investec’s Energy and Infrastructure Team offers funding solutions and a full range of specialist financial services across a wide range of infrastructure sectors, including renewable energy. The team comprises diverse skills in banking, advisory, finance, law, engineering, power development, and project management. Find out more by clicking on the link in the podcast notes or search for investec energy and infrastructure.

  • 12:43: Progress on the unbundling of Eskom into three separate entities

    IR: One of the boldest moves by government to resolve the electricity crisis is the unbundling of Eskom into three separate entities handling generation, transmission, and distribution. More than just a mechanism to assist in the utility’s debt crisis, the motivation behind the split is to aid transparency, improve governance and efficiency, as well as to allow space for competition.

    Still, there are some potential pitfalls. Rudi, I want to come to you on this one. We've been talking about it for years and years now. It's a an imminent reality and there are a lot of concerns in South African society about this. Argue that it's a step towards privatising Eskom. Will this affect the price for electricity?

    RD: It would provide a positive impact on people. Let's explain that. The first element of unbundling is taking transmission out of Eskom and creating it as a subsidiary. There's a set of legislative reforms through the Electricity Regulatory Act that is happening, and it's going to give, of course, the National Transmission Company of South Africa quite important powers.

    One of the more fundamental powers is giving it the power to purchase on an open competitive market. And so generally speaking, globally, when this happens, it's on the least cost basis. So you purchase power, you balance it on the basis of the cheapest electricity that you can find and the most reliable electricity that you can find.

    So when you look at it from a market point of view, as more generators come on, And the electricity has to be competitive from a pricing point of view. You're going to have to bring down the price. And we've seen that from all set of studies globally, which shows us the electricity pricing comes down when you set up in that way, we're moving in that direction in our view, this is not privatisation, the infrastructure.

    As it is, transmission remains with us. Generation again is the risk that you take, you invest in it, you assume there's a competitive market space, which we are developing in the basis of the legislation and you compete on the market, the Central Purchasing Agency, which will be under the National Transmission Company would plan for buying on a what generally is referred to on planning tomorrow, next week, the year ahead, and basically buying energy on the basis of least cost and unreliability to be able to balance the system. Or you of course get continued load shedding. You don't want that, right? But that's the idea of a market reform that's there. That's phenomenal. We've never had that.

    Remember all we've had for all these years is a single buyer model. A single-buyer model means that electricity is guaranteed by Eskom buying the purchase. Now we have an independent transmission company that will buy it. And Eskom will compete with everybody else. And if price is not competitive enough, you lose out. So you have to become competitive, which means we have to drive down price.

    MM: And we've seen five, maybe six trading licenses have been awarded already. These are the guys who are going to be buying from RPPs and selling into the market. At the moment, it's primarily bilateral long-term PPAs, but that's going to change and it's going to change quickly. And as we said, it's going to become a day ahead merchant type market, where if there's excess power during the day, you'll be able to pick up power for next to nothing.

    When there's a shortage of power in peak hours, you're going to pay a lot more. So you're going to see a much more balanced market. 

  • 15:59: South Africans will need to be patient. The transition will be slow

    IR: As encouraging as all of that may be, Martin and Rudi both caution that South Africa will remain reliant on Eskom for the foreseeable future.

    MM: In the short term, Eskom will still be responsible for baseload power. You're not going to get away from that. We're talking renewables, and renewables is by nature not baseload. So for now, Eskom will still be responsible for baseload. And you're going to see the traded market in the renewables in wind, in solar, slowly into batteries. Guys will start, start putting batteries in, which then brings the storage element into it.

    RD: 85 percent of our power is Eskom-generated and you have to transition from that. It's going to take time. And that's the thing. 

  • 16:37: What lessons can we learn from Brazil's energy transition?

    IR: So, success won't be achieved overnight, but it's certainly something that can be achieved, and we know this because we've seen it happen with another member of BRICS. Ayan, they say you can see the future by looking at countries that look like you or have a similar history, to see what could be the future.

    If you implement certain things. So Brazil has invested in distributed generation deployment and solar capacity resulting in most of their electricity generation coming from solar. What lessons can South Africa draw from Brazil's energy investment?

    AG: I think Brazil's a very interesting example to give you some stats here. Brazil's got a twenty year track record off privatising electricity generation and distribution. It's got one of the beast regulatory environment in electricity across all emerging markets. And no emerging market has attracted more FDI than Brazil and power generation, which is estimated at 220 billion us dollars between 1990 and 2020.

    Brazil introduced distributed generation regulation in 2012. And. Distributed generation represented 70 percent of solar PV capacity addition in 2022. If you look at the solar and wind renewable energy growth, that's grown at a compounded annual growth rate of 44 percent that solar and 27 percent in wind, respectively in Brazil, between 2010 and 2023, Brazil's held more than 50 public transmission auctions since 1999, which has resulted in awarding transmission lines totalling 110, 000 kilometres in length.

    And there are 65 private players in transmission sector in Brazil. 

  • 18:22: South Africa is the leading investment destination for renewables

    IR: Martin, what do you think?

    MM: We’re three years into the relaxation on the regulation. So when you can only do one thing. Do you have one megawatt system? You're not going to get to that sort of scale. I think we can get there. You've already seen massive rooftop installations.

    I think rooftop is a very important part of our energy mix. I think that's only going to continue, but we can get there. As I mentioned before, we threw REIPPS round 1-5, 6 has been awarded, 7’s coming. The RP was issued. We have a good sight as to where generation is coming from. We can get there.

    IR: For some added motivation to continue on the course that South Africa's charted for its energy sector, Rudi offers a tantalising stat. Rudi: There's an interesting stat that the International Energy Council has. Because of the reform that we implemented over the last few years, we are now the leading investment destination for renewable energy in Africa. So we surpass Egypt, Morocco, Kenya, for example, and I think that's quite important. 

  • 20:58: Poor logistics network is impacting Eskom

    IR: Factor number two is something that's easy to see almost every day. If it's not in the news about Transnet, the signs are there on our daily commute. The deepening problems around South Africa's transport logistics. As Ayan and Rudi explain, a poor logistics network can have a large impact on the road to a renewed energy grid.

    AG: I would say people often tend to forget the high transport costs of imports. So we've seen this in Nigeria, we've seen this in Latin America, and the impact this has on the cost of imports and inflation. I would argue improving the infrastructure at ports and roads would significantly lower the cost of imports, especially now that we're importing a lot of these parts to enable this whole build.

    RD: Certainly, I mean, from an energy security point of view, what we need to do is have the rails function. So some of the power stations are not also designed for tipping trucks coming in and offloading calls onto a coal heap power stations largely in the way that if design have conveyor belts or in other instances, they have a branch line running from the main line onto the power station.

    In a lot of the instances where that Logistics have failed, Eskom of course has to put into motion a whole set of different things to be able to deal with it. Right now, some of the coal exporters, of course, looking at the Asian markets, way behind on some of the targets in relation to logistics. Fifteen million tons of coal is on our roads right now, and that's completely destroying our road network.

    So that's the unintended consequences, and all of them are trying to get to different ports. If any of you have seen the Lombok border posts with Maputo. Right. Trying to get to Maputo Harbour. Some of these I've been told run into about 25, 30 kilometres at a given time, right?

    IR: And you saw a Richards Bay as well.

    RD: Richards Bay is slightly improving and partly because the one conveyor belt that was broken has been fixed in early January that takes off four to 500 trucks off the road and avoids the significant congestion in Richards Bay itself. 

  • 23:07: Evidence providing hope that Eskom is on the right track

    IR: While we're still mired in the problems created at Eskom and the short term outlook is that we can expect more of the same, steps are definitely being taken in the right direction.

    Boosting that positivity is the fact that they are collective steps, not just government working on its own. Private investment, trading partners, and even individual citizens helping to forge a path towards a reliable, equitable, and sustainable grid.

    AG: If you look at rooftop solar capacity, it doubled to 5. 2 gigawatts in 2023. It was 2. 66 gigawatt in 2022. That's impressive. If we can expect something very similar in transmission, what we've seen in generation, you should see a step change over the next three to five years. And I think the IRP should get some credibility for its ambitions and gas. Although I do think I'm a little bit more conservative on whether it can deliver in the next three to five years, but I think the ambition The government should get credibility for that.

    RD: I think it's taken us a bit of time to realise that by opening up and doing the reforms, that there is a great potential for massive private sector investment. And we see that. We see that in the dynamics that is happening in construction. And the real growth in employment, what we see right now, is actually in construction.

    And these construction projects are related to actual renewable energy. I think that's We're on the right track. I think the most important part is when do we see a reprieve and ending of load chain, and that for us is going to be important. There's a combination of different things. There's not one silver bullet, so we need to do a whole set of different things to be able to make this right.

    And I think we're on the right track. We are seeing a high level of reliability on some of the units that have been on constant outages. And so what we have seen on average is slight increase in the energy availability factor for the coal fleet, but more importantly, we are seeing a lot more megawatts.

    Additionally, new megawatts coming onto the grid, and I think that has shown for us to be, uh, an important factor in ensuring that we move towards reduced load sharing and eventually ending of load shedding.

    IR: Thanks for listening to this episode of The Current brought to you by Investec Focus Radio. In our next episode, we're focusing on the mining industry's role in the energy transition. You can find all the episodes of this series at, or wherever you get your podcasts.

    If you enjoyed this episode, please rate it, leave a comment and forward it to your friends and colleagues.

    Disclaimer: The views expressed are those of the contributors at the time of publication and do not necessarily represent the views of the firm and should not be taken as advice or recommendations. Investec Bank Limited. An authorised financial services provider and registered credit provider.

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