Eskom’s unbundling delayed as energy regulator stalls on licence for transmission company
Eskom is set to miss its deadline to have a transmission company operating by December, which is a crucial step in its unbundling process.
The utility has failed to convince the National Energy Regulator of South Africa (Nersa) to expedite the process of granting the National Transmission Company of South Africa a licence to operate.
The unbundling, announced by President Cyril Ramaphosa in 2019 during his State of the Nation address, will see Eskom split into transmission, generation and distribution in the hopes of resolving some of its troubles
The transmission division would open a competitive energy generation sector, where electricity producers sell to the national grid.
In a response to questions from the Mail & Guardian, Eskom said it did not know when the energy regulator would approve the licence.
“It is Eskom’s understanding that Nersa has subsequently been evaluating the applications and are following their governance processes to conclude on their decisions.
“It is anticipated that Nersa will grant all applicable licences required for the national transmission company to operate the transmission business by quarter 3 of the current financial year,” it said.
Eskom said after not being granted the licence in April and again in July, it was uncertain whether the regulator would meet the September to December deadline.
To address the country’s energy constraints, Eskom aimed to have the company operating by the end of the year, after a four-year delay.
Eskom had aimed to get the company to the point where it could start trading in the last quarter of this year but it was dependent on other parties to do this.
In April, Eskom’s acting CEO Calib Cassim said there were only two conditions that had to be met to get the transmission company up and running — the licences to operate and obtaining lender consent, where required.
Eskom applied for the licence last year. Former chief executive Andre de Ruyter said the energy regulator was taking too long to act on the unbundling of the utility.
De Ruyter added that the power utility had everything that was legally required for the unbundling process to enable the legal separation of its transmission business.
“We concluded an asset transfer agreement. We have set up the National Transmission Company of SA. We have set up separate balance sheets, [and] income statements. We have separated SAP [the software]. That is no minor exercise.”
Corruption?
A source within the energy regulator’s office said, the reason for the delay was because they had allegedly flagged some “corrupt” elements with the utility and had reported the matter to the police.
“The utility claims to have no money but there are talks to squander some money as the company starts to make money. Those involved already have plans for the money that will be brought into the country to address the transmission problems,” the source said.
Another source in Nersa added that “we are all equally irritated by the corruption that is aimed at dismantling the utility”.
“This has nothing to do with politics and elections, it has everything to do with individuals we have trusted to help solve the problem, being the problem, by taking the very thing we need for their own gains.”
The sources added that Nersa uncovered these allegations during consultations with stakeholders who had proof of the plans to gain funds through the expansion of the grid.
“The way they spoke, it seems the people involved are certain they will be chosen to be part of the group involved in the grid expansion project. At this rate, we doubt it may even happen,” one of the sources said.
Nersa’s spokesperson Charles Hlebela did not respond to questions sent to him.
Eskom needs funds
The utility is in the process of securing lenders’ consent for the split and hopes that it will have this by December.
To receive lender consent, Eskom would only be permitted to borrow with the written permission of the finance minister, which is one of the conditions of the treasury’s R254 billion debt relief plan. The R350 billion in government guarantees will expire as the debt is paid off.
This means the utility must fund its capital costs from the revenue it earns from operations. Large capital projects — such as investment in the transmission grid — will require permission.
Cassim said Eskom’s transmission development plan requires 14 000km of new transmission lines across South Africa over the next decade, at an estimated cost of R210 billion.
He noted that the latest bid windows in the government’s renewable energy programme show that transmission is the real constraint, and its development is the catalyst for the just energy transition.
However, fears surrounding plans to also dig into that money have been allayed.
“I think the right messages are coming from the government as to the importance and the urgency around the grid.
“We are also looking at it internally … [it’s time that] transmission now gets the same level of urgency and priority that generation is currently getting, from a country perspective,” Cassim said.
Minister of Electricity Kgosientsho Ramokgopa also said Nersa was taking too long to grant the licence which is urgently needed to address grid-access challenges.
But, he also noted that without funding, the fight for the licence would be futile because Eskom does not have the funds.
“The Eskom balance sheet is not in the position to finance the kind of expansion that is required in both the scale and the speed at which we need to respond to the needs.
“The Eskom balance sheet will not be enough to support that and, of course, we need to think creatively around how it is that we will be doing to address that,” he said.
The unbundling of Eskom is a crucial step for levelling the playing field between Eskom generation and independent power producers, as well as for ensuring that sufficient transmission assets are funded and built to facilitate new generation investment.
This will also address grid capacity challenges that the utility faces.
The problem was highlighted by the fact that none of the high-potential renewables regions — the Northern, Eastern and Western Cape — were granted preferred bidder status because of lack of grid capacity
To address the challenges in expanding and strengthening South Africa’s constrained electricity transmission grid, last week, the US government announced a R24 million grant fund.
This fund aims to explore cutting-edge technologies, facilitate the integration of more green power and reduce load-shedding.
Developing the transmission grid has been labelled as the priority under the Just Energy Transition Partnership, backed by a historic $8.5 billion pact between South Africa, the US, the UK, France, Germany, and the EU.
According to Eskom, there are 43 Projects in Commercial Operation, with a combined capacity of approximately 3 730 megawatts compared with the 70 gigawatts envisioned by the Integrated Resource Plan to come online in the next decade.
Mandisa Nyathi is a climate reporting fellow, funded by the Open Society Foundation for South Africa