Eskom needs R143 billion to shut down coal plants by 2050

Eskom Holdings SOC Ltd., South Africa’s state power utility, needs $10 billion to shut most of its coal-fired plants by 2050, a company official said.

The utility is in talks with development finance institutions to raise the money, the head of Eskom’s Just Energy Transition office, Mandy Rambharos, said by phone on Wednesday.

The power plants may be re-purposed, and the sites used to produce power from renewable energy or natural gas, Rambharos has previously said.

Reuters, which reported the amount earlier, said the site of the Komati power plant might be used to produce solar energy, which would be coupled with battery storage.

South Africa is the world’s 12th biggest emitter of greenhouse gases, and Eskom accounts for two-fifths of its emissions.

According to statistics collected by Our World In Data, over 85% of South Africa’s electricity production still relies on coal.

Eskom has been struggling to keep its ageing fleet of coal-fired power stations running, with high levels of break-downs resulting in rotational black-outs, known as load-shedding, to protect South Africa’s grid from total collapse.

Eskom’s plan to raise money to adapt or shutter its coal plants comes amid South Africa’s goal to reach net-zero emissions by 2050.

It also comes as the National Energy Regulator of South Africa (Nersa) recently approved a substantial tariff increase for Eskom’s direct customers and municipalities.

Eskom implemented an average tariff increase of 17.8% to electricity supplied to municipalities today (1 July 2021). Eskom’s direct customers will pay 15.06%.

In addition, the power utility is struggling to reduce its debt burden that has ballooned over the past 15 years.

Eskom’s debt securities and borrowings increased from R30 billion in 2005 to over R488 billion in March 2020.

The rapid escalation of debt resulted from gross mismanagement, corruption, and poor procurement processes at the power utility.

The Medupi and Kusile mega-projects played a huge part.

The two coal-fired power plants were supposed to be completed by 2015 at the cost of R163-billion. However, six years later, they are still not finished, and their cost ballooned to R451-billion.

The overspending on Medupi and Kusile, combined with load-shedding because of the delays, have become such a problem that Goldman Sachs described Eskom as the biggest threat to the South African economy.

Eskom CEO Andre de Ruyter has reduced the company’s debt by over R90 billion in less than eighteen months after he took the helm at Eskom — from R496 billion to R401 billion.

Public Enterprises Minister Pravin Gordhan said this significant reduction was achieved by repaying maturing debt and changing the exchange rate.

Part of South Africa’s plan to reach net-zero emissions is carbon taxation.

The first phase of South Africa’s carbon tax has a rate of R120 per ton of carbon dioxide equivalent emissions.

“This rate will increase annually by inflation plus 2 per cent until 2022, and annually by inflation thereafter,” the South African Revenue Service explains on its website.

“Significant industry-specific tax-free emissions allowances ranging from 60 per cent to 95 per cent will result in a modest nett carbon tax rate ranging from R6 to R48 per ton of carbon dioxide equivalent emissions to provide current emitters time to transition their operations to cleaner technologies through investments in energy efficiency, renewables, and other low-carbon measures.”

The second phase of South Africa’s carbon tax will come into effect after the Climate Change Bill is passed in parliament and signed into law by the president.

Reporting with Bloomberg.

Now read: South African electricity prices increase — how much more you will pay