Inside Energy War Room: Mantashe reveals preferred ‘energy mix’ to boost economy

Chris Yelland, an energy analyst, consultant, electrical engineer, public speaker, writer and managing director at EE Business Intelligence (Pty) Ltd has scored a scoop, as they say in newspaper parlance. The energy expert sat down with Minerals & Energy Minister Gwede Mantashe with a view to getting a deeper understanding of what the government is doing to fix Eskom problems. Cleaning up Eskom – which is inefficient, riddled with corruption after years of mismanagement and a significant drain on tax coffers – is widely regarded by investment analysts as one of the necessary steps that must be taken in order to boost economic growth. Yelland spoke to Mantashe about what’s happening inside the Energy War Room, a grouping of the main cabinet ministers responsible for the power industry, emergency and new generation procurements. – Jackie Cameron

Interview with Minerals & Energy Minister Gwede Mantashe

By Chris Yelland*

Anyone who wants to understand the mind and thinking of South Africa’s veteran coal miner, trade unionist, politician, ANC chairperson and Minister of Minerals and Energy, Gwede Mantashe, on energy and electricity matters, should read on…

Chris Yelland

In this interview, Chris Yelland of EE Business Intelligence explores wide-ranging energy and electricity issues with Minister Mantashe, including the War Room, emergency procurements, IRP 2019 and the need for new generation capacity, electricity customers as part of the solution, the role of municipal electricity generation, electricity supply industry and Eskom restructuring, and the just energy transition.

On the War Room…

We have seen a number of hastily announced, reactive, and some would say panic initiatives in response to the electricity crisis at Eskom, such as the President’s Task Team, the Technical Task Team, the Nedlac Task Team, the so-called War Room, and the request for information (RFI) for emergency procurements, instead of proactive, carefully considered, robust, resilient institutionally-formed policy initiatives. How will the DMR&E, as the ministry responsible for energy and electricity policy in South Africa, bring together these initiatives into something that is properly coordinated and directed towards resilient and sustainable energy and electricity policy?

My background is in mining, where one of the first lessons is that one must never panic, because panic kills. So, I don’t understand when you refer to panic initiatives. They are initiatives to deal with the crisis that faces the country. Take for example the RFI. It is a normal practice after you gazette an IRP to issue an RFI to test the market. We received 481 responses from this, and we are looking at them, sifting through them, and looking at what is possible, and what can give us energy in the next 12, 18, 24 months, and so forth. So, it’s not a panic issue, but normal to ask for information.

The others you mention are initiatives intended, if I can speak for the President, to get a hands-on feel for what is happening. I happen to be on the War Room team, and we had our first meeting last week. I found it quite helpful because in the War Room you have a situation where political leaders interact with technical teams, including the Eskom team, where they can explain issues that are being done, step-by-step. The work is task-orientated rather than panicking.

I have never run a business, but what I know is that where you have a duty to supply a service, you have a responsibility to actually look into that service. Customers will interact with the team from time-to-time. The terms of reference allow me to interact with stakeholders depending on the issues. But the War Room itself is a government initiative to ensure that we do give proper service to the people. I would suggest that you organise a series of interviews on this matter, and talk to the Deputy President, okay?

On emergency procurements…

A particular initiative to the emerging electricity supply gap that cannot be met by normal procurement in terms of the integrated resource plan for electricity (IRP), has been the RFI to identify any immediate and short-term emergency options and solutions to fill this gap. Following the RFI, what viable solutions have been identified that can deliver projects that can make a difference in the short term, what are the next steps in the procurement process, and what are the risks?

The RFI is not for emergency procurements. It is to test the market for the implementation of the IRP. So, it is much broader than simply emergency procurement. As I said, we received 481 proposals, and this helps us begin to interact with various players. It’s a learning process, but I sometimes feel that a sense of urgency is not as clear as it should be in the department. We are working on ensuring that the department moves with the necessary speed. Officials in the department are used to working according to rules, where it takes three months to do this, or six months to do that. The situation we are in requires a change of approach. That’s why we are engaging with Nersa and everybody to say: Guys, let’s accelerate processes, because if we don’t, we are going to be plunged into darkness.

My own view is that the RFI has helped us identify a number of possibilities. To me, one of the most urgent, is the offer to convert diesel-driven open-cycle gas turbines (OCGTs) to gas. In itself, this will go a long way to significantly reduce costs and address the unreliability of diesel supply, to provide a more reliable connected capacity. Together with the installation of modular gas engines, this will go far in terms of ensuring security of supply.

On the issue of renewables, let me state that we are going to open Window 5 because Nersa has now received the Section 34 ministerial determinations for concurrence. But we must remove the myth that by opening Window 5 there will be no load shedding in the next few years. And while we have a capacity allocation of 14 400 MW from wind and 6 000 MW from solar PV in the IRP, the actual electricity derived from this is much lower, until we have the gas-to-power and the battery industry established, and can address the baseload issue. In the meantime, in my view, the biggest game-changer is going to be gas. If we can begin to break this mode of politicising energy – which is necessary for economic growth and development – we will make a lot of progress.

On customers being part of the solution…

It is widely recognised that quickest and least-cost new generation capacity and energy will come from customers of electricity after enabling regulations are put in place. The current Schedule 2 of the Energy Regulation Act has been under amendment since early 2018, and has received concurrence by Nersa, but is still not gazetted. Will this now have to be amended further in light of recent announcements by the President and yourself to allow customers to generate for own use? What are the processes and timelines ahead to provide legal and regulatory certainty to enable customers to become part of the solution?

In 2017/18 Minister Mmamaloko Kubayi-Ngubane gave the go-ahead to Sibanye-Stillwater to generate 50 MW of power as the first phase of a proposed 150 MW project. Sibanye never built that capacity, and I always use this as an example of the difference between talk and action. I took time to ask Neal Froneman what the issue was, and I got a long story about not having been given permission to wheel the power from the West Rand to Rustenburg. So, I asked him: To whom did you talk about this? I couldn’t get a clear answer.

Right now, we have a number of applications to Nersa that are being processed, and among them will be the Sibanye proposal, the Gold Field proposal, the Anglo Platinum proposal, and many others. I hope we can get beyond mud-slinging to a commitment by all of us for solutions. When we met with Business Unity South Africa (Busa) and the Black Business Council (BBC), I said to them: Here is the department’s DDG for projects and programmes. We are assigning him to work with you, and if there is a bottleneck in your project, this is the appointed person to work with to resolve matters. Once we reach this stage, I think we will have gone a long way in addressing these problems.

I told Busa and BBC: Listen, the state is not a night-watchman for capital, it is a partner of capital, and until we refine this relationship, we will always run into problems, because you would want to dictate what should happen, instead of sitting together to facilitate issues. My attitude is that we must engage and facilitate developments in the sector. But let me say quite clearly: We do see customers as part of the solution. The brief of government is not the protection of Eskom. It is to ensure that there is security of energy supply to society.

On municipal generation being part of the solution…

The President, and you as Minister of Minerals and Energy, have recently provided strong signals that municipalities will again be allowed to become part of the solution as generators of electricity in South Africa, as well as being enabled to procure energy from IPPs outside the Eskom single-buyer model. Would not the clearest signal of Government and your Department’s intentions in this regard be to withdraw your stated intention to oppose the City of Cape Town’s court application to be allowed generate electricity and procure energy from IPPs? Why is the Minister and Nersa still opposing this, instead of enabling it?  

The City of Cape Town must talk to us instead of going to court. Because when you go to court, you are creating a precedent that can be applied across the board, instead of finding a solution to the particular problem. It is the City of Cape Town that must withdraw the case, come to the table with the signal we have sent, and talk to us to find a solution. But if they go to court, we will have to oppose the case and explain that actually we are ahead of what is being heard in court. We must educate one another, and the Western Cape government, that oppositionist positioning does not help in solving issues.

I met the premier of the Western Cape at the recent Government Legotle, and said to him: The best way is for us to work together, but if you want to spoil everything, you will be resisted at every turn, because you behave like a spoiler, and you regard the ANC government as your enemy. We are not going to surrender the power of the national government because there is mischief driving the issue.

Cape Town, Johannesburg, Bloemfontein and other municipalities used to have their own power stations. So, when we refine the rules and regulations, it’s is not from an empty space. There is precedent. We must tighten it. The solutions will not be developed by the court, the solutions will be developed around the table. At best the court will say: Go and develop all the rules and regulations. The City of Cape Town can go to court, but it’s an academic exercise.

On new generation capacity procurements in line with IRP 2019…

Understanding the time-lines of the regulatory, procurement and construction processes, and working back from the dates in Table 5 of IRP 2019 for new generation capacity to come on stream, it is clear, four months since announcing the IRP, that these dates will not be met. In addition, the EAF targets in IRP 2019 for the existing Eskom coal fleet are proving completely unrealistic, which means the quantum of new generation capacity required is way out. Noting the immense cost to the economy of load shedding resulting from the mismatch of supply and demand, are the current central command and control electricity planning and procurement processes really fit-for-purpose today?

Summary of Table 5 of IRP 2019 showing the new generation capacity required in the years to 2030.

I am an old school Marxist, and I regard energy as a public good. The state has a responsibility to ensure that there is security of energy supply to society. How it secures and procures this is a different matter. But many things are possible.

Let us say a state-owned company, no names mentioned, comes to us and says: Listen, we want to open a coal-fired power station with carbon capture and storage (CCS), and we can do it in the next two years. And they propose to build it with their own money, operate it to recoup their money, and then transfer it to the state – the Build, Operate, Transfer approach. It is a very attractive proposition, although there has been no decision yet in this direction.

Others are coming to us to say that in Mpumalanga they can open gas power stations, or convert old coal stations to gas, using gas from Mozambique. But you can’t say you are going to develop Mpumalanga on the basis of Mozambiquan gas unless to have a proper arrangement with Mozambique. Yes, we could convert those steam turbines to gas. But let’s slow down with the arrogance. Let’s go and talk to the Mozambiquans first to see if we can cooperate.

In the IRP, nuclear and hydro power are presented as alternatives. While the emphasis is on the DRC’s Inga hydro project, we put in nuclear as a failsafe option. The Koeberg nuclear power plant has served South Africa well, and I do not think we should write off the nuclear option yet. If we make energy an ideological matter and politicise the energy needed for economic growth and development, we will be left behind by countries like Egypt that were far behind us.

Countries like Japan, the USA and Australia appear quite serious about CCS, and are making a lot of progress. Some of my colleagues are dismissive of this technology, but at the end of this week I am going to Canada, and then to the USA, to see a practical CCS installation. I can then come back home and say I have seen how it works, these are the reports, and I can ask our technical teams to have a closer look at them.

On electricity supply industry restructuring…

Significant international and local changes are taking place that are disrupting the old Eskom monopoly role in electricity generation, transmission and distribution. Government and your own department are signaling the need for diversity in generation and in the primary energy mix, with increased public and private participation, and even restructuring of DMR&E for better policy, planning, regulation and project implementation capacity. How do you see the future end-state of the electricity supply industry in SA? How do you see the future role of Eskom, and where do you see governance of Eskom sitting?

The vision is simple, and that is to ensure security of supply to South Africa. That’s it. Then you can quibble, and chop-and-change on how you get there. I think my colleague in Public Enterprises has clarified that Eskom must be unbundled. There is no fight over that now, we all agree that there will be generation, transmission and distribution, each with its own board, and an Eskom holding company that covers all of them.

I took time over the last two months to look into a few models for Transmission. I was attracted to the Dutch and the Chinese models, which are both quite similar. The Dutch model emphasises the central role of the transmission grid, which is the marketplace and wheeler of energy from the generator to the consumer. I discovered that the Chinese have totally liberalised generation and distribution, but tightened control over transmission. They generate all over the country, but everything goes through Transmission, which is state-owned. As we move towards opening-up Generation, even beyond Eskom, we must begin to think about the role of Transmission. This is where the state must have a tight grip in order to have its hands on the pulse of our energy supply.

In 2013, we stopped the Independent System and Market Operator (ISMO) Bill, and our argument at the time was: How does one create a transmission entity for procurement and wheeling of electricity when there was a single source of generated electricity, and no market? The situation is changing very fast now. Minister Gordhan has indicated they will break Eskom Generation into sets of power stations that must compete among themselves. Renewables, instead of being allowed to continue piggybacking on Eskom, must stand on their own feet in the market, and compete. And if we have any appetite for opening generation outside of Eskom, they must be also be out there competing. Distribution is diversified already, anyway.

To me, it is not an issue or fundamental question as to where Eskom sits. Theoretically it may be correct for Eskom to be with Energy. But in practice it would be a disaster right now. The Department of Energy (DoE) must be consolidated into a functional department that is solid and can absorb pressure. At this point, we have not reached that stage, but are working towards this. When I came here some nine months ago, of the eight entities under Energy, not even a single one had a CEO, and only one, the National Nuclear Regulator (NNR), a had fully-functioning board. All the others were dysfunctional. So, we have to get governance right first to mitigate both operational and financial risk. We are also arguing that there are too many state-owned entities in Energy. They must be consolidated.

On the just energy transition…

The global energy transition to cleaner, lower-carbon alternatives, seems inevitable. The question is: How can we ensure that this inevitable transition is carefully planned and just towards those who are negatively impacted, so as to ensure that we avoid festering political, social and economic wounds to the body of South Africa that would otherwise remain with us for decades? How can we change the destructive and angry debate from “white renewable energy” and “black coal and nuclear”, to something more constructive and pragmatic, less ideological, deracialised and using less extreme language, in order to create an atmosphere that is more conductive to dialogue and resolution of the core issues?

You see, this question is much bigger than South Africa, because it feeds into a global phenomenon of how this thing is debated. My worry is that weaker states are not given any space to think and engage, but are reduced to conduits for the ideas of powerful states. If Europe says we must close coal now, we are expected to say: Yes Sir. We are not given a chance to explain that we have huge deposits of coal, and can we please look into developing cleaner coal technologies? And then coal becomes a swear word, and anybody who is not seen to be a full convert to renewables is treated like an enemy and is shouted down and labeled.

When I raise the question of energy mix, some call me a coal fundamentalist. I have worked in coal for a long time, and I have no problem with that. But the reality is that the biggest allocation of new generation capacity in the IRP is for renewables. So, when people go hard on me as an enemy of renewables, I tell them they are not talking to policy, and not looking at the figures, because the biggest decline in the IRP is in coal. But people don’t look at that, they just want me to say: Coal is bad, and must be switched off. But my own view is: Let’s have a discussion. That’s why I am looking to CCS to see if it can work here, why I see gas as a game-changer in the interim, and why we need to develop base-load mechanisms for renewables such as battery storage.

Take nuclear. Many people say it is dirty, and we have not resolved the nuclear waste problem anywhere in the world. But I am saying nuclear is one of the safest technologies, and that there has only been one direct nuclear related accident in the world, Chernobyl. So, I don’t understand when nuclear is projected as dirty and inappropriate. What is correct now, may not be correct in 20 years’ time, and vice versa. Scientists must continue with research and development. I follow this research, I love it, and I think we must give researchers and engineers space for this.

So, I subscribe to an energy mix – clean coal, CCS, gas-to-power, hydro, renewables, battery storage and even nuclear, because that also gives us time to study the trends as we move ahead. I am one of the those who think that a balanced approach to the energy transition would help us. The energy transition is not just about jobs and training, but about establishing serious alternative opportunities and economic activities.

  • Chris Yelland is investigative editor at EE Publishers.