Cape Town to source its own power as state-owned monopoly Eskom falters


Cape Town is to source electricity from independent producers, the first South African city to do so and a sign of increased frustration with the government’s inability to reform the blackout-prone state-owned Eskom monopoly.

Geordin Hill-Lewis, the mayor of South Africa’s second-largest city, told the Financial Times that his administration wanted to set an “aggressive” pace as it procures at least 300 megawatts of renewable energy from independent producers in the next 40 months. This is a fraction of the 2,000MW used in the peak winter period.

“We have set quite a hard timeline because these are brand new deals for South Africa,” Hill-Lewis said. “The way to do it is not to tiptoe through it for the next 10 years — it is to be really aggressive. And there is a whole lot of grey areas that will be resolved in being aggressive.”

Rolling blackouts, known as load-shedding, have crippled South Africa’s economy in recent years. Eskom, whose ageing coal plants generates nearly all of South Africa’s power, has said it needs 4,000MW to 6,000MW of additional capacity to shore up supply. But even an “emergency” programme for the utility has faltered — the government is proceeding with only 800MW of an original 2000MW emergency procurement. Gwede Mantashe, the energy minister, opened the door to independent municipal generation in 2020, but many have been deterred by red tape.

Cape Town, which is under the control of the main opposition Democratic Alliance, is seeking to steal a march on the ruling African National Congress as frustration with the slow pace of reform builds. Hill-Lewis has called on President Cyril Ramaphosa to “back Cape Town as we procure our own power”.

South Africa’s energy minister says the government will not stand in Cape Town’s way over power projects, but analysts still believe red tape could block municipal plans © Dwayne Senior/Bloomberg

The Cape Town power projects would relieve pressure on the national grid but are unlikely to be enough to substantially improve supply. “This is the first important step but it is not yet the final crucial step towards reducing load-shedding in Cape Town, because you have to combine it with storage investment,” Hill-Lewis said. “There will be a future procurement on storage as well.”

Mantashe said this week that the government would not stand in Cape Town’s way, but analysts still believe that red tape could block municipal plans. Hill-Lewis has called for clarity from national government. Already, South Africa’s National Treasury has encouraged them to go ahead, Hill-Lewis said. “The language is quite literally, go for it — we need this to happen, we need an example of this working.”

In terms of financing, he said “we have had a deluge of offers” to fund the projects. “I’m fairly confident that financing the procurement is not a problem.”

However, “some of these finance offers require government guarantees, which is obviously another way the national government could trip us up” if it refuses to issue them, Hill-Lewis said.

Some of the $8.5bn pledged at last year’s COP26 climate conference to help Africa’s biggest carbon emitter to end dependence on coal and speed up the construction of decentralised renewable projects could be directed towards funding independent power producers, analysts said.

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Eskom currently supplies less than two-thirds of its maximum available generation capacity to South Africa’s grid. The utility’s coal plants are on average more than 40 years old. Last year was the worst yet for the rolling blackouts in terms of both duration and intensity — records that, based on Eskom’s own system warnings, 2022 is likely to challenge as the coal fleet continues to deteriorate.

“The primary mistake that Cape Town made for the last decade was to think that the end of load-shedding was just around the corner,” Hill-Lewis said. “Unless we start to make our own plan, you are going to get massive [tariff] increases passed on to consumers and less availability of the service, and that is devastating for the economy.

“Everything that you hear about poverty and unemployment in South Africa from politicians is just lip service, when you can’t provide electricity for your economy to grow. If cities are serious about making an impact on unemployment and poverty, you have to sort out electricity.”