Eskom’s Big Bet on Gas Power: A Balancing Act Amid Controversies

South Africa’s primary electricity supplier, Eskom, is taking strides towards transforming the nation’s energy landscape. Currently, it is in talks with the National Treasury to construct a 3,000MW gas-fired power station in Richards Bay, KwaZulu-Natal. The catch? Eskom is determined to pull this off without adding to its borrowing.

The Green Light amid Opposition

Recently, the National Energy Regulator of SA (Nersa) authorized the utility to proceed with the construction of this new power station. However, this green light has not come without controversy. A cohort of environmental groups, given special permission to appeal against a high court decision, is ardently opposing the project.

Despite this opposition, Eskom remains undeterred. It optimistically envisions the power station up and running, supplying electricity to the national grid by the end of 2028.

To put this into perspective: The projected power generation would be equivalent to averting three stages of load shedding.

A Look Back

The inception of this ambitious project traces back to January last year when Eskom proposed the idea of a combined-cycle gas power plant to the Minister of Mineral Resources and Energy, Gwede Mantashe.

  • Key Points of the Proposal Process:
    • Minister Mantashe agreed with the proposal and forwarded the request to Nersa in July.
    • Nersa’s approval is legally essential for establishing any new generating capacity.
    • Subsequent to the proposal’s publication, several environmental groups lodged objections.
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The Energy Intensive Users Group highlighted the inherent value of gas-fired power generation in managing a power system. As it can be activated or deactivated on short notice, it offers a versatile solution to supplement the intermittent power generated by solar and wind sources.

Counterarguments and Challenges

Meridian Economics, however, argued against the project, claiming that gas-fired power generation does not make economic sense. Furthermore, the Minerals Council SA voiced concerns about the cost, especially due to the potential price fluctuations caused by the volatility of the exchange rate.

Nersa initially denied the request in December due to procedural issues. Surprisingly, it revisited the issue and agreed to the project in February, leading to a need to revoke its initial decision.

Financial Hurdles

With the Treasury’s stringent condition barring Eskom from borrowing more for new power stations as part of its R254 billion debt relief, funding the project becomes a pressing concern.

Eskom announced last week that the project would necessitate significant financial resources over the next three years. In light of this, they’re exploring alternative approaches with the Treasury, hinting at a public-private partnership, an independent power producer model, or a combination of these.

The Road Ahead

Eskom is eager to outline its role and develop a financing model and comprehensive business plan before pitching to the market. The company projects that it will take approximately two years to design the project and an additional three years for implementation.

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Legal Obstacles

However, legal roadblocks linger. The South Durban Community Environmental Alliance (SDCEA) and GroundWork have taken their environmental objections to the court. Last year, the Pretoria High Court dismissed their application to halt the project and denied them leave to appeal.

However, the Supreme Court of Appeal recently agreed to hear their appeal.

Tanica Naidoo, Project Officer at the SDCEA, contended that although load shedding was at an all-time high, gas generation wasn’t the solution. She expressed, “Communities in and around Richards Bay will be greatly affected if another non-renewable plant is approved. It’s time for the right decisions to be made to ensure the success of our natural environment for generations to come.”

Eskom’s determination to build this gas power station is, therefore, a delicate balancing act. Aiming to ensure South Africa’s energy security and efficiency while simultaneously battling controversy and opposition, the stakes are high. The outcome of these negotiations and legal battles will, without a doubt, shape the country’s energy landscape in the years to come.

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