Plenty of doubters, but Mantashe remains bullish about 'Eskom 2.0'

SA is forging ahead with a plan to create a new state-owned power company by converting three coal-fired plants to gas-burning generators to ease the energy crisis.

State power utility Eskom generates most electricity and has subjected the country to rolling blackouts since 2008 because its old and poorly maintained facilities can’t keep pace with demand. The proposed new company, dubbed Generation 2, will take over the three plants set for decommissioning, according to mineral resources and energy minister Gwede Mantashe.

“If we repurpose them into gas power stations we will save a lot of life in SA in terms of energy,” Mantashe said in an interview in his office in Pretoria, adding that it was “urgent” to create the company. The ministry plans to invite engineering firms to study the plants and offer advice.

SA has struggled to boost generation. At least five rounds of bids for renewable power projects haven’t added sufficient capacity, while an emergency plan to add electricity is mired in legal wrangles. A new state electricity company is another attempt to find a solution to the crisis that has hampered economic growth.

Mantashe’s plans envisage the new utility taking over the ageing Hendrina, Grootvlei and Camden power plants, which have a combined generation capacity of 4,800MW.

Still, procuring gas for the converted plants may prove to be a challenge. Russia’s war on Ukraine has countries across the world scrambling for the fuel, with Europe considering rationing. US natural gas futures, which have more than doubled this year, rose above $9 (about R153.55) per million British thermal units in London on Wednesday.

“This idea is never going to happen,” said Peter Attard Montalto, head of capital markets research at Intellidex.

“The plants in question are tied into advanced funding plans with the World Bank and other funders, who would pull out under this new proposed structure. There is no agreement in government on this at all and a new state-owned entity would not get funding from the National Treasury, nor from the market.”

Opposition parties are also sceptical, given the government's poor track record in overseeing state companies.

The idea of setting up a new power utility “proves beyond any doubt that President Cyril Ramaphosa’s government is completely out of touch and clueless on what needs to be done to address the electricity crisis”, said Ghaleb Cachalia, the DA’s shadow minister for public enterprises.

Almost a third of Eskom’s plants will reach end-of-life from 2023. To replace the plants and add capacity needed to meet rising demand will take years and cost more than R1-trillion, according to government estimates. The utility is already struggling to service its R396bn debt.

Mantashe expects money for the new power generation company — labelled Eskom 2.0 by the local media — to come from the state, the market and investors.

“Money follows ideas,” he said. “If you come up with a sustainable proposal, and it makes sense, investors will come.”

If the proposal is approved, the government will invite engineering, procurement and construction companies to participate. The cost of converting the plants would be determined at that point, said Maduna Ngubeni, the department’s head of projects.

SA also plans to build a new 2,500MW nuclear plant, Mantashe said. The modular plant will be constructed at Thyspunt in the Eastern Cape.

“Nuclear is another very important baseload commodity. It is very efficient and reliable,” Mantashe said.

Generation 2 would fall under his department, unlike Eskom, which is managed by the department of public enterprises.

Eskom can reliably produce about 26,000MW, against a winter peak of 32,000MW.

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