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From a coal-to-gas conversion to a microgrid factory, Eskom builds Komati’s just energy transaction case

Photograph of the Komati power station

A file photo of the Komati power station, which has generated electricity since 1961

3rd August 2021

By: Terence Creamer

Creamer Media Editor

     

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State-owned electricity utility Eskom is hoping to transform the workshops at the Komati power station – identified as the flagship site for the piloting of a broader ‘just energy transition’ programme that couples decarbonisation with social upliftment – into a factory capable of manufacturing and assembling a containerised microgrid solution.

The Mpumalanga power station has generated electricity since 1961 and its last operational unit is scheduled to be shut in 2022, signalling the start of a coal decommissioning programme that will result in at least 10 500 MW of coal capacity being decommissioned by 2030.

The pace of decommissioning could be accelerated, however, as part of a so-called Just Energy Transaction that Eskom and government are seeking to finalise ahead of the upcoming COP26 climate negotiations, which will take place in Glasgow, Scotland, in early November.

The financially troubled utility has indicated that it will be seeking to secure about $10-billion to support its accelerated transition away from coal and to protect workers, communities and businesses whose livelihoods are threatened by the decommissioning programme.

Under the proposed framework, a multi-lender syndicate of international funders will inject tranches of concessional finance (on a pay-for-performance basis) into a multiyear facility that supports decarbonisation and upliftment projects, beginning with Komati, at the station sites and in surrounding areas.

The facility, which has already been canvassed with several development finance institutions and commercial banks, will be aligned to developed-country pledges to support carbon-dioxide (CO2) mitigation projects in developing countries.

As part of the Paris Agreement of 2015, rich countries pledged to mobilise at least $100-billion a year in climate finance for poorer countries between 2020 and 2025, and South Africa is proposing that the amount be increased to $750-billion a year by 2030.

In Glasgow, South Africa will market itself as a preferred destination for such mitigation investment, owing to the fact that the cost of abating CO2 in South Africa is currently estimated at only $7/t, compared with $120/t in Europe.

The country will also link any accelerated decarbonisation by Eskom with its policy that the transition to a low-emissions economy and society be a “just transition”.

Eskom, however, also needs to convince potential lenders that it has a credible pipeline of decarbonisation and upliftment projects to fund, and CEO Andre de Ruyter reports that several “repowering and repurposing” opportunities have already been identified.

The proposed project at Komati to repurpose the power station’s workshops to manufacture microgrid solutions will result in systems that can be deployed in far-flung regions nationally where grid-tied electricity is proving to be prohibitively expensive to supply the last 13% of South African households that still do not have electricity.

The containerised solution could also find markets in the rest of Africa, where microgrids are viewed as increasingly important to meeting Sustainable Development Goal 7, which aims to ensure universal sustainable electrification by 2030.

Eskom has already piloted a microgrid system in a rural Free State town near Ficksburg, incorporating solar photovoltaic (PV) generation, battery storage and intelligent energy management. These technologies have been integrated into a standard low-voltage reticulation network, where electricity is delivered to consumers through conductor wires in a local distribution network.

Besides the microgrid factory, Komati’s nonenergy opportunities range from an agrivoltaics opportunity that combines energy and agriculture, as well as redirecting potable water from the site for other agriculture ventures.

“Every one of the prospective lenders to this syndicate has emphasised that it is crucial that the transition will be just and that a precondition of any concessional finance will be that the transition must demonstrate distinct socioeconomic benefits,” De Ruyter reports.

REPOWERING PROJECTS?

However, Eskom is also aiming to use the grid infrastructure that remains intact at Komati – as well as Camden, Grootvlei and Hendrina, which are also scheduled for decommissioning in the near-term – to support Eskom and non-Eskom generation investment.

Eskom itself, which is being separated into three units of generation, transmission and distribution, is interested in integrating more wind, solar PV and gas into its generation business.

It has identified a pipeline of 8 000 MW of potential projects, including a potential 1 000 MW gas project and a 244 MWh battery energy storage project for Komati itself.

De Ruyter stresses that Eskom does not intend crowding out independent power producers and that it envisages adding only moderate additional capacity relative to the total new capacity being added across the country.

The utility has also been approached by some large consumers that would like to use the grid infrastructure becoming available as coal is decommissioned to take advantage of a proposed reform that will allow them to invest in 100 MW facilities without requiring a licence.

As Eskom transitions away from coal, it estimates that some 300 000 net jobs could be created in the construction, operation and maintenance of new Eskom and non-Eskom wind and solar PV plants.

This figure assumes that South Africa will attract the manufacturing investment needed to produce wind and solar components, but De Ruyter stresses that security of demand will be key to securing such investment.

He also stresses that the proposed concessional-funding framework will be flexible enough to allow the lender group “to opt in or out” of energy projects, based on the technology being deployed. This is seen as particularly important in light of a growing reticence among development finance institutions to support gas projects.  

The lenders will be given further governance comfort, he argues, by the fact that funding will be advanced as progress payments at different stages of the project, rather than as a lump sum.

Eskom has received positive feedback from potential counterparties in the US and Europe, with the World Bank describing the Eskom Just Energy Transaction proposal as the most developed that it has seen to date.

“It’s now important that we drive this opportunity to execution and potential conclusion by COP26,” De Ruyter avers, noting that several other countries are also preparing their decarbonisation funding proposals.

Nevertheless, he is optimistic that the work and consultations already completed at Komati position Eskom well to advance South Africa’s case at the Glasgow talks.

“All systems are go for this project,” he enthuses.

 

Edited by Creamer Media Reporter

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