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Planning commission outlines case for Eskom split in new energy document

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Planning commission outlines case for Eskom split in new energy document

Photo by Duane Daws

23rd February 2018

By: Terence Creamer
Creamer Media Editor


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The National Planning Commission (NPC) has released a new discussion document on the energy sector, which reinforces the National Development Plan’s (NDP’s) “explicit” requirement for the system operations, planning, power procurement, purchasing and contracting functions within Eskom to be separated into an independent institution.

The document was published this week ahead of proposed public consultations on energy sector reform, which will be held in Gauteng, the Western Cape and KwaZulu-Natal during March and April.


Commissioner Jarrad Wright, who has a strong focus on energy issues at the NPC, tells Engineering News Online that the paper was one of a series of documents that the commission will release as part of a process of reinforcing and/or refreshing the NDP, which was first published in 2012.

Wright also stresses that the document is not meant to be prescriptive, or to overhaul the NDP itself. Instead, it raises points for discussion and proposals, which is aligned to the NPC role of promoting, advancing and monitoring the implementation of the plan. Whether and how the issues raised are taken up will depend on the outcome of the public-engagement process.


However, it does offer the second NPC, which was appointed in September 2015, the opportunity to reflect on some of the major changes that have taken place in particular sectors since 2012. In the energy sector these relate primarily to South Africa’s climate commitments, following the Paris Agreement in 2015, and to “unprecedented” changes in the relative costs of generation technologies, notably solar photovoltaic and onshore wind.

However, the document also comes amid growing concern about the financial position of Eskom, which recently required an emergency R5-billion loan from the Public Investment Corporation, together with support from commercial banks, to stave off a default on its debt obligations.

Electricity sector practitioners, together with organised business, are also raising serious questions about the suitability and sustainability of the utility’s vertically integrated, near monopoly, structure, which incorporates generation, transmission, system planning and distribution.

Noting the current precarious state of Eskom and the uncertainty in the domestic electricity sector, the NPC paper also called for the “vision and end-state” for the South African electricity sector, which took account of the technological disruption under way, to be finalised as a priority.

Such certainty was required, the paper argued, to create long-term certainty that would reduce electricity prices (relative to the status quo), further promote investment in various parts of the electricity supply chain, drive sustainable economic growth, meet the needs of the poor and move South Africa towards a low-carbon economy.

“A key reform driver which deserves additional explanation concerns the fair treatment of planning, grid connection and operation of independent power producers (IPPs) relative to Eskom-owned generation into the future,” the document asserts.

This had been “magnified” by the refusal, in contradiction of policy, of Eskom to sign power purchase agreements (PPAs) for renewable-energy projects procured by the Department of Energy in 2015. Only this year, did the utility receive a directive from government to sign the PPAs.

“This demonstration of monopolistic behaviour has been of global concern and a primary driver for electricity industry restructuring since the late 1980s which has predominantly split the generation function from transmission planning, grid connection and operations functions,” the paper highlights.

While stressing that consultation, as well as a detailed impact assessment, was required to provide an outline of the end-state option, the paper presented four “discussion points” for industry and regulatory reform, including:
• Ensuring that the regulator is sufficiently funded and capacitated to assess, monitor and appropriately manage any possible electricity regulatory reform process independently.
• An unbundling of Eskom’s generation assets into a separate State-owned entity, or set of State-owned entities, or sold to a number of private investors competing with IPPs in the medium-term with the up-front provision of ensuring necessary developmental mandates are fulfilled. The competitive environment should also cater for new ownership and generation models, including embedded generation, such as rooftop solar plants.
• Establish the transmission system operator as a separate, State-owned, but regulated, business with its own governance structure.
• Sustaining Eskom and municipal distribution as regulated entities, but with interventions to improve maintenance, planning and investment.

The paper also highlighted inadequacies in electricity planning and governance, noting that South Africa was arguably procuring new generation capacity on the basis of “outdated information”, owing to a failure of government to regularly update the Integrated Resource Plan (IRP).

“The periodic and consistent updating, publishing and promulgation of key strategic national energy plans as part of the strategic energy planning framework should be prioritised with a particular focus on transparency, quality and completeness,” the documents states.

In addition it suggests that a rigorous peer review process should be run concurrently with the publication of all IRP input data, technical modeling and scenario outcomes.

  • The National Planning Commission Energy Paper
    3.35 MB
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