Episode Transcript
Speaker 0 00:00:00 In South Africa, broken generating units, low diesel supplies and insufficient pump storage reserves drove an already struggling Escom into stage six load shedding. In September, I reached out to Cella Klu, who is the chief engineering officer at PWD experts, as well as being the former managing director at Ty power Johannesburg and a previous president of the AUU for his solo commentary on the current energy predicament and south Africa's president Ram's plan to address the challenges.
Speaker 2 00:00:47 Welcome to the ESI Africa podcast brought to you by your trusted power and energy multimedia journal. You can download this and all other episodes on ESI, hyphen africa.com/podcasts. Let's get into today's conversation.
Speaker 0 00:01:07 Okay, so Ella, thank you so much for spending some time with me today. Are we talking about, uh, the president's energy plan? Let's start off with a little bit of background in terms of how this came about
Speaker 3 00:01:21 Colette. I think, firstly, let me thank you for the opportunity to invite me to come and have a chat with you. I think, uh, you know, it's much appreciated, especially to air our views as well. I think from the industry professionals
Speaker 0 00:01:33 You're most welcome.
Speaker 3 00:01:35 No, thanks. So maybe just to give a bit of context, uh, at least on my side, I'll just briefly, you know, spend half a minute, uh, just recapping on the energy president's plan or, or the president energy plan as they call it. Um, so that there's context that at least in what we're gonna be discussing. So firstly, uh, I think the president pointed out that at that particular time, there was a shortage of about 6,000 megawatts, which is the gap that we needed to plug in so that we can be able to vet the load shedding that we are facing, you know, uh, a couple of weeks ago. But I think we also know that although we needed 6,000 megawatts, there was about 18,000 megawatts that was locked up, you know, in breakdowns it means there's a potentially about 18,000 megawatts. If we're to resolve the breakdowns that we can be able to actually come up with to try and resolve the, you know, the, and this 18,000 megas is basically a dispatchable, uh, you know, sort of like, you know, energy because it's from, you know, from the baseload.
Speaker 3 00:02:35 So I think that's, that came across, you know, the president's energy plan. And the second point I think that he mentioned was obviously, uh, I think some of the intros that have been made, uh, around, uh, making sure that you bring in the renewables either from the wind or solar. I think as part of window four, there was 2000 megawatt that synchronized rate to the grid. And I think window five, uh, they were expecting about 2,600 megawatts, uh, that was gonna be coming in online, I think, around early. So, which was obviously again, I think good. Um, and I think the president clearly stated that there's a need to fix and improve the performance in terms of Escom looking at the current existing fleet, uh, you know, from past station's point of view. And I think it's a good point because then it'll go a long way in terms of making sure that we unlock some parts of like 18,000 megawatts as a baseload, but also it became clear that, uh, there were some of the red tapes other from the SCM point of view to buy the maintenance spares.
Speaker 3 00:03:34 And I think the president also, you know, NCE on that, that there will be cutting the red tapes in that pipeline environment. Uh, also recruitment of the skill personnel, uh, including I bring back some of the senior managers and engineers cetera. And then lastly, I think he also, you know, came across powerfully around importing power from the, you know, the Southern African PowerPoint, uh, you know, so, so I think that's agist really of the plan as I, as I see it, you know, just in summer, but again, it also give context in terms of what you're talking about. So my input and, and, you know, I would like to focus on the three, I think, major areas that I think, uh, of importance. And, and I must say that my argument is that if you look at, uh, you know, load shading load shedding, it's more of a symptom, uh, to certain root causes.
Speaker 3 00:04:26 And I think the root cause is obviously around firstly, the notion that renewable will address load shading. So that's the one point that I would like to deal with. The second one is the impact in terms of the Escom debt, which I think it's important that we reflect on this issue and see, uh, how it contributes towards, you know, load journey. And then thirdly, which is somehow covered. I think within the, uh, you know, the president's energy plan is the shortage of skills or the skills gap. Uh, but also I think the sufficient planning, you know, especially, you know, from the board and executive level that I would like to cover. So those are the three main areas that I would like to really focus on as part of our talk. So I'll then start with, uh, you know, the renewable energy, uh, why is it seen as a solution or probably not as a solution to, to the launch and that qualified front that, uh, I think in terms of bringing new renewables, I think it's, it's very critical.
Speaker 3 00:05:27 It's important as part of the energy mix, but this is the solution to the Che. That's the point I like to qualify? I think we know that, uh, you know, so other solar wind, uh, cannot operate to the 24 7 basis cause it's not a base load, so it's totally dependent on the sunlight or the sunshine. And, and, and by the way, any form of cover other be cloud cover, or it can be energy 10 or rain or dust will drop the production. And, you know, and, and based on the studies, uh, production can drop from 80% to probably about less than 30%. So, so I think that's a point of departure, uh, and again, things that in relation to trying to address the luxury and from the baseline point of view. So solar wind in South Africa also only provide, I think on a good day, we all know this about age of 90% production of its installed capacity.
Speaker 3 00:06:20 And this is only for the maximum of four to six hours. So it means that the rest of the time it'll be below the 50% mark, uh, and in some cases close up to 80%. So this is over a period of 12 hours. Cause this's where you've got basically the sunshine sunshine, which is obviously from 7:00 AM to about 6:00 PM or so. So it means the capacity factor of over 12 hours is only 6%. So I'll give an example, just, you know, uh, you know, for us to do on the same page. So if you install the a hundred megawatts, so we can basically expect about 60 megawatts coming out of that and the, you know, on average in terms of the focus supply. But if you look at over 24 hour period, this will then reduce drop 30 MTS. So, so my argument then is that, uh, although you can actually put solar on the ground and actually push solar without any storage, it'll not resolve the load shed and then is good as part of the energy mix, but not as a solution to launch trading at end of the day.
Speaker 3 00:07:22 So, but let me, you know, also say that where solar can actually be able to, to be used, uh, I think optimal. So if you look at the renewables, they will normally work very well in environments that can adapt to quick changes, I think in the past supply. Cause we know that so meaning that you should be able to, when there's no balance in terms of supply and demand, you should be able to quickly respond to that other top, the load and so forth and so forth. So therefore I think that in the residual homes, if there's a sunlight is not good enough there in the upper area, so there can be quick behavioral or change to compensate for that. So I think sauna, or should, you know, the distribution of sauna or the, the rollout or the penetration should then be encouraged and probably incentivized in those particular areas.
Speaker 3 00:08:10 Because if you know that there's no sun, you can quickly within your home, be able to then start shifting the load or change the behavior and stopped, you know, doing the washing and doing some other time and so forth and so forth. But if you look at some types of, you know, industries like, you know, you know, industries and, and businesses that can also be, you know, for renewables, you know, very well such as the tourism agriculture and so forth. So that's well and good. However, if you look at heavy industries of which they actually drive the economy of the country, so it'll be very difficult for those to rely on national solar. I'm talking about mining here, I'm talking about manufacturing, you know, and so forth. So, so the application is very important, uh, and therefore it has to be contextualized in that sense, not to be seen as just a solution to the load shedding, uh, you know, blanketly because it'll not resolve the load shedding at the end of the day.
Speaker 3 00:09:04 So, uh, so we need to be careful then of driving away industrial customers to either gas or renewables and away, you know, from <inaudible> like the point we discussed earlier on, you know, when, you know, just before we started with this discussion. So otherwise Escom be stuck with customers that are very difficult. I'm talking to residential customers, Royal customers, we prepared customers. And we know that in that environment, there's obviously a culture of, so once you've displaced, you know, these big industrial customers, because they can gel it on their own, they may just use Escom as a standby whenever, when there's no sunshine and therefore they have to need Escom. So you're not actually trying to resolve the problem, uh, you know, the root cause you just resolving the symptom, which will obviously then come back at the end of the day and actually buy to when as comp becomes a world company, there's less investment, obviously then there's gonna be an impact in terms of revenue and so forth.
Speaker 3 00:10:02 So rather in put a strategy to incentivize that self base, to move from renewables and maybe even go off the grid. And, and that, I think that's how this should be looked at. And I'm saying municipalities can also be compensated for this in other ways, just to make sure that there's that encouragement. So as I conclude on my position really around solar as a solution or not a solution to the, so I like to leave you with this thought, for instance, if you look at Germany, I think we know about the Ukraine issue Germany currently has about <inaudible> 42 gigawatts renewables installed capacity. So I mean, that's, we know that they've been leading in this <inaudible> and then if you look at Germany, uh, non renewable installed capacity about 79 gigawatts. So now what does this mean? That means your Germany is the 10 management demand, I think in 2001 or so 2021.
Speaker 3 00:10:57 So yeah, 2021 was about 70 kilowatt. Therefore it means German has about, I think over 200% reserve margin from your renewables. So it means they've got an excess of 151 kilowatts yet, if you look at that threat that has come in with a Russia Ukraine war in terms of shutting down the gas pipe in German. So the German government panicked and then obviously to try and secure baseload power. So we have to ask ourselves why, if they've got 200% reserve of renewables, why can't they just relax and say, the renewables would plug in that gap and then not have a problem? It's because we all know that gas and, and new is a, is a baseload supply. So that's what you need. So therefore, my argument is that, uh, if you look at renewables and renewables alone, uh, it'll actually not be able to resolve the issue that we have and because it's not predictable, we all, we know that it is also not respectable.
Speaker 3 00:11:59 So therefore it can't keep the entire system of the margin supply pallet. So I think that's a point. So although the president is pronounced on this, I think we need to be cautious as to how this is obviously I think addressed and how it's applied at the end of the day, so that it does not become a situation where you now have a base load supply as a backup to renewables because of the days where obviously there's not gonna be any, uh, sunshine, you know, or probably wind blowing and software. Cause then it becomes very cost at the end of the day to be doing that. You can actually now be able to back up, uh, renewables at whatever 50 cents per kilo hour with obviously a baseload coming from the renewables, if you're in a put that way at probably twice the price of that.
Speaker 3 00:12:46 So we need to just be careful around that. So I think that's my conclusion submission around the renewables. And obviously I don't think that there will be part of the solution to launching, but there should be part of the mix in terms of the R P I think going forward as it has been defined. Now, I would like to move on the second point, if you allow me to, which obviously looks at the, and again, my argument is saying, although there was no pronouncement, I think that was deferred by the president to later on in October, uh, to the minister of finance. I think it's very critical to confront the Escom debt, uh, issue so that, uh, we can then be able to unlock the funds and those funds can then go into other refurbishment or even the maintenance when it comes to the current fleet where we've got 18,000 megawatts that is obviously locked to breakdown.
Speaker 3 00:13:38 So I think that's where the context comes in when it comes to resolving the, of the debt in my view. And again, I think this is a true root cause of the low, and it's nearly a symptom to that. So therefore maybe just for context to that, we know that Escom build about two power stations, the met and, and, and coil. And there were a lot of issues overpriced. There was mismanagement that came about as we know it now over budget and, and obviously the quality issues and so forth. Um, and I think through the process obviously created close to about 500 billion debt, uh, you know, that was created. Um, and, and obviously we actually see now with the Y P D processes that have come forth, there's been massive tariff increases, I think, close to about 400% increase in terms of tariffs. So we are actually paying the price as we speak.
Speaker 3 00:14:33 So, so the way I look at it, then this debt has actually dropped Escom as we all know to chunk status. And also the country has been down credited as well to junk amongst others is cause of the Escom risk Escom is not going concern without government backing as it stands now. So this is our current situation. And again, I'm just giving a context to this, uh, so that we understand how, um, you know, the <inaudible> debt contribute toward the, so the permit of course, then for this was absolutely no coordination in my view or checks and balances between the board we spent, I think around that. And then obviously now is resulted to that for 20 billion. So we've seen the cash flow constraints. We've seen the budget cards, we've seen the maintenance and less maintenance, probably in some cases, no maintenance at all. So, and again, if these are the issues and the presence that is saying, let's focus on the, uh, you know, the fleet that is there and be able to do maintenance, how can you then do, where are you gonna get the money from?
Speaker 3 00:15:35 Because if you look at both from government point of view and you look at, you know, Escom balance sheet, they obviously cannot be able to do anything, uh, to be able to then release some of the funds, unless there's another bailout of some sort that will then go towards that maintenance or to unlock the 6,000 mega at least as a start. So, so therefore these issues around cash flow, budget cards, you know, maintenance, defendants, this list to an reliable plant and, and breakdowns, and, and obviously without the budget or the money, and therefore at the end of the day, you know, you're not gonna be able to resolve it. And therefore the breakdowns and unplanned outages, uh, will obviously continue and then will also lead to use of these generators as we know, in terms of picking and so forth. I mean, what I've picked up is that, uh, from literature is that they're using around 10 liters per second.
Speaker 3 00:16:26 So, I mean, that's actually a huge, you know, amount of money that is being used just to compensate for this. And again, that puts even more strain and bed, uh, in terms of the already constrained cash flow, I think requirements and budget and so forth. So therefore, uh, this obviously lead to certain losses and government is to then bailout and then also leads to the increasing tariff as we've seen it happening. Uh, if you look at what is kindly projected, the percent, you know, tariff increases. So it's really, really unbearable at the day. So what I'm saying is that to address the load strategy, we have to resolve the root cause. And I think that this is part of the biggest root cause that needs to be addressed so that we are able to then actually deal with the load. So government is currently planning, as we know, I think I've, you know, from the media reports to take the data away from Escom and I think it's about what 200 billion, then they wanna move it to the government balance sheet, but what does this mean really actually make any impact?
Speaker 3 00:17:28 And my view is that it won't cause it's just a zero sum gain where you just moving, you know, 200 billion away from Escom, but into the government's balance sheet. But at the end of the day, the government is actually backing Escom for any borrowing that are there. And also if government is borrowing, is borrowing the much better rate as you compared to, to Escom. So does it mean then, you know, if, you know, Escom can now borrow more and the answer is no, then we know that, and as I've said, government borrows, the better rates than Escom. So you basically the reshuffling, you know, the deck of a sinking ship, the way I look at it, and if this meter reports are actually true, uh, and again, at the end of the day, it doesn't matter where it sees, it's still transferred back into the taxpayers at the end of the day where they need to obviously pay for this.
Speaker 3 00:18:17 So, so that's basically the high level analysis around the debt and obviously, uh, as very important element and low cause that needs to be addressed and then moving the data around, it's obviously not a solution obviously has its S in terms of value, but I don't think it's, it's a solution. So as I then conclude again on the debt issue, which I think is one of the biggest, you know, elephant in the room that needs to be confronted as a root cause for not trading, is that I believe that I think they are solutions and some of them will discussed them at different for, uh, for instance, uh, to try and resolve this. And we've been also talking to government, some of the, you know, the cases, and we hope that some of these discussions will be taken forward as I think at the right platform.
Speaker 3 00:19:03 But indeed it's just the biggest, I think, element and the root cause that this will resolved for us to be able to deal with it. And then the, the last element, uh, that we collect that I think, you know, needs to be addressed. I think the president touched on this around, you know, bringing in skills and, and so forth in terms of the skills gap and the shortages. However, I just want to amplify it and say, you know, maybe we need to have a long term view of this and I'll justify why I think when you, if you look at SCOR is a company that needs its people to think, you know, in, in 40 to 58 cycles, of course, um, last for his period and is paid off during this public period. And we expect to operate the team during this public period. So I'll make an example.
Speaker 3 00:19:52 If you look at your, uh, your, your, your smartphone type of businesses, the cycle, there is about two to three years. So therefore you can have that site, you know, in terms of the view or the thinking around that, but equally, so with Escom is 40 to 50 years. So therefore becomes important. Then Escom asset have at 50 year life cycle and all resources around the life cycle of the ES compliant should ideally be then for that life cycle. So, although it's it's ideal, but I think you should strive towards that, where there's that Livity, and obviously there's a skill base, I think, around that to look into, uh, making sure that there's proper succession that happens and obviously transfer of knowledge so that the plant knowledge and the DNA can then be understood for that pill. So the skills resourcing need to be then incentivized to stay and not to go as their skills are directly related to the core business of Escom.
Speaker 3 00:20:47 But I must say that instead of that, I think I've seen in the last five years or so, so Escom is actually more threatening their people clearly stating that they're overstaffed and they need to get rid of the people and so forth. I think it's been out there in the mid, so where I'm sitting, I think the more is that it's all time low and, and that obviously contributes towards, uh, making sure that, you know, the performance issues and the honesty around employees actually <inaudible>. So, so there currently they've been incentivized to leave. That's what has been happening, I think, you know, give or take and the aging plant that actually needs these people now more than ever are left with an experience now. So I think that's really the context. So today with this image, the plan say crisis Escom is now trying to bring back the skills, uh, you know, in a hard that is maybe paid to chase away in some of the cases.
Speaker 3 00:21:39 And, and, and I think it's very important to make this note, so Escom is a monopoly, so it needs to create its own skills that it needs, cause you're not gonna go down the road and actually get it <laugh>. So, so therefore it's important that there should be a strong retention strategy, I think around that, so that it, it deals with the issue of skills, not in the manner, but in a long term strategy, so that, uh, it's, it's more sustainable. And it actually talks to the well understanding I think, of the path. So, so that becomes important. So now, if you look at your engineers, your plant managers, you know, your, your, your generation staff and so forth, I think that that has to be the plan from the long term point of view and does not have a niche ion, but of a long term view, I think around it now I'll turn into management and probably the broad corporation was, it's also important that there's that understanding, I think, at that part level.
Speaker 3 00:22:39 So, so there's, there's been a device I'm also from Bascom, you know, I mean, product Ofcom from training and then, you know, waking within their complication until say, whatever 2002 from 1994, think somewhere there. So, but there's been this unset <inaudible>, uh, that has been there, I think over time. I think firstly, I think maybe because of how Escom has run. So it was basically not to allow people into the engine room of Escom make sure that it's technical, you get things done. Uh, but again, there was no need for government to go to the engine room because of its performance. So I think there's a first thing, but also if you look at how things were operating, so the chairman and the CEO Ofcom always came from within Escom with the minimum of 25 to 85 years experience other generation transformation or even distribution, or the combination of the tool.
Speaker 3 00:23:32 So I've been asking myself why. So I think it's because during that 30 year 10, they got to know all the managers, at least not all, but at least how, you know, the system operated understood the skill sets that were there and who will fit best, where, you know, where, and then the strengths as well, the weaknesses of the organization, cause you actually within the system. So for me, this is priceless and, and its very crucial to the running of, you know, of a proper engineer incumbent I'll make an example with myself. I mean, I've been the CEO of city power, but I actually grew through the ranks, you know, uh, I actually spend about, uh, 10 years or so before I became the CEO of uh, the CEO of city power as an example. But then that helps you with the understanding of the business, the people, et cetera, and the quick turnaround as when you start implementing certain strategies around, you know, management and, and, and the turnaround within the organization.
Speaker 3 00:24:31 So, but let's now look at what has happened. How many times has the CEOs been sourced outside and actually changed in the last 10 years? So if you look at it, there's been about what five outside CEOs in eight years, uh, the past eight years versus three internal CEO over the 22 period, about 1990 to 2012. And I think I'll argue that those were the <inaudible> past years. So, and again, I think the other point I like to me, uh, also I think the chairman of Escom was almost always the previous CEO of the company. I think this ensures some level of continuity and retention, but also the knowledge and the industry, I think respects, I think around that. So all I'm saying is from the succession planning point of view, I think it's a strategy that we need to start rethinking, see whether it works or not, but be able to create a long term view.
Speaker 3 00:25:26 And this is informed by the nature of the business, as I said, when I, I started, so if you are running a smartphone industry manufacturing and so forth, um, uh, there's a 2, 2, 3 aside, but SCOR is a 40 to 50 years. So therefore we need to align on strategy, I think around that. So I'm saying the issue of skills, the issue of succession planning has to be, you know, implemented as such aligned to, uh, the fleet step and the nature of the business that we're actually trying to, you know, to manage. And that's basically what I'm saying. And I think some of the points that I would like to put across there, it's obviously, maybe, uh, from the board perspective, you know, uh, so in terms of, you know, ations have been quite for probably, uh, look at making sure that, uh, the broad composition, because Escom is a bono and, uh, and the, and the seeds maybe should then be considered over given to some of the representatives of Escom large power users or groupings.
Speaker 3 00:26:24 Uh, it can from the mining sector and, you know, agriculture ity must be represented. So this farmer must been case with within law. So there must be those seats that are allocated. Cause then those people, they understanding that they they're respective sort of like businesses are driving the economy of the campus. So therefore they want Escom to be able to succeed. And obviously there will be governments, I think, around that in terms of those seats, but the composition, uh, I think has to be thought through as well and be in case within laws somehow. So that there's that, but also there's ation around Escom being the key factor in terms of driving the corner. So, so I think that's important, but also it might minimize the risk of capture and <inaudible> insurance, et cetera, because there's a common goal around driving the success. I think of Escom and therefore we can then say, Escom can probably return to its profitability and it can be appeal of the economy and, and therefore making sure that there's investment of in coming to the country, but without really Escom, I don't think, you know, we'll be able to drive the of this country cause therefore there's gonna be no development that obviously then come through.
Speaker 3 00:27:32 And again, we need that particular baseload, I think, from Escom. So as I conclude, I, I, I think it's, it's important that the renewable energy drive is driven with a context of energy mix in line with the RP and not as a solution or, or, you know, to, to launch. So I think that's that that's important. So there's a role for it, but we need to get it to the right particular mix. It has to operate within the other technologies at the end of the day. And, and as I've said, I think as is the biggest contributor to not, she, it has to be confronted and resolved cause without it all the other good plans that are put in place, if they're not funded, they won't be able to obviously, you know, tie the resolve there, you know, the, the symptom, which is they're not shed.
Speaker 3 00:28:18 We think that debt is a good cause. And again, I think the gap shortage must be addressed including the post board composition and the succession planning as I've argued, I think previously. And I think, yes, the 6,000 megas has to be unlocked, um, through maintenance as soon as possible. And again, I think the conservation around the, the, the power imports when it comes to, you know, the Southern African powerboard, I think that also needs to be explored and obviously be considered as, as well as part of the solution. So I think these are really, you know, my input. And again, I like to really the point that if we look at shedding, it is the symptom and we need to start confronting this is not causes so that we once and for all address the issue of flood, she, uh, and obviously it's not gonna be an easy journey. I think it needs that political will, but also, which I think is there, but also it needs, I think for all of us to be able to then come together, uh, and be able to actually drive one objective of making sure that we get there right, for the economy of this country to get back on its, you know, feet again. So I think that that's really my input into this. And again, thank you for the opportunity.
Speaker 0 00:29:41 Thank you so much, ALO you have given us, uh, a very wide, uh, view on the situation as it stands and what the potential, uh, opportunities there are and what we could look forward to as the energy plan progresses. So thank you so much for sharing all of that.
Speaker 3 00:30:00 Thank you very much. Thanks for the question that came.
Speaker 2 00:30:09 You have been listening to an ESI Africa podcast for the latest news reports and interviews on power, energy, and related industries. Visit the ESI Africa website on ESI, hyphen africa.com or follow us on social media until next time. Thank you for tuning in.
