Eskom backtracks on unbundling plan

Eskom has backtracked on its plan to allow a new, independent state company to take over the electricity grid, trying to hold onto ownership of these grid assets.

Eskom’s revised unbundling plan, which has recently been approved, allows the utility to continue to hold ownership over South Africa’s transmission infrastructure, backtracking from previous plans to have this owned and operated by an independent entity

Minister of Energy and Electricity Kgosientsho Ramokgopa recently approved Eskom’s revised unbundling plan. 

This recommends the creation of a new state-owned enterprise, separate from Eskom, as a Transmission System Operator (TSO). 

The TSO will be responsible for managing transmission infrastructure, maintenance and market access to the grid.

However, the plan backtracks on allowing the new SOE to hold ownership of South Africa’s transmission infrastructure, including substations and power lines. 

“The original plan was that the separation of Eskom generation from transmission would allow an independent transmission company to stand on its own as a good company,” Energy Expert and MD EE Business Intelligence Chris Yelland said.

The new policy, on the other hand, makes the National Transmission Company of South Africa (NTCSA) a permanent entity that holds ownership of the grid, as an Eskom subsidiary.

As such, the country’s transmission infrastructure, including substations and power lines, will remain permanently under Eskom’s ownership.

“Keeping transmission infrastructure under Eskom brings transmission down and prevents access to capital and keeps it in Eskom’s toxic business,” said Yelland. 

The objective of separating Eskom into independent entities was to encourage investment by separating components of the electricity industry into new, healthy companies that are not associated with Eskom’s weak balance sheet. 

Holding back the industry

Under the new guidelines, investors will likely be deterred by this, explains Yelland. “Ultimately, it will hold back the industry,” he said. 

This is problematic, as the Department of Electricity is planning a massive expansion of the grid, adding 14,000 km of power lines in the next decade.

This is necessary as South Africa’s most significant renewable energy hotspots are located in remote areas that are not connected to major demand areas.

The Department plans to finance the massive project with private sector investments.

Eskom’s unbundling strategy would end its monopoly on electricity in South Africa by breaking the company down into smaller, independent divisions. 

Eventually, this will allow South African energy consumers to choose from multiple companies to supply their electricity, not only Eskom.

The new plan breaks Eskom down into:

• A generation company, GxCo, the National Electricity Distribution Company of South Africa (NEDCSA);
• Renewable energy entity, Eskom Green; and the
• National Transmission Company of South Africa (NTCSA). 

The NTCSA, formerly Eskom Transmission, has already been legally separated from Eskom and is responsible for the country’s transmission infrastructure. It still, however, operates as a subsidiary.

The TSO will be responsible for providing access to the transmission network and managing energy trading.

Ultimately, the right policy will prevail

This new entity will assist new companies in entering the electricity market without going through Eskom.

It would be established outside of Eskom, and will not run as a subsidiary, so as to level the playing field and end Eskom’s monopoly on the grid. 

However it will not assume ownership of the grid assets. These will remain with the NTCSA, which should have been a temporary entity.

In the Electricity Regulation Amendment Act of 2024, it is clearly stated that the NTCSA is a temporary body which will oversee the transition of transmission infrastructure from Eskom to the TSO, which will take on ownership and all functions related to the grid.

Yelland, however, says that there is no need to panic yet as “policies change with the wind” and are not set in stone. 

“I think of the Minister’s approach to Eskom like walking a dog. Eskom is problematic and pushy, and the Minister has to keep it happy and quiet,” he explained. 

“So he throws it a bone or two to chew on for a while, but then ultimately, he will continue to do what is right.”

Yelland believes that the latest policy change is not the right move, but said the policy will likely change again and improve in time. 

“The Minister is trying to get things moving and keep Eskom happy,” he said. 

“Ultimately, the right policy will prevail, and the bad policy will fail. But this all causes progress in the right direction,” he said.