ESKOM Renewable Grid Integration and Transmission Strengthening Program

completed

The massive expansion of traditional and renewable energy generation capacities that is being sought in South Africa is only partially taking the existing grid infrastructure into account. In the case of renewable energy tenders, which are reserved exclusively for private suppliers, in particular, the awarding of contracts based on the lowest bidder principle leads to a wide geographical spread of power plant locations. The renewable energy locations are mainly in the Western Cape (wind) and Northern Cape (solar). Since energy demand is concentrated in the large industrial centers in the northeast and in the regions of Cape Town, Durban and Port Elizabeth, the electricity generated from renewable energy must be transported over long distances, some of it via new high-voltage lines. The current interconnected grid is not designed for this, which leads to misallocation of generation and compensation for energy shortages elsewhere through conventional peak load generation. Against this background, ESKOM's 10-year grid expansion plan 2013-2022 estimates a need for new lines with a total length of 12,700 km for the high-voltage transmission range (275-765 kV), 2/3 of which are for 400 kV lines. By 2022, strengthening the transmission and distribution infrastructure will require investments of around USD 15 billion, of which USD 3 billion alone will be for the integration of electricity generation from renewable energy into the interconnected grid. In relation to the tariff period 2013-2018, which is characterized by a shortage of CAPEX approvals, ESKOM estimates a total investment requirement for transmission, distribution and renewable energy integration projects totaling USD 3 billion. The FC project provides for the financing of renewable energy integration and expansion investments required in the short term (up to 2018) in the nationwide transmission and distribution network and, following the successful first three REI4P tenders for 3.9 GW, enables the integration of additional renewable energy plants and thus the implementation of further phases of the South African renewable energy strategy. Specifically, participation in five transmission and integration projects in the Northern Cape, Eastern Cape and the Drakensberg is planned, which will enable the integration of numerous individual renewable energy projects. Other ESKOM projects financed by the KfW banking group in these regions include the solar tower project in Upington (KfW development loan of USD 100 million) and the Ingula pumped storage power station in Braamhoek (IPEX export loan of EUR 75 million). Other individual projects within the scope of our financing include the expansion and modernization of transmission and distribution infrastructure. The estimated investment costs for the projects amount to around ZAR 4.6 billion (approx. EUR 350 million). The provision of a GWR-covered KfW promotional loan of around ZAR 4 billion (EUR 300 million) for ESKOM will make the investment, which will not cover costs in the short term, more attractive. The loan is being provided in local currency and represents the largest foreign currency swap ever made by KfW in an emerging country. Environmental and feasibility assessments as well as budget allocations are available for all individual projects, so that rapid use of funds is planned within 12 months of the financing being approved (last payment planned for March 2016). Compared to a so-called business as usual scenario (coal-based power generation), this FC project will help reduce CO2 emissions by up to 5.5 million tonnes per year by connecting the renewable energy plants to the grid and reducing line losses. This measure therefore provides long-term support for South Africa's energy and climate goals and fits in fully with the strategy paper for German-South African development cooperation adopted jointly with the South African government, which aims, among other things, to promote renewable energies and support South Africa's energy security.