Iron ore and Coal

Eskom moves to appoint advisers to structure `green` transaction

Eskom moves to appoint advisers to structure `green` transaction
Mining News Pro - South Africa’s coal-heavy power utility is moving to appoint financial advisers to assist it in structuring a potential transaction that could unlock discounted ‘green’ funding for the debt-laden State-owned entity in return for it meeting agreed decarbonisation targets.

Eskom CEO Andre de Ruyter reports that the utility has issued an enquiry through which it aims to secure the services of financial advisers with expertise in structuring green-finance deals and reports that several of its existing lenders, especially development finance institutions (DFIs), have expressed an appetite for participating in the arrangement.

The fact that Eskom would continue to produce coal-based power for several decades into the future would add complexity to any transaction, as would its current inability, owing to its deep financial constraints, to undertake a large-scale roll-out of renewable energy.

“The reason why we need support is that there are only a few international precedents available and they are not strictly applicable to Eskom’s unique situation, where we have a large coal fleet that will remain in operation for an extended period of time.”

Nevertheless, De Ruyter expressed confidence that a financial model could be found that would not only enable the utility to decarbonise, but could also assist it in addressing its current unsustainable debt burden of R488-billion, and yearly interest payments of about R30-billion.

“Green financing is gaining traction globally and some credible DFIs have signalled their interest in supporting Eskom in making a just energy transition,” De Ruyter said during a briefing on the state of the country’s electricity system.

The utility had established a just energy transition office to develop strategies aimed at ensuring that coal-linked communities, most of which are located in the Mpumalanga province, were supported through the country’s transition to renewables generators, which over time would gravitate to provinces with superior solar and wind resources, particularly in the south.

“We have received expressions of interest in writing from some of our existing funders, which clearly have skin in the game as far as Eskom is concerned; they have a vested interest in ensuring that Eskom succeeds and they are prepared to offer concessional funding based on the accelerated deployment of renewables, low-carbon and no-carbon electricity into the grid.

“We certainly view that as a very interesting and opportune confluence of circumstances,” he said, noting that the average age of Eskom’s coal fleet, which had also become increasingly unreliable, stood at 39 years.

That said, Eskom would have to find a way to overcome the obvious reluctance of green financiers to extend loans to a company with such a large carbon footprint and an ongoing coal profile.

“Concepts are being developed and we are in the process of finalising the appointment of financial advisers to assist in this – but the appetite to support Eskom in this endeavour certainly is there and it’s very promising.”

He also indicated growing support from coal-affected communities, while acknowledging that initial engagements with communities affected by the upcoming decommissioning of power stations had been “rocky”.

Eskom had initiated a repurposing strategy aimed at developing electricity and non-electricity business and employment opportunities for communities surrounding the Komati, Hendrina and Grootvlei power stations which had been scheduled for closure in the coming few years.

“This is not going to be an easy ride, but the more we consult and communicate I believe the smoother the ride will be,” De Ruyter said, while also committing to regular briefings on Eskom’s just energy transition plans and strategies.

“This affects the entire country, but in particular those communities in Mpumalanga and it’s incumbent on us to communicate clearly and transparently on that.”

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