Unlocking SA’s Energy Potential - Business Media MAGS


Unlocking SA’s Energy Potential

A 5 - 10 year outlook on the electricity supply industry.

Fundamental structural change is needed in the South African electricity supply industry. And one can empathise with the complex balance that our decision makers need to strike in order to achieve this change. Eskom, our vertically integrated electricity monopoly, is failing – both to provide sufficient electricity and to meet its financial obligations.

There is a need to forge a sustainable energy future for a country largely dependent on coal-fired power while also bringing about a just transition for all industry participants, especially our workers, from a coal-heavy energy economy to a clean one. The unlocking of private sector capital, expertise, efficiency, cost-effectiveness and competitive drive will be central to a successful energy future in South Africa. The private sector can and must be enjoined in a way that ensures job creation, equitable participation and growth.

What can miners and commercial and industrial investors expect from the South African electricity supply industry in the coming years?

First, Eskom is going to be unbundled into three separate businesses – generation, transmission and distribution – to allow for greater transparency and competition in the electricity market. Finance Minister Tito Mboweni announced in his Budget speech in February that Eskom would get R23-billion a year for the next three years from government, under strict conditions. These include the establishment of a transmission company in which the private sector will be able to invest and which will provide open and equitable grid access to multiple generators of electricity. Members of government and trade unions have strongly opposed the restructuring of Eskom, and this opposition will need to be carefully addressed. Key to addressing trade union concerns will be a well-thought-out and widely adopted strategy to achieving a just transition from a coal-intensive economy to a low-carbon, climate-resilient economy and society. This means adopting policies, possibly involving financial and tax incentives, and coordinated education and training programmes, that will meaningfully protect the livelihoods of workers through the transition.

Second, we can expect clarity on South Africa’s future energy mix through the imminent finalisation of the Integrated Resource Plan (IRP) 2019. On 6 March 2019, a new draft IRP 2019 was submitted to the National Economic Development and Labour Council (NEDLAC) for review and the making of recommendations to cabinet. Having gone through a public commenting process, the IRP will then be subject to policy interventions by government, finalised and published in the Government Gazette. The IRP is an electricity infrastructure development plan based on a least-cost electricity supply and demand balance, taking into account security of supply and the environment.

The 2010 IRP was intended to be a living document, updated every two years, but it is now out of date. The 2019 version looks set to become the first update. Some key features of the draft IRP before NEDLAC are the procurement, by 2030, of: 19 630MW of new solar photovoltaic and wind-generation capacity without the previously envisaged delay until 2025; 3 000MW of additional gas or diesel generation capacity; an open, unquantified allocation of distributed generation up to 2022 to the extent of any short-term capacity and energy gaps, then 500MW per year from 2023 to 2030; 1 500MW of new coal-fired power to be commissioned in two equal batches in 2023 and 2027; 2 500MW of hydro power; 2 088MW of electricity storage; and a 1 860MW extension of Koeberg nuclear power plant’s life to be commissioned in 2024. Much of this new capacity will be built by the private sector after competitive independent power producer (IPP) procurement, which will include specific economic development imperatives placed on IPPs.

Rising electricity prices from Eskom and electricity supply uncertainty have caused miners and commercial and industrial investors in South Africa to explore generating their own power. Of particular relevance is the allocation under the draft IRP 2019 to distributed generation. This large and partially unquantified allocation speaks to the realisation by decision-makers that distributed generation by the private sector constitutes one of the most important ways to bridge electricity supply gaps in the next five to 10 years in South Africa.

A Licensing Exemption and Registration Notice published in November 2017 under the Electricity Regulation Act, requiring plants between 100kW and 1MW in capacity to register with the National Energy Regulator of South Africa (NERSA) and pay a R200 registration fee, has effectively impeded the operation of substantial small-scale embedded generation capacity. This is allegedly as a result of NERSA’s slowness to register these plants. A revised notice has been prepared by the Department of Energy and is awaiting public consultation and NERSA’s concurrence before being implemented. In relation to plants above 1MW in capacity, before the November 2017 notice, “own-generation” plants did not require registration or licensing. The notice provides that plants above the 1MW threshold must be licensed, but in order to do so, need a letter from the energy minister approving a deviation from the IRP 2010, which does not have an allocation for embedded or distributed generation. This issue has affected several substantial captive power solar photovoltaic projects that had been planned for installation on mines and at commercial and industrial facilities in South Africa. This obstacle should be removed once the new IRP 2019 has been finalised and published.

Top priority must be given to the urgent finalisation of the IRP 2019, the establishment of a clear vision for the electricity supply industry in South Africa that is consistent with the IRP, the restructuring of the electricity supply industry in a way that efficiently achieves that vision, and the restructuring of Eskom to support that vision. The private sector will be critical in achieving this, but must be given the policy and regulatory certainty it requires in order to get involved and help grow the economy.

Image: ©iStock - 950365224

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