PRESIDENT Cyril Ramaphosa’s plan to address South Africa’s energy crisis through sweeping reforms to encourage more private sector investment ticked all the right boxes and has been welcomed as a credible blueprint for speedily closing the country’s widening power generation shortfall.
But the outline presented to the public on 25 July was short on key details and timelines, with implementation still seen as a major challenge. The elective conference of the African National Congress in December is viewed as a complicating factor as it will decide if Ramaphosa will survive as president.
It’s also unclear where the money will come from to pay for stepped up maintenance of Eskom’s ageing and unreliable coal fired plants. Insiders say a credible plan is on the table, which would include addressing the issue of the embattled utility’s R400bn debt burden, but they were tight-lipped on the proposed solutions.
Nonetheless, news that the cap on private sector generation would be scrapped, regulatory and red tape blockages reduced, and surplus capacity purchased from existing independent power producers (IPPs) were considered to be significant steps which would address short term supply challenges and ensure long term energy security.
“We think it’s a bold plan, it’s an ambitious plan, it’s an all hands on deck plan,” said Roger Baxter, CEO of the Minerals Council SA. “We think that some of the reforms that are being talked about are the biggest structural reforms implemented in South Africa in the last 20 years,” he told Miningmx in an interview.
Mining, which consumes nearly a third of Eskom’s electricity, has led the way by building its own renewable energy plants, widely seen as the quickest and cheapest way to address the electricity shortages choking South Africa’s economic growth.
There is a pipeline of 73 new projects with an investment value of R77bn which could add 5,100MW to the country’s grid – equivalent to most of the existing power shortfall, said Baxter. This would alleviate demand pressure on Eskom.
Ramaphosa said that the decision last year to raise the licensing threshold for private generation capacity to 100MW had unlocked a pipeline for more than 80 confirmed private sector projects, with combined capacity of 6,000MW.
This had shown that the private sector was enthusiastic and successful in building new generation capacity, and prompted the decision to scrap the licensing threshold, he said.
Presidency takes initiative
Minerals and Energy Minister Gwede Mantashe has in the past resisted these efforts, most notably demonstrated last year when he said the President had “twisted his arm” to make him agree to a degree of liberalisation.
He’s still perceived as obstructive to reforms unblocking private sector power generation, and it is unlikely that he has suddenly dropped his resistance.
The fact that Ramaphosa’s plan placed control firmly in the hands of the Presidency, which has successfully implemented significant economic reforms in recent months, was seen as a key enabler.
Ramaphosa said that he was establishing a National Energy Crisis Committee chaired by its Director-General which would bring together all the departments and entities involved in the provision of electricity.
He also promised to establish a one-stop shop for energy application approvals – which business has been clamouring for – and said that the relevant ministers would report to him directly on a regular basis.
Many of the steps which Ramaphosa mentioned in his plan were drawn directly from proposals made by Eskom’s management, which had received substantial input from private companies and industry.
He gave the utility’s leadership his seal of approval, which was seen as one of the most important points of his speech, given the attacks which Eskom CEO, Andre De Ruyter and his team have faced from political factions which want him removed.
“There is now capable and effective management,” (at Eskom) the President said, after running through the failures of past management at the utility, and their responsibility for the lack of maintenance which has undermined its infrastructure.
Standard feed-in tariffs would be introduced in the country’s electricity regulation framework to incentivise “huge investment” in commercial and household rooftop generation, which industry analysts say has already installed around 2,000MW.
Ramaphosa also gave the thumbs up to De Ruyter’s suggestion earlier this year of purchasing surplus power from the existing IPPs which supply Eskom at present. De Ruyter has said that this could add 1,200MW to the grid.
Doubling up on IPP
The decision to double the next round of utility-scale procurements from IPP’s through Bid Window 6, to 5,200MW from 2,600MW, was also seen as a huge step in the right direction.
The process of implementing Bid Window 5 has been delayed in part by onerous local content requirements, which the President said would also be eased, with backing from the Department of Trade and Industry.
A request for proposals for private battery storage projects — seen as a major part of the solution to South Africa’s electricity woes — would be released in September this year, while Eskom would add 500 MW through its own battery storage projects to its system.
Business Unity South Africa (BUSA) said it was encouraged by President Ramaphosa’s comprehensive energy plans, and hoped that they would be implemented with focus and speed.
“What is still required is a clear execution plan, set against hard deadlines and accountability for delivery,” BUSA CEO Cas Coovadia said in a statement.
“The country and the business sector will benefit from regular and transparent progress reports, so it can track and plan accordingly.”
Ramaphosa made no mention of the time it would take to end rotating power cuts, which have already exceeded last year’s record levels.
Energy expert Anton Eberhard, who serves on the government’s National Planning Commission, said that if all the recommended interventions were implemented within six months, loadshedding would diminish gradually and end within three years. The alternative was power cuts continuing for even longer.
The role of the National Energy Crisis Committee was key, and it was crucial that outside expertise would be accessed as promised, he said.
Plans to restructure Eskom, which will include the unbundling of an independent transmission company, are behind schedule. Eberhard said this step was critical to enable investments in the grid which would transport electricity from new generation projects to consumers.
Martin Kingston, who chairs BUSA’s implementation arm, said that although the plan offered a blueprint for action and partnership, measures to standardise wheeling of privately generated power through Eskom’s grid had also not been mentioned.
“Key enabling factors must not be forgotten, notably the rapid investment required in our transmission grid, and the need for a standardised wheeling framework,” he said in a statement. “These are critical to ensuring the success of the interventions announced.”