Why load shedding could be ‘the best thing to hit South Africa’
While load shedding has been South Africa’s biggest crisis over the past few years—and caused incalculable damage to the economy—it has also forced the government to transform in ways that would have never happened had there not been a crisis.
This view was presented by independent political analyst, J.P Landman, speaking at Nedgroup Investment’s pre-election roundtable on 24 April.
According to Landman, “load shedding is the best thing that has hit the country” – although the analyst conceded that this comment is “flippant” in nature.
However, he said the power crisis “has forced three transformations in South Africa that otherwise would never have happened,” which is ultimately spreading to other spheres of government.
While politicians are eager to take credit for the massive push for transformation in the energy sector, the fact is that none of it would have happened had it not been forced on them through the power crisis.
So in many ways we can chalk up the progress and big changes to load shedding.
These changes include:
- Doing away with government monopoly;
- Moving away from regulated static prices to prices determined by the market;
- Moving away from a high carbon to a low carbon electricity system.
“Load shedding is our biggest crisis, but it is also our biggest opportunity,” he said.
Moving away from government monopoly
Landman said that for well over a century, the South African government has always had control of the infrastructure. This monopolistic control has caused numerous major issues.
Back in 1998, South Africa’s government accepted the White Paper on the Energy Policy of the Republic of South Africa.
The plan was to break Eskom up, move it away from an integrated utility and establish seperate companies which could build and leverage their own balance sheets whilst encouraging private sector participation – but this never came to fruition.
After years of moving in a completely different policy direction and maintaining its monopoly, Eskom is now finally aligning with that White Paper by establishing separate entities for generation, transmission and distribution while encouraging private sector participation as a result of the electricity crisis.
“What is happening now is we’re moving away from that [monopolistic control, and] that movement started in electricity,” said Landman.
“In a perfect world, you would like to plan these things in advance and do them systematically and not have to go through the pain of load shedding… but that is not how we are in the real world; we react to crisis,” he said.
Landman referred to a comment made by finance minister Enoch Godongwana over two years ago, which indicated the government’s intention of moving towards a hybrid model, when he said, “What we’ve done with electricity, we are going to do in transport.”
“That is exactly where we are now – we are moving from a dispensation where the state is the key player, to a dispensation where a hybrid model becomes the key player,” said Landman.
Moving from regulated, static prices, to market determined prices
Encouraging private sector participation promotes competitive pricing determined by the market.
Landman used an example of an unnamed shopping centre (redacted from the presentation) and how it secures its electricity.
“They get 70% of their power from Joburg Power (City Power) at a certain tariff and they get 30% of their power from an energy trader at less than half of [City Power’s] the price,” said Landman.
“That is the market that is being developed now,” and it will develop even further in this sense over the next 10 to 20 years, he added.
Moving away from a high-carbon, to a low-carbon electricity system
Landman discussed how the globe is moving towards adopting a green agenda, with a prevalent example being the adoption of carbon taxes.
“If you’re an avocado farmer in Mpumalanga, a citrus farmer in the Eastern Cape, or a wine and fruit farmer in the Western Cape, your avocado, citrus, wine and fruit will not be able to be exported to Europe from the end of this year without a carbon tax,” he said.
“Our entire motorcar industry, which employs more than twice the people that are employed by the entire electricity industry, will simply be wiped out if we don’t move away from a carbon-based electricity system.”
Heeding these calls to adopt a green agenda, South Africa is now beginning to move away from a carbon-based electricity system – thanks in large part to load shedding and the need for the quickest and most affordable new energy builds to add capacity to the grid.
Another example can be seen through the decommissioning of end-of-life coal-fired power plants, where Eskom plans on retiring about 22,000MW of generation capacity (about half of the currently installed capacity of about 45,000MW) by 2035 and counter this by constructing renewable power generation projects.
To transition towards renewable power projects, South Africa requires an investment of approximately R1.5 trillion to achieve its Just Energy Transition goals by 2030—much of which is predicted to come from the private sector.
“The reality of a green world is a very real one… [and] green is the new gold,” and without load shedding, South Africa would never have been moving in that direction, said Landman.
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