Meridian Economics, a specialised advisory group and think tank, says that the next 500 days are critical for South Africa’s future.
In a research note this week, the group said that the decisions that are made during this small window period will determine whether and how the country rises out of this crisis.
Decisions in the energy sector have particular importance, given the sector’s central role in powering growth and recovery, it said.
“The pandemic has served as the final straw to plunge the country into its largest economic downturn in living history: unemployment levels are at their highest on record, investment ratings have plummeted and many in the emerging middle class have slid back into greater levels of poverty.
“Meanwhile, the precarious state of state-owned entities, in particular Eskom, remain a large burden on the increasingly constrained national fiscus.
“An ailing coal fleet and chronic power cuts continue to cripple economic growth prospects at a time that South Africa needs it most.”
The group proposed five key changes for the country’s energy sector which will help it get back on track.
Unlock market barriers to distributed generation projects
The group said that there is more than 5,000MW of additional generation capacity that could be unlocked through small amendments to the current power sector regulatory framework.
This includes lifting the current generation licence exemption threshold for grid-connected projects and allowing generation projects to sell power to multiple customers – instead of a single, ‘end-use’ customer.
“These reforms will not compromise grid stability, as each project will still need to adhere to the relevant grid codes and technical requirements as enforced by the grid operator.
“In the short-term, this additional generation capacity will go a long way to addressing South Africa’s current, pressing energy supply shortage and grow investor confidence in South Africa’s energy sector.”
Raise ambition for the power sector
South Africa’s power sector presents a large, low-cost opportunity to reduce emissions and set the South African economy on track to achieve net-zero emissions by mid-century.
“A decarbonised power sector will be critical to enabling other hard-to-abate sectors to achieve the emissions reductions required,” Meridian economics said.
“This will require a substantially accelerated rollout of renewable energy, storage and other grid support technologies, and the phase-down of coal power.”
Develop a Just Transition Transaction to access climate finance for Eskom and affected communities
South Africa needs a clear plan to ensure that systemically important high-emitting institutions such as Eskom, Sasol and other energy-intensive industries transition effectively through this period of disruptive change.
“For Eskom, this includes putting in place a coherent, credible transition road map that implements a set of solutions to its crippling debt crisis and provides transition support mechanisms for workers and affected communities,” the researchers said.
Plan for localisation of renewable energy industries
The demand for goods and services created by a large, sustained renewables build programme creates an important opportunity to maximise economic benefits by re-establishing a localised renewable energy value chain.
“South Africa has been relatively successful in establishing local manufacturing to serve the utility-scale market; however, most manufacturing capacity was dismantled due to the hiatus in procurement over the past few years,” the group said.
“With procurement set to continue in line with the IRP2019 through the continuation of the REIPPPP5, as well as the significant potential for additional embedded generation projects, the necessity for local renewable technologies is set to increase.
“Job creation along the full wind and solar PV value chain is a key benefit of deploying these renewable energy technologies. There is also potential for export of these services to the African market.”
Future-proof South Africa’s carbon-intensive industries
South Africa’s carbon-intensive industrial economy will need to rapidly transition to an inclusive, green economy to mitigate climate risk, Meridan economics said.
This will require the alignment of industrial and climate policy with the green economy paradigm to support green industrial development and reindustrialisation across different sectors, the group said.
“Government and the financial sector have an important role to play in supporting and encouraging low-carbon transitions across all industries through the provision of finance and policy frameworks.
“Industries must be ‘futureproofed’ by developing and transitioning to climate-compatible business models.
“This process can be driven by the establishment of carbon disclosure obligations and establishing new models and norms for the provision of transition finance that support credible net-zero transition pathways.”