The good and bad news about Ramaphosa’s big private power announcement

President Cyril Ramaphosa on Thursday (10 June) announced steps the government will take to ensure the end of load shedding in South Africa.

In a surprise address, the president said that this will include the amendment of schedule 2 of the Electricity Regulation Act to increase the NERSA licensing threshold for embedded generation projects from 1 MW to 100 MW.

“This intervention reflects our determination to take the necessary action to achieve energy security and reduce the impact of load shedding on businesses and households across the country,” he said.

“It is evidence of our intention to tackle this economic crisis head-on, by implementing major economic reforms that will transform our economy.”

Intellidex analyst Peter Attard Montalto said the announcement came as a significant shock to markets, especially given how energy minister Gwede Matashe had dug his heels in on the matter, and that the process to raise the threshold had stalled over the past 24 months.

While businesses and other stakeholders called for the threshold to be raised to 50 MW, Mantashe announced that the government was looking at a more limited threshold of 10 MW.

Attard Montalto said that this deviation from Mantashe’s position points to there being ‘blood on the floor’ over the issue, with Ramaphosa stepping in to overrule the minister’s dithering. Intellidex previously flagged Mantashe as a key blockage to energy reform in South Africa.

“The president has directly overruled Mantashe – there is blood on the floor – and (this) is the key signal here on the political front, and the bigger surprise underneath all this,” he said.

“There was clear frustration by the President against Mantashe today at the press conference, he was very clearly put in a box. This is a major signal and has rarely happened under this administration yet.”

“As the energy system liberalises, though, this all reinforces the need for a new energy minister,” he said.

Good news and bad news

While the announcement from the president has spurred hopes that South Africa and businesses in particular can finally get on with crawling out of the pit they have been forced into through load shedding, Attard Montalto warned that it won’t be a quick fix.

The good news is that, in the short term, the announcement unlocks up to 2,000 MW of energy projects in the next 24 to 48 months. The medium term (five to seven years) provides a much greater opportunity, he said, with over 15,000 MW of projects theoretically available overall.

The bad news, however, is that before the country begins to benefit, there is a two year ‘hole’ in which intense load shedding and the strained power grid will persist.

The process could also still be frustrated by bureaucracy and political manoeuvring, especially with parts of the announcement – like third party sales back to Eskom – lacking clarity, Attard Montalto said.

“There is still some way to go – but key signals have been sent today. We have always said that a shock political moment on policy was key to shifting the narrative, and this may well be it. It is large, impactful, long lasting and has excellent multiplier effects,” he said.

It is a boost for Ramaphosa’s Operation Vulindlela, and spurs hopes that other projects – such as the stalled spectrum auction, and slow visa reform – will also find their feet once again, he said.

Read: Ramaphosa announces major change to fix load shedding

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The good and bad news about Ramaphosa’s big private power announcement