President Cyril Ramaphosa’s move to lift the limit on private sector power generation will be a boon to the economy, but it could take more than a year to see the effects of the change, says economists at the Bureau for Economic Research (BER).
Ramaphosa announced on Thursday (10 June) that the requirement for the private sector to obtain a licence for own power generation, with the official change to be made in a government gazette within the next two months.
This has the potential to support short-term business and consumer confidence, as well as medium-term real GDP growth, the BER said.
“The belated announcement follows sustained pleas from the private sector, including several business groupings, that the threshold should be raised to 50MW.
“Government has now gone much further than this. The cumbersome and costly licencing process for own generation is seen as a major deterrent to bringing much-needed additional generation capacity onto the national grid.
“According to Ramaphosa, firms will also be allowed to sell any excess power generated back into the grid.”
To ensure a consistent quality of power is supplied to the grid, embedded generation projects will still need to obtain a connection permit from Nersa to ensure that they meet all the requirements for grid compliance.
Therefore, the process will not be free of regulation, but it does make sense that certain standards for grid connection are complied with, the BER said.
“In terms of the impact on the economy, it is important to realise that own generation (renewable) projects can take up to 18 months to complete. This does imply that periodic load-shedding is likely to remain a feature of the South African landscape in the foreseeable future.”
The South African Photocatalytic Association estimates that the lifting of the licensing cap could add up to 5,500MW of additional power over the next two years.
In addition, the Minerals Council said that its members could add 1,600MW to the grid over the next three years.
“The key message here is that, in line with our thinking since the end of 2019, there is scope to be more optimistic about the prospects for the South African economy beyond 2022,” the BER said.
“While the probability attached to any longer-term forecasts is low, medium-term real South African GDP growth of 2%+ is starting to look more feasible.
“While not nearly sufficient to address SA’s multiple social ills, this would be a big change from the five years before Covid. At a minimum, it will ensure that the country starts to see GDP gains in per capita terms again.”