These are the most important changes in South Africa’s new energy plan

 ·26 Jul 2022

Electricity generation in South Africa may come online at a faster pace than what we previously thought after president Cyril Ramaphosa proposed wide-ranging and urgent power reforms including a temporary legislative regime that cuts red tape, says Jeff Schultz, senior economist at BNP Paribas South Africa.

Even though some concessions have been made to the African National Congress allies on the left by encouraging a new renewables build programme owned by Eskom, the overwhelming emphasis is to encourage and speed up private investment and IPP roll-out, Schultz said in a note on Tuesday (26 July).

“The formal establishment of a transmission and system market operator remains a critical stepping stone to bring in the private sector. But first, we have to wait for the now-promised sustainable solution to Eskom’s debt burden to be announced in the MTBPS in October and be fleshed out by the 2023 budget, in our view,” said Schultz.

BNP Paribas noted that the president announced a series of energy reforms last night, adding that there are a few steps that are likely to make a significant difference on their own.

“And taken together, the measures certainly provide a considerable impetus to close South Africa’s electricity supply gap – more than 14GWh in the pipeline between now and 2025.”

The move is also a strong indicator of the meaningful impact the “Vulindlela” policy implementation unit housed within the Treasury is having, the group said.

The most important changes are as follows:

  • The removal of the 100MWh cap on private electricity generation. There is now no limit on the private sector to procure and generate their own electricity. Earlier, the limit on private generation was raised to 100MWh from 1MWh in June 2021 and resulted in 4.6GWh in mining sector pledges for renewable investment.
  • Doubling of energy bid window 6 to 5.2GWh. This is scheduled to be rolled out in April 2023.
  • A temporary relaxation of local content requirements and red tape on licensing and environmental requirements in certain low-risk areas. This is particularly relevant for bid window 5 (2.6GWh), which is scheduled to be rolled out between now and September this year.
  • New bid windows and integrated resource plan to be expedited to allow further determinations of new renewable investment bid windows into 2023 and beyond.
  • Incentivising rooftop solar and grid connections through standard feed-in tariffs, i.e. paying consumers for the excess power they generate.
  • A renewed push to improve Eskom plant reliability through not only better skills attraction but also stepped up investment to improve falling energy availability (59% year-to-date).
  • A proposal tabled in the MTBPS on what will be done to solve Eskom’s debt burden, in line with our baseline that a formal decision in Eskom debt will be made by the Feb. 2023 budget and after the legal separation of its transmission business in Dec. 2022.

Daily output losses of electricity cuts by load shedding stage, in billions

Decisive action as the state’s back is against the wall

“Overall, the announcements are positive for the medium-term growth and investment picture, in our view. We don’t think the reforms change the immediate energy supply gap challenges with Eskom’s 12-month outlook for energy supply looking increasingly tenuous,” said Schultz.

The latest measures are reflective of a strong ideological shift to the centre for the government on its energy plans, said the economist.

“However, the move was perhaps balanced by its communication that few of the regulatory relaxations were temporary probably to soften the criticism from special interest groups – coal lobby, labour unions and environmental groups.

“This implies that the government will be prepared to outface criticism from these groups because it considers the trade-offs in favour of solving the damaging load-shedding programme.”

Read: No more excuses: Ramaphosa announces massive changes for new energy projects in South Africa

Show comments
Subscribe to our daily newsletter