South Africa is facing a monumental challenge as it seeks to end years of rolling electricity outages that have hobbled the economy: It needs to build and fund a R390 billion expansion of the national grid so it can connect more power plants.<\/p>\n\n\n\n
The transmission system is owned, managed and maintained by Eskom, which supplies more than 80% of the country\u2019s electricity and has failed to properly maintain its plants or expedite the process of building enough new ones to avert energy shortages. <\/p>\n\n\n\n
The state utility plans to build 14,218 kilometres (8,835 miles) of power lines over the next decade, more than three times what it has installed over the past 10 years. <\/p>\n\n\n\n
It will also have to increase its transformer capacity six-fold and build other infrastructure.<\/p>\n\n\n\n
The power cuts have curbed output, stoked unemployment and limited the annual economic growth rate to an average of less than 1% over the past decade \u2014 key campaign issues heading into the 29 May elections. <\/p>\n\n\n\n
In its election manifesto, the ruling African National Congress said it would \u201cprioritise investment in expanding the transmission grid so that more energy, including from renewable sources, can be supplied,\u201d a pledge echoed by its main rivals.<\/p>\n\n\n\n
Funding the expansion appears beyond Eskom\u2019s reach. The company\u2019s coffers were systematically looted during former President Jacob Zuma\u2019s almost nine years in office, and it amassed more than R400 billion in debt before the National Treasury stepped in with a conditional bailout that severely constrains the loss-making utility from taking on additional loans.<\/p>\n\n\n\n
The failure to invest adequately in the grid has created \u201ca real emergency,\u201d said Brian Day, chairman of the South African Independent Power Producers Association. <\/p>\n\n\n\n
The construction of new lines and substations is proceeding too slowly and needs to be ramped up, he said.<\/p>\n\n\n\n
Inadequate transmission infrastructure is already frustrating efforts to increase the electricity supply. <\/p>\n\n\n\n
After calling for bids that would double wind-power purchases from private contractors, the government failed to award any of the contracts because the projects couldn\u2019t be connected.<\/p>\n\n\n\n
Grid constraints also pose a risk to an estimated 66 gigawatts of wind and solar plants that are already at various stages of development in South Africa, Raine Adams, an analyst at fund manager Allan Gray, wrote in a note to clients.<\/p>\n\n\n\n
South Africa began developing its electricity system more than a century ago, building power stations adjacent to rich coal deposits in the northeast of the country to provide the energy needed to extract gold and other minerals. Transmission lines were later added to connect other parts of the country.<\/p>\n\n\n\n
Over recent years, several solar and wind plants constructed by private developers have been connected to the grid, but link-ups in the areas best suited for such facilities have run out \u2014 an issue that needs to be resolved if the country is to meet its commitments to lower its greenhouse gas emissions.<\/p>\n\n\n\n
Eskom listed \u201cstatutory approvals and procurement turnaround times, followed by capital budgets,\u201d as the biggest obstacles it faces in expanding the grid. <\/p>\n\n\n\n
Securing the land rights to lay cables and tackling the organised crime that pervades South Africa\u2019s construction industry are also potential challenges, it said.<\/p>\n\n\n\n
Even if it could raise the money, the utility\u2019s ability to roll out the required additional lines would remain in question<\/strong>, given its tarnished track record implementing other megaprojects, including the construction of two of the world\u2019s biggest coal-fired plants. <\/p>\n\n\n\n Announced in 2007, Medupi and Kusile were scheduled to be completed within eight years at a total cost of R163 billion, but the likely final price tag has since ballooned to more than R460 billion, and both still aren\u2019t running at full capacity.<\/p>\n\n\n\n \u201cThe grid delivery will be a challenge, but steps are being taken to learn from the experiences of the Medupi and Kusile projects and to avoid repeating the mistakes<\/strong>,\u201d Eskom said, adding that it will consider outsourcing part of the work. <\/p>\n\n\n\n The utility will return to the capital markets beyond its 2026 financial year and expects to finance transmission infrastructure using a blend of equity and debt.<\/p>\n\n\n\n \u201cAt present, Eskom is not financially sustainable on a stand-alone basis, and financial institutions are unlikely to provide additional funding in the absence of a government guarantee or other form of credit enhancements,\u201d said Lindani Vezi, a listed credit investment analyst at Cape Town-based Futuregrowth Asset Management.<\/p>\n\n\n\n South Africa\u2019s cabinet has endorsed the creation of an Independent Transmission Projects Office to help garner private financing for the grid, a model that\u2019s been used in countries such as Brazil and India, according to Electricity Minister Kgosientsho Ramokgopa.<\/p>\n\n\n\n While he sees an \u201cinsatiable appetite\u201d among private companies to invest in transmission, multiple procedural delays \u2014 including a protracted breakup of Eskom into generation, transmission and distribution units that would help facilitate access to the grid \u2014 have stalled the process.<\/p>\n\n\n\n The ANC is adamant the transmission network won\u2019t be privatised.<\/p>\n\n\n\n \u201cTransmission projects are often strategic assets, so financing by private investors can be seen as a loss of control for the sponsoring country,\u201d said Sanjeet Sanghera, head of grids and utilities at BloombergNEF. \u201cThere is a need for a model that strikes the right balance.\u201d<\/p>\n\n\n\n Hilton Trollip, an energy research consultant at the University of Cape Town, said that despite anticipated delays and resistance to private sector participation in the grid, some progress has been made in easing regulations and improving the utilization of the existing grid.<\/p>\n\n\n\n The government\u2019s \u201crecent flexibility gives a sliver of hope,\u201d he said.<\/p>\n\n\n\n
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