By James Mackay
Closing the door on load shedding is undoubtedly one of South Africa’s most urgent priorities. The load-shedding crisis has had a direct impact on lower economic growth, higher levels of unemployment and a deterioration of investor confidence.
Load shedding has masked some even bigger systemic issues underlying our energy crisis – the lack of reform to keep pace with international and technology trends, rapidly ageing infrastructure, especially our distribution grid, and a rapid decline in state capacity. If the systemic issues aren’t addressed, they will ultimately prolong our heavy reliance on coal power, which is at 80% despite many of our power stations being old, unreliable, and no longer economically or environmentally sustainable.
As one of the most emissions-intensive economies in the world, the global decarbonisation spotlight is certainly on us. Since South Africa signed its climate commitment under the Paris Agreement in 2021, we have not made enough progress.
By comparison, the largest global carbon emitter, China, is rapidly accelerating its transition, deploys more renewables every year than the combined global North and is ahead of its decarbonisation targets. It has also committed to a further climate deal with the US at the forthcoming UN Climate Change Conference, COP28.
The stakes are high: the UK will be joining the EU in implementing a carbon border tax in 2026, which will progressively tax nearly half our exports if we don’t take appropriate action. Yet, on the other hand, we have lost control of energy security, and ending load shedding is paramount.
This will be effected only through the recovery of coal generation. The circular-reference between energy security and sustainability is causing significant concern while financial bailouts and crisis spend on expensive diesel continue to undermine energy affordability.
But there is time and opportunity to address the issues now, and in the right way, which will create a once-in-a-generation opportunity to turbocharge economic growth and position the country for a decarbonised energy-secure future. This will, however, require instilling strong confidence in the pace and direction of change to unlock the scale of investment required.
The good news is that the groundwork has been laid. In July 2022, President Cyril Ramaphosa announced the Energy Action Plan. The EAP’s implementation has been entrusted to Necom, a platform for government, business and Eskom to collaborate in fixing the energy system.
It is framed under a partnership with Business for South Africa and backed by more than 130 CEOs of the country’s leading companies. The plan has all the right ingredients for an economic and energy revolution in South Africa. It is aimed at stabilising Eskom, accelerating investment in new generation capacity, including natural gas to power and battery storage capacity, and converting policy direction into measurable action.
To add to the momentum, it is critical that several urgent steps are taken as we move into 2024 delivery mode.
First, the Electricity Regulation Amendment Bill must be passed into law by Parliament. The bill is essential to build investor confidence in our commitment to a competitive energy market and the unbundling of Eskom. The bill provides for the establishment of a transmission company that will also include the independent market operator. The critical step towards a competitive market will accelerate investment in energy and spur on efficiency gains and lower system cost which will align our total national energy service with proven international practice.
Second, rapidly expanding our energy generation must be prioritised. Public sector auctions, through our Independent Power Producer Office (IPPO), are internationally recognised to have an essential role to play in this regard. Private competitive markets alone are insufficient to develop the scale and pace of energy investment; large-scale public auctions bring critical additions to the overall process.
Unfortunately, after many years of stalled activity, the IPPO has not delivered an efficient and effective bid window. What is critical now is to ensure that the office has the resources, skills and capacity, so it can be held accountable to efficiently execute its mandate.
Transmission is another area that requires urgent action. As the most critical energy system enabler, grid reliability, access, connection and capacity should be positioned as our priority. The western side of our national grid, where we have the most attractive renewable resources with large tracts of open land, is oversubscribed. The eastern side, where connection capacity is readily available, is complicated by poorer resource levels and more congested land use.
The good news is that dedicated workstreams under Necom are bringing together some of our best skills across business and Eskom to solve the issues. We have great technical designs that can solve grid capacity through a phased approach of using curtailment in the short term, rapid expansion of the collector grid and early works in the midterm, and large build-out of new grid corridors in the long term.
As we charge into the exciting new energy world, we must not forget our deep dependence on the energy system and energy inventory, which also reflects as Eskom. We will need reliable coal-driven power stations for decades to come and, while we all acknowledge the need to shut down the use of coal, the old fleet must remain reliable until the day we are confident it can be shut, decommissioned and rehabilitated.
The energy transition will take us decades. It will be challenging and complex and along the way new technology innovation will disrupt the disruptors. In the meantime, we shouldn’t let the challenges stop us from making the right decisions now and taking actions that are good for the economy now and that, while moving us in the right direction, leave space for us to be agile and responsive to the future.
We have never been better positioned to rewrite the country’s energy story. If the government and the private sector can continue to deepen the pragmatic, action-oriented collaboration that has been established under Necom, then we can achieve a brighter and more prosperous future.
James Mackay, the CEO of the Energy Council of South Africa.
BUSINESS REPORT