A rapid expansion of South Africa’s energy capacity is necessary if the country’s Economic Reconstruction and Recovery Plan is to have any chance of success.
Addressing a pared-down joint sitting of Parliament, President Cyril Ramaphosa framed his State of the Nation Address as a report-back on how the country’s plan to recover from the COVID-19 pandemic is progressing.
The Plan, announced almost four month ago before a joint sitting of South Africa’s Parliament, focuses on four interventions:
- massive infrastructure rollout throughout the country
- massive increase in local production,
- employment stimulus to create jobs and support livelihoods,
- rapid expansion of our energy capacity.
Ramaphosa acknowledged the first objective would require steadily rebuilding technical skills within the government to prepare and manage large infrastructure projects. None of the first three pillars though will be possible if the fourth, expansion of the country’s energy capacity, is not a success.
“We have now developed an infrastructure investment project pipeline worth R340 billion in network industries such as energy, water, transport and telecommunications. Construction has started and progress is being made on a number of fronts,” he explained.
The president pointed out restoring Eskom to operational and financial health and accelerating its restructuring process is central to the fourth objective of rapidly expanding the country’s energy capacity. The restructuring of the state-owned entity into three separate entities for generation, transmission and distribution will lay the foundation for an efficient, modern and competitive energy system.
“Eskom is making substantial progress with its intensive maintenance and operational excellence programmes to improve the reliability of its coal fleet. We are working closely with Eskom on proposals to improve its financial position, manage its debt and reduce its dependence on the fiscus. This requires a review of the tariff path to ensure that it reflects all reasonable costs and measures to resolve the problem of municipal debt,” said Ramaphosa.
Generating energy to power the country’s economic reconstruction and recovery
The president reiterated some of the measures taken during 2020 to increase Eskom’s generational capacity:
- The Department of Mineral Resources and Energy will soon announce the successful bids for 2,000MW of emergency power;
- The necessary regulations have been amended and requirements clarified for municipalities to buy power from independent power producers. Systems are being put in place to support qualifying municipalities;
- Government will soon initiate the procurement of an additional 11,800MW of power from renewable energy, natural gas, battery storage and coal in line with the IRP2019.
Despite these measures Eskom estimates there will be an electricity supply shortfall between 4,000 and 6,000MW over the next five years as old coal-fired power stations reach their end of life. As part of measures to address this shortfall, a request for proposals for 2,600MW from wind and solar energy will be released in the next few weeks, kicking off REIPPPP’s Bid Window 5. This will be followed by another bid window in August 2021.
Recent analysis suggests easing the licensing requirements for new embedded generation projects could unlock up to 5,000MW of additional capacity and help ease the impact of load shedding. “We will therefore amend Schedule 2 of the Electricity Regulation act within the next three months to increase the licensing threshold for embedded generation. This will include consultation among key stakeholders on the level at which the new threshold should be set and the finalization of the necessary enabling frameworks,” said Ramaphosa.
Eskom has already started work to expedite its commercial and technical process to allow this additional capacity onto the grid without undue delay
Eskom, climate change and the just energy transition require stuctural reform
While all resources at the country’s disposal will be mobilised to supports its economic recovery, Ramaphosa pointed out that we cannot lose sight of the threat that climate change poses to our environmental health, socio-economic development and economic growth.
“We are therefore working to fulfil our commitment under the UN Framework Convention on Climate change and its Paris Agreement which include the reduction of greenhouse gases. Eskom, our largest greenhouse gas emitter, has committed in principle to net zero emission by 2050 and to increase its renewable capacity.
“Eskom will be looking to partner with investors to repurpose and repower part of its coal fleet. This will be done in a way that stimulates investment, local economic activity and local manufacturing, as part of a just transition,” said Ramaphosa.
Work on climate change will be guided by the Presidential Coordinating Commission on Climate Change, which will meet for the first time this month. The commission will work on a plan for a just transition a low-carbon economy and climate-resilient society.
“We will not achieve higher rates of growth and employment if we do not implement structural economic reforms. These reforms are necessary to reduce costs and barriers to entry, increase competition, stimulate new investment and create space for new entrants in the market,” said Ramaphosa.
This structural reform work will be driven through Operation Vulindlela which involves a team in the National Treasury and the President’s office. Operation Vulindlela will focus on reforms in the electricity, water, telecommunications and transport sectors, as well as reforms to the country’s visa and immigration regime.
Read the entire State of the Nation Address.