THEBE MABANGA|
PRESIDENT Cyril Ramaphosa’s announcement of key reforms in electricity generation effectively places the resolution of South Africa’s energy supply crisis in the hands of the private sector, a subtle admission that private players are better to succeed where Eskom has failed to offer the country a steady supply of reliable power.
On Thursday, Ramaphosa announced changes to Schedule 2 of the Electricity Regulation Act to lift the threshold for self-generation from 1MW to 100 MW without requiring a license from the National Energy Regulator of South Africa (NERSA).
The announcement also allows municipalities to grant permission for connection to the grid subject to satisfying requirements on pricing and quality of supply.
The changes do not only mean that a mine or a cluster of manufacturers or collection of suburbs in an area can now supply their own electricity, but a private supplier can generate electricity and sell to customers who are willing to pay the price they offer.
The success of these reforms will depend on how much private players take up generation projects and that may in turn depend on how quickly they believe load shedding can be resolved.
If private players believe load shedding will not be resolved in the next three to five years, they will rush to set up their own generation.
The Minerals Council of South Africa had been calling for the threshold to be raised to 50 MW.
Government’s decision to exceed the threshold is probably designed to save itself the need to amend the regulations later.
One of these, Turkery’s Karpowership, is mired in controversy as its plan to dock ships to supply power using gas for the next twenty years are mired in allegations of corruption, regulatory hurdles, and questionable cost to the country.
The regulations also come on the back of five successful bidding rounds of Renewable Energy Independent Power Producers (REIPPP) which have attracted billions in investment and hailed as among the best power procurement programmes in the world but seemingly not supplying enough to alleviate load shedding.
Ramaphosa could not make clear how much uptake government is hoping for.
Do they hope that these changes bring 1000 MW to the grid?
Or 5000 MW or even 10 000 MW in the long run?
Minerals and Energy Minister Gwede Mantashe says government will be guided by applications received.
Government must be hoping that private players come on board with enough power to relieve pressure from Eskom, but not too much power as to hurt Eskom’s business.
Eskom is envisaged to supply over 80% of power by 2030 through the Integrated Resource Plan.
Agri SA welcomed the move as a step in the right direction noting “this move opens a significant door for private electricity generation and to happen on a more affordable scale.”
“Agri SA has always maintained that the private sector’s involvement and participation would alleviate pressure from Eskom. The announcement reinforces that President Ramaphosa listens to the free-market economy and furthermore understands and recognises the importance and opportunities that are presented in the involvement of the private sector.” the agriculture body said in a statement.
But pricing remains a contentious part of electricity supply by private players.
The IPP programme currently depends on Eskom being contractually compelled to buy electricity from IPP’s at a higher price per Kw than it produces electricity.
Without Eskom as a forced buyer, the current model falls apart. NERSA would need to strongly regulate whatever price to protect customers.
Of course, resolving generation challenges is not a panacea for all energy supply problems in South Africa.
Even in this brave new era, the transmission and distribution business still present risks of their own.
Transmission lines are supposed to be owned by an independent public company once the unbundling of Eskom is complete, but no timeline has been set on that process.
The distribution network currently split between Eskom and municipalities that supply electricity needs its own refurbishment and reconfiguration.
So, a private supplier may be approved to build a 100 MW power station, only to find that transmission or distribution lines from its proposed location to potential customers are not correctly aligned.
The most encouraging aspect of the announcement was that Ramaphosa was devastatingly frank about the challenges facing the SA economy.
Speaking of signs of “Green shoots emerging after a devastating fire” by pointing to economic growth, which rose 4,6% in the first quarter from a low base and business confidence which has returned to pre-Covid-19 levels, he noted that South Africa’s economic challenges predate the Covid-19 pandemic and that load shedding is a “massive risk” to the economy.
These changes are part of the frequently mooted reforms that rating agencies point out for South Africa to implement.
Ramaphosa acknowledged Mantashe, whose department leads these changes but also acknowledged the work of Vulindlela in Treasury, led by the deputy minister of finance David Masondo who is tasked with implementing reforms.
- Inside Politics
