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Dogma undermines South Africa’s renewables push

As blackouts worsen, government launches flawed emergency power procurement plan and fails to liberalise sector

South Africa has committed to reducing its reliance on coal-fired power plants, but unless the government liberalises the energy sector a decisive switch to renewables seems improbable.

Pretoria, in its Integrated Resource Plan 2019, set binding targets to cut installed coal capacity from 39.1GW in 2018 to 33.8GW in 2030. Over the same period, South Africa also wants to quintuple solar PV to 8GW, raise wind sixfold to 11.4GW and triple gas/diesel to 11.9GW.

But overseeing this transition is state utility Eskom, which has debts of ZAR454bn ($27bn) that it cannot repay and has been mired in corruption and incompetence for decades. In short, it lacks the financial resources, knowhow and investor confidence to fulfil South Africa’s renewable energy ambitions.

Eskom also operates around 90pc of the country’s installed capacity and has monopoly control of transmission, distribution and trade of electricity.

“All the energy policies South Africa is pursuing are slow, state-led and restrictive” Marks, Cross-Border Information

“All the energy policies South Africa is pursuing are slow, state-led and restrictive,” says Dan Marks, Africa energy and live data power editor at British consultancy Cross-Border Information.

“If you had a much freer market where you could supply consumers directly, you would probably find a huge amount of renewable power coming online within the next year as providers supplemented solar power with batteries. There is no technical or technological reason why South Africa cannot transition to renewables.”

South Africa has faced sporadic electricity shortages since around 2008, spurring Eskom to run its coal power plants excessively hard while also failing to perform sufficient maintenance. Breakdowns have put up to 12.1GW of installed capacity out of commission, according to Eskom, forcing it into daily load shedding in various districts.

Procurement programme

In response, South Africa launched an emergency Risk Mitigation Independent Power Producer (IPP) Procurement Programme that aims to procure 2,000MW of new capacity. The tender, which is technology-agnostic and so could use fossil fuels or renewables, envisages new projects starting production in June 2022.

“It is not going to solve the current load shedding crisis, and the timelines for these new projects to become operational are very aggressive—we are getting mixed messages from the market and we will have to see if this is feasible or whether it is just a wasted opportunity,” says Lido Fontana, a lawyer at law firm Covington & Burling in Johannesburg specialising in large infrastructure transactions.

“The real way to solve the current load shedding is to focus on the regulatory issues, to address the concerns around generation licences. [Rules should] allow potential producers to sell back into the grid, including small-scale solar projects and micro grids. These solutions can be deployed quickly, and there is a lot of capital ready to mobilise to do that.”

Political resistance

Opening up the market offers a relatively simple, quick solution. Yet for ideological or dogmatic reasons, the government would rather pursue a more complicated plan that is less likely to succeed.

“The least-cost path is renewables and gas, but the government does not quite buy into that narrative because it has huge vested interests in coal, in that it is a large employer and symbolic of South Africa,” says Marks.

Much blame lies with mineral resources and energy minister Gwede Mantashe, who seems beholden to coal despite the reluctance of local and international banks and multilateral institutions to fund new coal-fired plants. His moniker of ‘King Coal’ is well-earned.

12.1 GW – Installed capacity out of commission due to breakdowns

“Renewables are inevitable, and Eskom has no money to build its own new capacity at any large scale so there is no alternative to IPP procurement,” says Fontana.

By liberalising the sector, South Africa could partner with international development and financial institutions to fund a renewables transition, says Peter Attard Montalto, head of capital markets research at Johannesburg research firm Intellidex. This would allow Eskom “to retire its coal fleet faster and deal with its outstanding debt”, he adds.

But should the government fail to liberalise the sector, a simpler solution could be to import electricity produced via hydropower or solar from its neighbours.

“South Africa could get overtaken by events in that the best regional solar resources are in Namibia, Botswana and parts of the northern Cape,” adds Marks. “If South Africa does not develop these resources, it will ultimately end up importing this power anyway because it will be cheaper than domestic electricity production.”

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