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Some progress

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Some progress

30th October 2020

By: Terence Creamer
Creamer Media Editor

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Despite much head scratching over the timelines provided in the Reconstruction and Recovery Plan for the commissioning of much-needed electricity supply, October otherwise proved to be an important month, helping to provide greater definition around the future of the electricity industry and the role it can play in the immediate economic recovery.

For one, sense prevailed in the eventual exclusion of nuclear from the strategy. Small-scale reactors (SMRs) could eventually play a role in the global decarbonisation effort. But including a solution that is not yet commercial and that would require bucketloads of State finance and capacity (both as rare as a commercially viable SMR) would have beggared belief.

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Then, a day after President Cyril Ramaphosa listed the rapid expansion of energy generation as a top priority, Mineral Resources and Energy Minister Gwede Mantashe followed up with his long-awaited amendments to the electricity regulations governing the addition of new generation capacity. While the changes still appear overly restrictive, the Gazette notice theoretically allows municipalities in good financial standing to develop, or procure, their own power generation.

This is a significant development as, hitherto, Eskom has been the ‘single buyer’ of all electricity arising from independent power producers (IPPs). Opening the way for municipal utilities could be important not only for unlocking new capacity, but for providing those municipalities with the flexibility required to contain electricity costs and to introduce the tariff reforms needed to avoid their own death spirals.

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Thirdly, positive signals have been provided that efforts are indeed under way to address the regulatory and bureaucratic hurdles that continue to block the way for corporate IPP deals – deals that several companies are keen to pursue in an effort to secure cleaner electricity and greater price-path certainty.

Fourth, both the Department of Public Enterprises and Eskom showed a united front on the need to address the main structural issue impeding the long-term health of the country’s electricity supply industry: Eskom’s vertical integration.

Although ways have been found around the fact that Eskom is potentially player and referee when it comes to grid access, in the long run South Africa will only be able to attract the massive investment needed to stabilise its failing electricity sector if the grid and system operator are separated from Eskom’s generation and distribution divisions.

As Eskom CEO Andre de Ruyter highlighted this month, private investment in generation “requires independence in transmission and market operation” to overcome concerns of potential bias in areas such as grid and market access, dispatch instructions and procurement decisions. It was, thus, gratifying to start seeing firmer timelines (albeit protracted ones) for the creation of the so-called Independent Transmission System and Market Operator.

These developments follow movement, if glacial, in ensuring that the Integrated Resource Plan is finally implemented, after Ministerial determinations that open the way for procurement were approved in September.

The changes are admittedly architectural at a time when South Africa should be building. Nevertheless, they still represent progress.

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