Renewables & Rethinking Energy in South Africa: A Three-Part Series - Part 2: Bright or Dim Future in Policy?

Written by Lindsay Moses.

Part 2: Bright or Dim Future in Policy?

South Africans have never been more inspired to consider the role of electricity in their daily lives, and more concerned about Eskom’s failure to ensure consistent electricity supply for all.[1] Electricity generation has declined to an all-time low. Businesses have had to close due to the ESKOMs erratic electric supply and exorbitant prices - with small businesses particularly being severely affected.  Huge GDP contributors like the mining sector, have equally suffered and given how dependent South Africa’s GDP is on mining, the economy tends to suffer in turn.  The President even declared the country to be in a State of Disaster, with immediate effect during his State of the Nation address – all owing to the country’s energy crisis.

 Despite this, the costs of electricity have only continued to rise as Eskom’s aging plants require more maintenance. While Eskom is trying to meet their revenue targets, most municipalities continue to go deeper into debt with them (currently at an estimated combined debt of R50 billion). Energy security is essential to one’s ability to lead a dignified life, a country’s ability to function and advance, and an economy’s overall performance and stability. With load-shedding being declared a fixed feature of South Africans’ daily reality until the year 2025, there has arguably never been a more pertinent time to consider the role efficient policy can play to facilitate change.

There is an undeniable need for the reconstruction of South Africa’s energy industry. The sector should be reconfigured in a way that strengthens long-term electricity production and minimises supply volatility. Eskom cannot handle the current system demand and this incapacity is costing the economy billions.[2] ESKOM is currently R400bn in debt, and have pushed the country into a state of disaster to the point where a new minister of electricity has been created with the sole purpose of reducing the loadshedding EKOM has caused.

Additional power producers have thus become an immediate necessity for the country.[3] Allowing private players onto the grid addresses strains on the grid brought by both civil society and commercial sector (which creates system disruptions and shocks). Lowering barriers to entry for willing and diverse energy producers is a meaningful, accountable, and promising first steps. Ensuring that potential energy producers who will benefit from lower barriers of entry are exclusively or mostly carbon based-energy producers further creates the basis for sustainable energy production.

Notable initiatives by the government in the past few years include the launching of the Renewable Independent Power Producer Programmes (REIPPPs) in 2011 which has been an important attempt at opening up the grid to alternative power producers and brings the country one step closer to the a much-needed decentralisation of the country’s power supply from the dominant supplier, Eskom. Another important initiative was creation of the Integrated Resource Plan 2019 which committed the country to a diversified energy mix. The President has also committed to the restructuring and unbundling of Eskom into different functionary entities: Generation, Transmission, Distribution, already concretised in Eskom’s 2019 Roadmap. More practically, Eskom’s Grid Code along with a collage of gazetted amendments to the Electricity Regulation Act 4 of 2006 (ERA) has complemented these initiatives by, among others, addressing some red-tapes and procedural hurdles that power producers trying to operationalise projects of generation may encounter.

One very important amendment occurred on 12 August 2021.[4] This government gazette was promulgated in cognisance of Schedule 2 of the ERA and specifically the existent provisions which prohibit trading, importing, exporting, and the operation of any facilities which generate, transmit or distribute electricity without a license issued by the National Energy Regulator of South Africa (NERSA).[5] Under the ERA, there is ministerial discretion to exempt certain persons wishing to engage in these activities from obtaining a license, and to register themselves with the regulator.[6] The determinations explicitly provided the activities exempt from any prior licensing and registration, and set the licensing threshold to 100MW projects (or more). This including instances where facilities operated with the sole purpose of providing standby or backup electricity in the event of an electricity supply interruption.[7] At the time of these determinations private generation facilities that met these guidelines were allowed build generation facilities and to sell directly to end-use consumers without a license, but would still required a license in the event they would like to sell electricity to Eskom, or distributors (like municipalities).

Then came a huge shift: In a moment of hope for the country’s energy crisis, on 21 January 2023 President Ramaphosa and his National Energy Crisis Committee announced that Schedule 2 of the ERA has entirely removed licensing requirements for generation facilities.[8] This has been done in a bid to create more national energy generation capacity and purposefully accelerating these projects through: classing generation projects as Strategic Infrastructure Projects with shortened the time frames of environmental authorisations, water use licenses and other requirements typically required, allocating dedicated capacity at Eskom to process grid connection applications, NERSA registration simplification, and the creation of dedicated Renewable Energy Development Zones.[9] These governmental determinations thus open windows of opportunity for the necessary decentralising of power supply by lowering sectoral entry points and welcoming more private sector suppliers are into production, albeit to bridge the gaps of coal-generated energy.

See Part 3 of this series to get a deeper look into the funding commitments that may hinder the effectiveness of policy implemented.