BLSA CEO’s letter 10 May
POSTED ON: May 10, 2021 IN BLSA CEO's Weekly, Covid-19, Economic policy, Infrastructure, SOEs by BLSA
By Busi Mavuso
Energy policy reform is key to our economic recovery.
Last week I wrote to you about how important energy security is for our economic recovery. It is arguably the single most important economic policy issue we have to get right as a country and BLSA is committed to supporting government. This week I set out the case for why it is only with the private sector that we can succeed.
The story of energy policy reform goes back to the dawn of democracy. In 1998, an energy white paper was finalised that envisioned a competitive electricity supply market, with many operators competing to offer the cheapest energy to consumers. It envisioned open access to the electricity transmission system and giving customers the right to choose their suppliers. It foresaw competition particularly in electricity generation.
While that was the right set of objectives, resistance by vested interests meant government was unable to implement the changes. Instead, demand continued to grow while supply remained stagnant resulting in load-shedding from 2007.
That was a case of political cowardice – a fear of confronting vested interests instead of insisting on the changes that were in the public interest.
As we now tackle the energy crisis with new vigour, we need political courage. We have the potential to create an efficient and reliable energy supply sector but we must focus on delivering the policy changes needed swiftly and with determination. Our focus must be on the outcome we desire rather than the detail of who does it and how electricity is created. Competition focuses attention on what matters: the price and reliability of supply.
Some of the policy issues we need to address are upon us. One is the question of embedded generation, the ability of companies to produce energy for their own use in their own plant, and potentially to supply excess capacity to the grid. Currently, companies face a cumbersome and expensive licensing process to set up a plant with capacity above 1MW in terms of Schedule 2 of the Electricity Supply Act. President Cyril Ramaphosa signalled in the State of the Nation Speech in February that this would be amended. Eskom CEO André de Ruyter has said that he would support raising the threshold to 50MW. Yet the Department of Mineral Resources and Energy has published a draft amendment raising it to 10MW. This is inadequate. Embedded generation is the fastest mechanism available to us to increase electricity availability. The threshold should be raised to 50MW.
We believe that companies would invest about R150bn in new plants, particularly renewable solar energy which is currently the least cost source. That would create tens of thousands of jobs and support wider investment as companies regain confidence in energy security.
A further step would be to allow, in line with the original 1998 policy position, for companies to be able to buy electricity from each other by wheeling through the grid. Companies may not have the expertise or capital to build their own 50MW plant but would be willing to buy electricity from others who do. A willing buyer/willing seller approach like this would advance energy security, support investment and create jobs. This would be the private sector solving the crisis, and it could happen fast, at no cost to the government, if the right policy changes are made.
The private sector is also key to future supply into the national grid. The renewable energy independent power producers programme has so far seen four main rounds and over 100 projects, most delivered on time and on budget. It has, so far, been a model of effective procurement, with government managing successive rounds with clarity and decisiveness. These standards need to continue to be the hallmark of the programme to ensure that the private sector has trust in the process and can bid with confidence that they don’t face unexpected risks.
These are the right policy choices, but we need the courage that we lacked after 1998 to follow through and deliver on them. BLSA and our members will work with government to make sure we deliver future energy security.
The court action by DNG Power to halt the state’s award of a tender for 2,000MW of emergency power is concerning. I wrote in Business Day that I hope legal disputes don’t delay our progress towards a lasting solution for our energy situation.
This is a weekly newsletter from BLSA CEO Busi Mavuso.
BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. In 2017, BLSA signed a contract with South Africa, committing business to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.
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