BLSA CEO Letter – 26 June

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Any reduction in loadshedding is welcome but we must not let it lull us into complacency. Our electricity system remains unable to deliver for our economy. As we go deeper into winter the pressure on it will increase and loadshedding is very likely to reach record levels.

But I am pleased at the urgency and focus that both government and business are putting into dealing with the electricity crisis. We have an effective working relationship already in place based on the Energy Action Plan, which is being spearheaded by the National Energy Crisis Committee (Necom), with which business is very engaged. Yesterday, on a Sunday, Necom held a press briefing to update the media on various issues. Minister of electricity, Kgosientsho Ramokgopa, engaged frankly on several interventions that he and the rest of the government are focused on, along with representatives of Eskom and the presidency.

Necom is now almost a year old and has achieved much to turn around our energy outlook but more needs to be done. One of the remarkable achievements has been to spark private generation development through amendments to the National Electricity Regulation Act. As a result of those, some 4,200MW of new electricity generation has been registered with the National Energy Regulator over the last year. This is a remarkable achievement consisting entirely of renewable energy plants and is key to ending the load shedding crisis. Add to that the remarkable interventions to incentivise households and businesses to invest in rooftop solar, and there is a large supply side response under way to deal with our electricity crisis. While we don’t have details of just when the hundreds of new plants will come online, the lead times for solar and wind facilities are much shorter than fossil fuel burning plants. That is why experts are forecasting loadshedding will start to end in late 2025. We could achieve it even earlier, and then position the economy to grow and reduce the costs of energy.

What more can we do? Yesterday’s Necom briefing touched on several issues. The Energy Action Plan needs to adapt as we make progress or encounter obstacles. Eskom plant performance has improved over the last two weeks, showing an EAF of 60%, which is one of the main reasons for lower loadshedding levels. That is an achievement, even though the targets for EAF are 65% this year and 70% next year. That is not achievable, and we need to be honest about what is.

There are several interventions that the minister referred to that are important. One is the work of municipalities in incentivising customers to invest in embedded generation by paying them for grid feed-in. Cape Town has pioneered this, but several others including Nelson Mandela Bay and Buffalo City are in progress. This is positive, but we also need to cut red tape to allow embedded generators to operate even if they are not feeding into the grid. Municipalities could be acting faster to accelerate private generation.

We are also still waiting for a clear standardised wheeling framework. Such a framework allows electricity producers to wheel electricity over the grid, inputting it at one point so that it can be drawn at another point by a client. This has had perverse implications, such as the Mafube Local Municipality in the Free State being barred from buying solar energy from a privately owned utility. Several other private generators are ready to start building but have been unable to get wheeling agreements in place. Again, the minister said yesterday that this is a priority that will be established soon – but we need clear deadlines.

We also need to do more about grid capacity. This requires major investment, and we must ensure that grid investment plans match and enable generation. The minister yesterday was frank that Eskom’s balance sheet cannot fund the investment needed – over R210bn for Eskom’s current grid plan. I was pleased with the vision he set out of engaging with the private sector through public-private partnerships to enhance grid capacity. This is the right way to go, but we need to accelerate and plan for it – how exactly will these PPPs be structured and when will we open for bidders? If we have a clear plan and timelines, we can look again to investing in expanding generation in areas like the Northern Cape and Eastern Cape which have the best conditions for renewable energy to bring it online in time with grid capacity delivery.

But even with the grid as it is, we could be doing more to use it effectively, including introducing an electricity production curtailment framework to “shed” generation at times of day when it exceeds grid capacity, so enabling production at other times of the day. New generation can be incentivised in areas where grid capacity is most available.

A critical factor is the restructuring of Eskom, including the establishment of an independent grid operator. The minister touched on this yesterday too, saying that the board will be appointed soon by the minister of public enterprises, though a license decision is still needed from Nersa for the operator. This is another area we can accelerate progress.

The other important milestone we are waiting for is bid window 7 under the REIPPP programme. The minister yesterday confirmed it is on track to launch by end July, with 5,000MW expected to be procured from wind and solar. Alongside that, 3,000MW of gas generation is intended to be procured, and 1,200MW of additional battery storage. These are large numbers that will significantly improve capacity.

These are just some of the examples of how business and government are working together to deliver more in dealing with our energy crisis. The renewed partnership under Business for South Africa, that includes workstreams on logistics as well as crime and corruption, provides new impetus to accelerating our efforts to deal with the crisis. Much progress has been made that demonstrates how when government and business work together, we can overcome our biggest challenges. Yesterday’s Necom briefing was a positive indicator of the work that has been done. There is more we can do, and I will continue to work with my colleagues to strive to do it.

 

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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