Busisiwe Mavuso | Why energy reforms will benefit SA beyond just ending load shedding
POSTED ON: July 29, 2022 IN by Admin
A promising aspect of the dramatic liberalisation of the energy sector announced this week is the potential economic growth it will bring. Economists I speak to say their early calculations may see them raise 2024 GDP growth forecasts from around 1.7% to 2.3% from the extra fixed investment that can occur – and that’s excluding the upside that will come when loadshedding ends. That could add a similar amount again.
It’s the kind of stimulus measure we desperately need and it has the dual effect of accelerating economic growth and establishing an environment to enable us to end loadshedding. That will happen only around the end of 2024, according to early estimates, and that’s only if reforms run smoothly. That means all aspects of the plan need to be implemented efficiently with no new obstacles thrown up.
Of course, had this plan been implemented two years ago (or much earlier) when the fundamentals of the crisis were no different to today, we could have already ended the loadshedding nightmare.
But this is the best way to address the problems as we face them today. It rightfully further loosens the state monopoly of generation that was first prised open in 2011 when SA procured its first 1,415MW of renewable energy in the first bid window of the Renewable Energy Independent Power Producers Procurement Programme. As the energy crisis worsened, more and more regulations have been loosened and more private sector generation allowed. Even raising the licensing threshold to 100MW last year wasn’t enough as the typical wind farm is 140MW while mining projects are normally 200MW to 300MW.
That threshold has now been lifted entirely but the biggest threat to realising the benefits of that are wider, more complex regulatory blockages. An important aspect for government to get right is the promise of quick, efficient bureaucratic procedures. Grid investments are also to be made easier within the law but will need careful and swift implementation.
The quicker everything happens, the sooner we’ll see the economic benefits.
The first to benefit will be the construction industry, which has had a torrid time since the 2010 Fifa World Cup in South Africa. It will create short-term jobs with the IPPs creating longer-term jobs. Those investments will drive SA’s gross fixed capital formation (GFCF), pushing up GDP growth. That said, we should be mindful that blockages could occur in the construction sector with the high demand for new projects. Business must plan for this.
Of course, the mega energy projects take time to get energy onto grid and the plan includes numerous measures to get every megawatt it can onto grid in the short term, even allowing home and building owners to sell excess power from their rooftop solar panels. Eskom will also be able to buy existing surplus capacity at IPPs, which we believe is around 200MW in total. That stems from specific clauses in the original power purchase agreements that limited them to selling the contracted amount. This resulted in a bizarre situation: a 140MW wind plant on a windy day could produce, say, 145MW but, despite its supply shortage, Eskom was not allowed to buy that surplus amount.
Every little bit helps as it eases demand on Eskom’s generation capacity. Simply put, we need more of this sense of pragmatism that the government has shown with this energy plan. Its interventions are aimed firstly at improving Eskom’s existing fleet (though this is not certain to succeed or be easy), then swiftly procuring new energy capacity. It opens the way for increased private sector investment in capacity, enabling businesses and households to invest in rooftop solar, for example, and positions the electricity sector for future growth.
This can be an exciting time for the private sector to do the heavy lifting if the foundations for this new vision of the energy system are rapidly implemented, improving wider sentiment and optimism. Let us not lose the opportunity created by this crisis.
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