South Africa’s Energy Crisis

By Global Risk Insights

Coal

South Africa is facing an energy crisis. The once distinguished national public energy provider, Eskom, has been driven to the point of collapse by “years of corruption, incompetence and political meddling”. Under the Presidency of Jacob Zuma, Eskom went from making a billion Rand profit in 2008 to making a 2.3 billion Rand loss. The Eskom crisis has only depressed an already strained economy.

This critical situation has left Cyril Ramaphosa, the presidential incumbent, in an uncomfortable position. To address South Africa’s myriad problems, Ramaphosa must garner support and reform a party filled with discredited Zuma loyalists. To do so, he has surrounded himself with a prudent group of advisers and ministers who have established expertise on national energy issues. Ramaphosa, an assertive trade-unionist turned billionaire businessman, is now well placed to lead South Africa towards a new energy regime. The crisis also presents an opportunity to expand into the alternative energy sector.

The transition from Coal to Clean

South Africa remains largely dependent on coal. Eskom generates 90 percent of its electricity from an increasingly ‘dirty’ stockpile, that is sourced from mines further and further away from its aging power plants. In recent weeks, the country has experienced power outages, locally referred to as ‘load shedding’. Despite the 2016 statement from Zuma that “we will never have load shedding again”, the problem has gotten significantly worse. Load shedding is occurring over weekends and in the summer, periods when demand is low.

Minister for Public Enterprises, Pravin Gordhan, has recently conceded that “Eskom is currently facing massive problems of a structural nature, operational nature and financial nature.” In order to address these concerns, the President has announced a strategic change in Eskom’s business model. The utility will be reconfigured into three separate entities: generation, transmission and distribution.

Eskom’s reconfiguration forms part of the government’s new Integrated Resource Plan. According to the draft plan, the government will pursue “a diversified energy mix” and source 42 percent of energy needs from renewables by 2030. The proposal to massively scale down on coal dependency is being actively opposed by powerful labor unions. Though the Government has pledged a “just transition”, unions are unsettled by the prospect of massive job loss in a country struggling with unemployment.

While those job concerns are certainly legitimate, South Africa has a significant need – and potential gain – from renewable energy investment. Furthermore, its renewable procurement programmes have achieved significant success. The Renewable Energy Independent Power Producer Procurement Programme, introduced in 2011, has been hailed as one of the world’s most successful renewable power producer programmes. Not only will renewables provide a cleaner future, but they will also increasingly become cheaper, especially as storage capability improves.

A need for leadership

The Resource Plan and the renewable programmes alone are not sufficient; determined leadership and execution is now needed. Messages from the political administration have been mixed. They appear to be appeasing all sides. Mineral Resources Minister Gwede Mantashe pledged that a transition from coal will take place while warning the coal industry to “wake up, you are under attack.” While broad postures and little action are to be expected from campaigning parties in the weeks leading up to the May 8th general election, the governing party must work now to ensure the new government hits the ground running.

With Ramaphosa’s African National Congress likely to maintain its majority after the election, the President is showing clear leadership by taking direction from the National Development Plan, the strategic document that has mainly gathered dust under Zuma. In a recent statement, the Presidency has committed to pursue the considerable renewable energy targets set out in the Development Plan. It has strategically pointed to energy as “a key enabler in South Africa’s trajectory towards socio-economic growth and development.”

South Africa is undoubtedly facing an energy crisis – but one that presents clear opportunities. The President is showing signs that he will work to exploit these opportunities and execute the strategic programmes as detailed in the Development Plan.

By Global Risk Insights

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