New Finance Minister Enoch Godongwana acknowledged that the government had spent the past 13 years trying to fix the problem at state-owned electricity utility Eskom rather than trying to create additional electricity generation capacity.
He said that the government has already made significant progress in correcting this by amending Schedule 2 of the Electricity Regulation Act of 2006, which raised the licensing threshold for private sector power providers from 1 megawatt (MW) to 100 MW. It has also made it possible for private power generators to sell directly to customers, which should alleviate the risk of load shedding. Load shedding this year has already exceeded 1,000 hours.
The amended electricity regulations will further enable municipalities to self-generate or procure power directly from independent power producers, with Cape Town and Johannesburg among the municipalities most keen to reduce their reliance on Eskom power.
The government has also begun to reduce the country’s reliance on Eskom by diversifying the nation’s primary energy sources. The gains from this diversification are demonstrated by the outcome of the most recent round of the Renewable Energy Independent Power Producer (REIPP) programme.
The 25 projects that are part of the latest round of Bid Window 5 will generate more than 2 500 MW of power at a weighted average price of 47.3 cents per kilowatt hour. This is the cheapest rate achieved in the history of the South African renewable energy programme and is among the lowest rates achieved globally.
Load shedding has been a feature of the South African economic landscape since January 2008, constraining economic growth. So over the longer term, creating a competitive energy market will help contain the costs of generating electricity and support GDP growth as it will allow more beneficiation of South Africa’s mineral wealth, as beneficiation tends to be electricity-intensive.
Despite the problems at Eskom, South Africa is the largest greenhouse gas (GHG) emitter in Africa due to its reliance on coal-fired power stations and ranks as the 12th largest globally. South Africa has committed itself to reducing these GHG emissions and has ambitious climate change targets. These include having GHG emissions peak in 2025 at 510 million tonnes and decline thereafter to a maximum of 420 million tonnes by 2030.
These targets are in line with the 2012 National Development Plan and net-zero emissions commitments by 2050. Reducing GHG emissions and adapting to climate change will involve a concerted national effort, so achieving a just transition, and promoting resilience to droughts, floods and extreme temperature change, requires the participation of all economic sectors.
Extensive work has already been undertaken within the government to prepare for a climate transition, which aims to preserve as many jobs as possible. Last week, the government announced that developed countries would mobilise R131 billion in concessional and grant funding over the next three to five years to support South Africa's transition away from coal and develop new sectors such as electric vehicles and green hydrogen.
Eskom’s Just Energy Transition plan is the first step in efforts to de-carbonise the energy sector and is being reviewed by the government. A well-designed transition will enable South Africa to access additional international climate finance from entities such as the BRICS New Development Bank, the Green Climate Fund, Climate Investment Funds and other sources.
To help meet its climate mitigation goals, the government introduced a carbon tax in 2019. Announcements concerning the second phase of this tax, which begins in 2023, will be made in the February 2022 Budget.
BUSINESS REPORT ONLINE