25 May 2022

Overview Government Intervention: The South African economy has been experiencing frequent bouts of load shedding (the local term for rolling blackouts) which has negatively impacted local industry and economic growth. To tackle this long-standing problem, Mineral Resources and Energy Minister, Gwede Mantashe, outlined plans in September 2020 for a new phase of power-generation procurement, to secure 11,813 MW of extra capacity. However, as the first additional power is unlikely to come on stream until mid-2022, further load-shedding will be required in the short term.  President Ramaphosa in a surprise move announced on June 10 the easing of licensing regulations for self-generation of electricity from 1 Megawatt  (MW) to 100 MW potentially releasing as much as 5,000 MW or more of renewable energy onto the grid by 2024. The new regulations will come into force in August 2021. Current Status: In South Africa, approximately 85 percent or 42,000 MW, of the nation’s electricity is generated via coal-fired power stations. Despite environmental concerns, coal will continue to provide the majority of South Africa’s power for the next decade, although the share from renewables will grow rapidly. South Africa is the world’s 14th-largest emitter of greenhouse gases and seeks to improve its poor environmental performance. After a sharp fall in 2020 because of the coronavirus (Covid-19) pandemic, energy consumption is expected to recover, with an average annual rate of growth of 0.3 percent over the forecast period (2021-30) according to The Economist’s report in March 2021. The modest pace of expansion will reflect improvements in energy efficiency, as well as continued sluggish growth in the South African economy. State Owned Utility: Eskom, the vertically integrated, state-owned power company, generates approximately 95 percent of electricity used in South Africa, as well as a substantial share of the electricity generated on the African continent. It sells to Botswana, Lesotho, Mozambique, Namibia, eSwatini Zimbabwe. South Africa has an electrification rate that is amongst the highest on the continent, with rural electrification around 66 percent, while electrification in urban areas is approximately 93 percent. Government Intervention: The South African government announced plans to unbundle Eskom into three separate entities responsible for generation, transmission, and distribution. This move was prompted by an urgent need to address the utility’s significant debt levels, which was reported in to have reached ZAR380bn ($ REIPPPP: Despite Eskom’s debt challenges, South Africa operates a highly successful, Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) for utility-scale transactions.  Further, South Africa’s rooftop solar photovoltaic (PV) market has seen significant growth over the past several years with an installed capacity potentially as high as 250 MW. South Africa Integrated Resource Plan (IRP) Policy: The South African Government’s National Development Plan (NDP) is the blueprint for infrastructure development to 2030.  The NDP lays out a framework for future power generation in South Africa, while energy policies in South Africa are driven primarily by the Department of Mineral Resources and Energy’s (DMRE) Integrated Resource Plan (IRP). The IRP is DMRE’s estimate of electricity demand growth and what energy generation types should be procured to meet that demand, along with the generation capacity, timing, and cost.  The IRP is an electricity infrastructure development plan based on least-cost electricity supply and demand balance, taking into account security of supply and the environment (minimize negative emissions and water usage). After several delays, the Minister of Mineral Resources and Energy finally signed the Integrated Resource Plan (IRP) on October 17, 2019.  It covers the period until 2030. The IRP envisages a total addition to electricity capacity of 29,500 MW by 2030, led by renewables (notably 14,400 MW from wind and 6,000 MW from solar photovoltaic). Policy Direction: As a result, the government announced a procurement package in September 2020, which represents a major acceleration of the goals set out in South Africa’s latest Integrated Resource Plan. This was government’s way of trying to respond to the problem of persistent electricity shortages in the country by announcing a new phase of power-generation procurement totalling a projected 11,813 MW. The bulk of the new capacity will be distributed as follows: Renewables (6,800 MW) Gas (3,000 MW) Coal (1,500 MW) Pumped storage (513 MW) All projects will be undertaken by independent power producers (IPPs), with output being sold to Eskom. Ambitiously, the authorities aim for the new capacity to be in place by 2022. Coal Status Update: Coal has traditionally dominated the energy supply sector in South Africa. Presently, about 77 percent of South Africa’s primary energy needs are provided by coal. Over the course of the past decade, Eskom has been developing two new coal-fired power plants, the Medupi and Kusile power stations, both supplying approximately 4,800 MW for a combined capacity of more than 9 GW.  Eskom announced on August 2, 2021 the Medupi power plant was finally completed while portions of Kusile remain under construction.  The IRP plans to decommission just over 10,000 MW of coal fired power plants by 2030 and replace them with a mixture of renewables and gas. Legal Issues: It was reported in March 2021 that unit 3 of the 4.8GW Kusile coal power plant had started commercial operations, after undergoing various tests and optimization procedures since first being completed in April 2019. The government has also stated that the Kusile power plant is expected to be online by 2023. In December 2020, the Pretoria High Court overturned the environmental approval of the planned 1.2GW Thabametsi coal-fired power plant after successful appeals by environmental groups. This follows arguments that the power plant would have been one of the most polluting power stations in the world. At the same time, the environmental groups are also lobbying for the planned Khanyisa coal power project to also be cancelled. This poses a downside risk for future thermal power projects planned for South Africa. Emissions: South African state-owned utility, Eskom, stated in November 2020 that it was planning to reach carbon neutrality by 2050. This is planned under its Just Energy Transition program, with the aim of moving away from coal power.

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