STUART THEOBALD: Electricity crisis is over; a radical new world beckons

I have on my desk a picture of the Khi Solar One concentrated solar plant outside Upington, Northern Cape. More than 4,000 mirrors focus the sun’s energy onto the top of a tower 50 storeys high where pressurised steam is heated to 400°C. The focus point shines like a star, visible in the daylight from 10km away. When it began operation in February 2016 it was the first concentrated solar facility in Africa.

It was one of 28 projects that got the go-ahead in the first round of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme in 2011. The programme had walked a tricky route, galvanised when load-shedding began in 2008 but accelerated into reality after the Zuma government committed to sharp carbon reduction targets at the 2009 Congress of Parties (COP) meeting.

That was the first systematic inclusion of the private sector in SA’s electricity system since Eskom was created in 1922. Thirteen years later, the electricity system has been completely transformed.

The National Transmission Company of SA (NTSCA) officially began trading on July 1. This is a distinct entity, for now a subsidiary of Eskom but soon to be unbundled and separated, that will manage the national grid. It will trade with all electricity generators, including Khi Solar One, operated by Spanish utility Abengoa, as well as Eskom generation and generators elsewhere in Africa. It will manage a competitive market for electricity supply, which has the potential to drive down prices.

Generators and consumers will be able to trade directly with each other, too, wheeling power over the grid. The final steps in this process still need the enactment of an amendment bill to the Electricity Regulation Act that is awaiting signature on the president’s desk after having been passed by parliament before the elections. While the legislation is imperfect, it does mark a profound and radically different era for electricity in SA.

Right direction

The absence of load-shedding over the past 100 days is partly a result of the growth of private generation and improved Eskom plant performance. Eskom’s energy availability factor (how much of its theoretical capacity is actually working) has been solidly more than 60% for eight weeks, after having averaged about 55% in 2023. It also reflects the growth of rooftop solar installations, which Eskom estimates now add up to 5.5GW of capacity, the equivalent of almost three Koeberg nuclear power plants. In May, SA produced about 6% less electricity than five years ago, but load-shedding was far less because of this demand reduction.

While it’s too soon to declare load-shedding over, the trend is in the right direction. In the past year, 2.7GW of new private generation was registered with the National Electricity Regulator, and additional capacity that will come on stream in the next months and years.

The REIPPP programme is still going, with 109 projects operating. It is still commissioning more, though not as smoothly as during its first five years. It is in its seventh bid window, which will close on August 15 after delays. It is also running bidding windows for battery storage capacity.

This evolving picture has improved the proportion of electricity production from renewable sources. In 2016, renewables never rose above 10% of electricity production during the day, but in 2023 it peaked at 21.8%. We should expect that number to continue to rise as new renewable energy projects come on stream.

This means that the electricity crisis is over. We are moving into a radical new world in which electricity prices might even be able to fall after rising fourfold since 2008. The new government is likely to stay on this course, if not accelerate it.

Comparative advantage

This reality has not been fully priced into the SA story. So inured are investors to government success that they have ignored the improving electricity outlook for some time. Improved availability reduces the operating costs for many businesses, from retailers to hospital groups. It also reduces the cost of investment, with less capital expenditure needed to cover energy requirements.

It will remain economically optimal for new construction to include embedded solar generation, but diesel backup will increasingly be seen as unnecessary. As the NTSCA gears up, it will become common for large electricity consumers to be buying directly from specific generators, locking in energy reliability.

The new system has the potential to restore abundant energy as a comparative advantage for SA. The industrial economy grew in the 1990s and early 2000s because of artificially low electricity tariffs, enabled by generating plant that had been paid for decades earlier and no further capital expenditure. We have been paying for that through load-shedding.

Now, however, the market dynamics will be driven by abundant solar and wind energy, the cost of turning it into electricity, and the ability to move it across the grid. An NTSCA that enables those costs to fall could be a real spur to economic activity.