Energy update from the Minister of Energy

The Minister today committed government to a collaborative approach with the private sector in dealing with the current energy crisis in South Africa.

At the DLO Africa Power Roundtable Conference today (March 26, 2019), the Minister spoke positively about the imminent release of the final Integrated Resource Plan (IRP), the unbundling of Eskom and long-term need for renewable energy.

Whilst the focus of the discussion at the DLO Africa Power Roundtable Conference is investment opportunities in Southern Africa, the Minister urged delegates from government and the private sector in attendance to appreciate the impact of climate change and the need for South Africa to develop resilient energy efficient systems and infrastructures to meet the risks posed by adverse climate change.

The Minister spoke of the devastating effects of Cyclone Idai on the country’s neighbouring territories, including infrastructure on which South Africa is dependent for its electricity supply. Climate change, in the Minister’s view, poses a threat to the country’s developmental aspirations.

The Minister presented an overall positive outlook for the energy sector amidst the current power supply crisis and encouraged a collaborative approach between government and the private sector to support the IRP, unbundling of Eskom and Independent Power Producer (IPP) Programme which will look to deal with the power supply deterioration in the short-term and long-term.

Highlights from the Minister’s address

IRP

Regional collaboration is imperative for the economic growth and development of the country. Through policy and regulatory reform, the Minister believes that the investment target of USD100 billion by 2023 can be achieved.

The Minister stated that he is confident that the robust consultation and commentary process adopted in relation to the draft IRP has resulted in a near final document that will achieve government’s objectives of increasing energy supply and investment in the country by 2030.

Discussions with NEDLAC are expected to be finalised shortly and the Minister intends presenting the final IRP to the National Assembly as soon as possible thereafter. The Minister suggested that the final IRP reflects a better balance of technology options for increased electricity supply and a tangible plan for energy security.

Eskom

The success of the IRP and related policy and regulatory reform will depend on the ability of Eskom and municipalities to implement the objectives of increased energy supply and energy efficiencies.

The Minister reminded delegates that the unbundling of Eskom into generation, distribution and transmission divisions has been in the pipeline since 1998 but the execution by Eskom and government has been poor.

The unbundling of Eskom is not a privatisation of Eskom – the aim of the unbundling according to the Minister is to achieve 3 functional areas of service where costs of each division will be easily identifiable. The Minister stated that financial institutions are averse to funding structures like Eskom which are based on a vertically integrated model. The unbundling will allow financing of new power infrastructures to meet the objectives of policy and regulatory frameworks that support adequate power infrastructure for 200 million people.

The Minister acknowledged that in achieving energy efficiencies, municipalities will receive less revenue. The Minister has therefore suggested implementing a revenue decoupling approach with municipalities where municipalities will be rewarded for increased energy efficiencies as opposed to being rewarded for increased revenues only.

The proposed amendments to section 2 of the Electricity Regulation Act are aimed at encouraging municipal generation. Government supports this approach and encourages less developed municipalities to engage with government for guidance on projects for own generation.

The historical challenges of municipalities with poor metering systems and growing non-payment for electricity services are focus areas of the proposed policy reform.

Whilst government is engaged with NERSA to support a steady increase of electricity tariffs, the Minister cautioned that the aim will always be to cushion the poor against higher than normal tariffs and industrial consumers will need to continue to cross-subsidise residential consumers to achieve this.

Independent power producers

The success of the Department of Energy’s Renewable Energy IPP Programme (IPP Programme) cannot be overlooked when planning for sustainable energy security and increased investment.

The Minister acknowledged the private sector contribution to meeting energy demand through the sector’s involvement with the IPP Programme. Whilst there are many opposed to the use of renewable energy, the Minister debunked some of these theories:

• Renewable energy is not expensive – the succeeding rounds of the IPP Programme have proven to be more cost effective and the improvement of the technologies will only increase these cost efficiencies in future rounds of the IPP Programme.
• Renewable energy results in unemployment – the decommissioning of older power stations by Eskom as a consequence of a depletion of coal supply in these areas has resulted in a number of job losses in the Minister’s view.
• The Minister has committed government’s support to the IPP Programme and spoke of his consultations with the IPP Office to expedite further rounds of the IPP Programme to reach government’s aim of 20,000MW by 2030. The Minister has also invited the IPP Office to consider deviations from the IPP Programme requirements during the expedited processes so that energy demand can be met in the most efficient way.