New Finance Minister Enoch Godongwana acknowledged that the government has 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.
This was a view he shared with the media in November 2021, and which he repeated in February 2022.
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 100MW.
It has also made it possible for private power generators to sell directly to customers, which should alleviate the risk of load-shedding. In 2021 there was 1 773 Gigawatt-hours of load-shedding.
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 metros 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 500MW 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 over the longer term, and creating a competitive energy market would 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.
In his Budget Speech, Godongwana said that the government would continue to support Eskom to remain financially sustainable during its transition.
Already Eskom has been provided with R136 billion to date to pay off its debt, with a further R88bn budgeted for until 2025/26.
The finance minister acknowledged, however, that Eskom is faced with a large amount of debt that remains a challenge to service without government support, which is why the National Treasury is working on a sustainable solution to deal with Eskom’s debt in a manner that is equitable and fair to all stakeholders.
Any proposed solution will be contingent on continued progress to reform South Africa’s electricity sector and Eskom’s own progress on its turnaround plan, and its restructuring.
To help with debt reduction, the government expects Eskom to take further steps towards cost containment, conclude the sale of assets and implement operational improvements to enhance the reliability of electricity supply.
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 (NDP), 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.
In November 2021, the government announced that developed countries will mobilise R131bn 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 a first step in efforts to decarbonise the energy sector and is being reviewed by the government.
A well-designed transition will enable South Africa to access additional international climate finance form entities such as the BRICS New Development Bank, the Green Climate Fund, Climate Investment Funds and other sources.