Friday, January 21

How fast can we connect electricity to the grid?

South Africans are well known for being able to plan in the midst of a crisis. But the electricity crisis is now long-lasting. Despite progress in paving the way for private companies to more easily build plants up to 100MW and future rounds of the renewable energy program, we are facing unprecedented levels of load reduction, severely disrupting business and our daily life. While we are on the path to long-term energy stability as front-line companies and service providers begin construction, we are probably two years away from a major change in the electricity supply landscape.

The obvious question is whether we have depleted our wells of creativity to find ways to lessen challenges in the meantime and accelerate the point of resolution. I think we could be doing more.

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BLSA will work with its members to assess companies’ progress in using the regulatory space now available to invest in next generation. We intend to ensure that all parties are aligned so that the delivery of new generation capacity is as smooth and fast as possible.

But the key challenge is how fast can we connect electricity to the grid. In this sense, we have failed to “make a plan” when faced with challenges. One attempt was the so-called “accelerated” procurement round of the Office of IPP. This was an effort to quickly bring two gigawatts of power to the grid, but it is now in disarray. It was intended to deliver new capacity from the middle of next year, but is mired in litigation largely because more than half of the power was awarded to Karpowership, which would use liquefied natural gas at high cost. Many have rightly opposed the 20-year procurement agreements the program planned to sign.

Clearly, in the medium term, we should be generating low-cost, clean generation capacity. The recently closed fifth bidding window of the IPP program showed how that is possible, with guaranteed average prices of 47c / kWh for a combination of solar and wind. Karpowership costs were indexed to the international gas price and exchange rate, but at the time of the winners’ announcement they were between R 1.36 and 1.62 / kWh. Since then, gas prices have risen dramatically. It can be argued that this is a price worth paying in the short term, given the severe damage that burden reduction is causing to the economy, but there can be no such argument for a 20-year deal.

So we have somehow failed to make the plan obvious: engage Karpowership in a short-term deal while we wait for a more sustainable lower-cost generation to go into production. I think this comes down to vested interests and a lack of political will. But it is still a plan that could be done. The other obvious point is that the balance of the emergency round, which consisted of renewables and battery storage solutions, should move forward as soon as possible.

These are not the only options we could look for. The interventions we have developed are largely related to external producers intervening to build a new plant to diversify from Eskom. However, Eskom has resources that it could combine with private sector operators to rapidly develop new capabilities. That would require Eskom’s willingness to directly engage private partners to take advantage of those opportunities, which will need political support. However, it is one way that we could make more plans to deal with the immediate crisis more quickly.

The urgency is undeniable. Cargo shedding costs the economy billions. Last week’s medium-term budget policy statement showed how important it is for the economy to grow and generate the tax revenue needed to pay for public services. We cannot change the trajectory of employment without energy security, which is necessary for companies to invest and expand with confidence.

We need South Africans to unite with the tenacity that we have exhibited so many times before; confronting Covid-19 has been an excellent recent example. We need to be creative in finding solutions, with all partners working together productively to identify and then implement the plans that we might be making. I look forward to working with partners to do that.

It was not the easiest time for Finance Minister Enoch Godongwana to take over, but we congratulate him on his first medium-term budget in parliament last week. It reflected a strong commitment to fiscal discipline and I wrote on business day that if he and Operation Vulindlela renew their efforts to accelerate other key reforms, it will restore a lot of confidence among businesses and investors, locally and internationally, that we are on the right economic path.

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