Ramaphosa’s electricity plan gets a lot right, but doesn’t address the elephant in the room

The President’s electricity plan is good news on a few fronts, as it acknowledges the private sector, reduces red tape, ramps up renewable projects, and could potentially boost the country’s gross domestic product (GDP).

“Therefore, there is a lot to celebrate, but we need to see urgency in the way these measures are implemented, especially where government departments are involved. Otherwise, it would just be another wish list with little impact,” says independent economist, Elize Kruger.

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She points out that the electricity plan acknowledges the important role of the private sector in addressing the country’s energy needs, in contrast to government’s general reluctance to privatization. As the president said: “Eskom is too big to fail. It is a national asset. But it will co-exist with private players.”

Kruger says this opens the door for similar private sector involvement in other sectors of the economy as well.

Regulatory barriers and red tape to take a hike

Another contrast to previous plans is the complete scrapping of licencing requirements for private energy projects that feed into the electricity grid, in contrast to government’s eternal need to regulate and micro-manage everything, she says.

After the cap on energy generation facilities was previously lifted to 100 MW, more than 80 private sector electricity projects, with a combined planned capacity of over 6 000MW, got off the ground.

Now this cap has been removed and a single point of entry for all energy project applications, a “One-Stop-Shop” will ensure coordination of approval processes across government departments, which is indeed a step in the right direction, Kruger says.

“Notable ramping up of renewable projects will boost Gross Fixed Capital Expenditure (GFCF) and job creation in the economy. Doubling the amount of new generation capacity procured through Bid Window 6 for wind and solar power from 2 600 MW to 5 200 MW, is a huge positive for GFCF spending in the economy.”

She says given the multiplier effects of fixed investment spending, this could have a wider positive impact on related sectors such as manufacturing and transport, while job creation will also benefit, especially in the construction phase.

The fact that further bid windows will be released “on an expedited basis”, signals a pipeline of projects that could boost fixed investment spending and therefore also economic growth, in the medium term.

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Potential good news for the GDP

There is also a potential boost for gross domestic product (GDP), Kruger says.

The South African Reserve Bank currently estimates South Africa’s potential GDP growth rate in 2022 at a mere 0.5%, before increasing to 0.8% in 2023 and 1.1% in 2024.

“This is below the country’s average population growth, signalling further declines in GDP per capita in the next few years, which means that South Africans are getting poorer year by year. The plan with electricity suggests that capacity will be lifted in the medium term to more than the immediate need to eliminate load shedding.

“This in turn suggests that if all plans start to play out concurrently, it could lift the potential GDP growth rate meaningfully, also allowing the economy to grow at higher rates before capacity constraints appear and prices start to rise.”

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But what about Eskom’s debt?

Kruger says the positive impact of the interventions announced will also only become evident in the medium term over the 2-4 years window, and she points out that details on how the financial impact of the announced interventions will be dealt with, are clearly absent.

“The way Eskom’s mountain of debt will be dealt with, that will only to be announced in the Medium Term Budget Policy Statement in October, could potentially have a notable negative impact on overall government finances, while Eskom has been given the go-ahead to increase its budget over the next 12 months for critical maintenance, with no clear indication how it will be financed.”

She says Eskom’s finances are in an unsustainable position and their customers were dismayed that the parastatal is asking for a larger than 30% increase in tariffs in the next financial year.

“Therefore, despite the positive announcements, impacting positively on the bigger picture of energy security in the future, the average household that is dependent on Eskom power, with no solar option yet, will still suffer in the short term due to higher tariffs and intermittent load shedding.”

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About time to fire Mantashe

Civil society organisation Outa said the energy measures are long overdue, but also show yet again that it is time to fire the energy minister.

They say the energy plan needs detail, deadlines, and a minister willing to implement it.

“Mineral resources and energy minister Gwede Mantashe should have implemented many aspects of these measures years ago, but continually fails to do his job and it is clear that the President is doing it for him. Mantashe is an ongoing obstacle and should be removed from his position, as we need a minister who is able and willing to implement a formidable energy plan and an update on the 2019 Integrated Resource Plan (IRP),” Brendan Slade, Outa legal project manager, says.

 He says the President’s proposals, such as the incentives for greater uptake of rooftop solar and removal of red tape for embedded generation are very encouraging.

“This is good news for large-scale wheeling power projects and also for domestic, commercial, industrial and mining solar PV and battery storage projects.”

Slade also calls for more detail and firm deadlines and looks forward to seeing the National Treasury’s plan for Eskom’s debt burden.

“Outa hopes that this long-awaited urgency to address the energy crisis will not be used to cut corners to bring in disastrous contracts, such as the proposed Karpowership contract.”