If we manage things properly, South Africa’s energy transition could unlock the largest ever capital investment programme in our history: R1.8-trillion over the next 10 years. This can be leveraged to rejuvenate local manufacturing, create meaningful jobs, and stimulate innovation and skills development for young people.
But “managing things properly” means dealing with two key issues:
Market reform is needed in South Africa both to ensure a competitive electricity sector for the benefit of customers, and to attract private sector investment for new generation and transmission.
An independent Transmission System Operator (TSO) is a key enabler to a competitive multi-market. The TSO will have four functions:
In this new model, all legacy power purchase agreements (PPAs) and Eskom coal-fired generators will be placed on 5 year vesting contracts that effectively push generation capacity from coal into a competitive market – where some coal capacity will be “out of the money”.
South Africa needs an unprecedented generation and transmission infrastructure rollout to ensure its energy security and economic growth.
The State and Eskom have limited funds. They have high debt and a constrained balance sheet, and will not be able to fund the entire R1.8-trillion needed over the next 10 years.
There is also investment uncertainty. Developers will need to be sure that they will obtain a fair return on their investment if they’re to put such large amounts behind the expansion.
There is also a growing need for industrialisation and job growth. If we attract sufficient investment, we will be able to drive industrial investment, growth and sustainable job creation across a number of value chains
But there are risks involved in some of the changes to the market – for example, a reduced security of supply. If the market is fully competitive, investments might move away from reliable energy sources and focus on cheaper renewable options. This could make the energy supply less stable.
Price volatility is also a potential risk. In a competitive market, prices could fluctuate a lot. This means electricity could become very expensive when there’s not enough supply.
Finally, there are South Africa’s broader development objectives. Without some degree of market control, it might be hard to meet certain development goals. For example, programmes to help poorer areas or specific targets for energy types might not happen on their own without intervention.
Market reform is the most critical element of South Africa’s power system. But to ensure market reform happens successfully, we need more discussion on a couple of fundamental and inter-related issues:
#Bring the Energy, Mzansi
We need market reform now
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South Africa, 2196
Enquiries:
Email: info@energycouncil.org.za
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Multi-market system – a hybrid market model designed to accommodate various defined transactions (market transactions, physical bilateral transactions and regulated transactions).
Electricity storage encompasses all technologies that can consume electricity (e.g., charge in times of oversupply) and return it later (e.g., discharge in times of undersupply).
Renewable energy refers to energy generated from a source that is not depleted when used
Green hydrogen is hydrogen produced by the electrolysis of water, using renewable electricity. Production of green hydrogen causes significantly lower greenhouse gas emissions than production of grey hydrogen, which is derived from fossil fuels without carbon capture.
Energy Availability Factor (EAF) = measure of generation performance, electricity available to be generated. EAF is the difference between the maximum availability and all unavailabilities expressed as a percentage
Dispatchable generation refers to sources of electricity that can be programmed on demand at the request of power grid operators, according to market needs. Dispatchable generators may adjust their power output according to an order.
Net Zero means cutting carbon emissions to a small amount of residual emissions that can be absorbed and durably stored by nature and other carbon dioxide removal measures, leaving zero in the atmosphere.
Nationally Determined Contributions are the commitments that countries make to reduce their greenhouse gas emissions as part of climate change mitigation.