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Inclusive Society Institute Brief: South Africa's Energy Crisis

Occasional Paper 2/2023



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Inclusive Society Institute or those of their respective Board or Council members.


MARCH 2023


by Daryl Swanepoel

MPA, BPAHons, ND: C.Admin



The current energy crisis raging in South Africa is the number one challenge for the country, negatively affecting all aspects of life. It is having a severe impact on the economy, which the economy can least afford in an environment of low growth and structural high unemployment. It has led to some workers having to work short-time and some firms to close down, resulting in job-losses. Market analysts have flagged the energy crisis as one of the major factors denting South Africa’s economic prospects with the South African Reserve Bank (SARB) calculating that load-shedding slashed 2.3 percentage points off the growth rate in Q3 2022. The National Energy Crisis Committee (NECOM) January 2023 update affirmed the ongoing shortfall in electricity as government’s single most important priority.


After years of state capture, corruption and the inefficiency of ANC-appointed people, government is under rising pressure to resolve the power crisis, that is Eskom’s failure to meet the country’s power needs. Various sectors of the economy, including tourism, mining, agriculture and manufacturing, amongst others, have warned that they have already been under severe strain and that the more frequent and lengthy electricity loadshedding is a tipping point which will not only constrain growth, but is likely to see declines in revenue and profits. This should raise a red flag in terms of projected tax revenues for the country, with a concomitant weakening in the state’s ability to deliver services.


To this end, President Ramaphosa has been consulting various stakeholders on the crisis and is expected to soon announce measures to counter the calamity. The cancelling of his trip to the World Economic Forum (WEF) in Davos in January to deal with the matter suggests the seriousness of the issue is acknowledged at the highest level of decision-making.


This acknowledgement has been reiterated by the ANC’s Secretary General, Fikile Mbalula, who told reporters on the side-lines of the first day of the ANC’s National Executive Committee (NEC) meeting in late January that: “Load-shedding started in 2008, and we [the ANC] have been grappling with it for a long time now. The ANC does take responsibility. We [the ANC] cannot deal with loadshedding by running away and cutting corners as if we are not in power”.


What further bedevils the government’s efforts in combatting the energy crisis is the differences between ministers Gordhan and Mantashe. Opposition has emerged within ANC ranks against the 55th Conference resolution to move the oversight of Eskom from the Department of State-Owned Enterprises (SOE) to the Department of Minerals and Energy (DME), aligning antagonists of the move with that of many of the analysts in the media, some civil society entities and opposition parties. The President needs to crack the whip in order to ensure unity within the ANC, yet he has not. Could it be that minister Mantashe has emerged stronger from the December conference and that he is viewed as one of the key allies that ensured the victory for the Ramaphosa aligned slate? Minister Mantashe prevailed as ANC Chairperson in a three-horse race.


Load-shedding, which can be traced to as far back as 2008 and coinciding with the Global Financial Crisis (GFC), is likely to impact negatively on ANC performance in the 2024 general election – both internal and external surveys suggest a swing away from the ANC to opposition parties and independent candidates. It is quite conceivable that voter support for the ANC could fall to below 50% for the first time in 2024.


This is likely what has spurred the ANC to propose to government that it consider dealing with the crisis through emergency state of disaster regulations. Both in order to get a grip on the problem in order to stabilise electoral support and to respond to a number of civil action actions have been launched against government to deal with the energy crisis.


ANC energy summit (ES), 25 January 2023 – University of Johannesburg


Speaking at an ANC energy summit (ES) on 25 January 2023, Minister Gwede Mantashe outlined his four-pronged plan to bring an end to SA’s current energy crisis. The four solutions he is proposing are to bring energy from ship-mounted gas-fired power plants online, importing electricity from neighbouring countries, speeding up plans to increase the operational efficiency of Eskom’s fleet of power stations, and addressing the skills shortage at Eskom. He is of the view that these four interventions will take the country out of the energy emergency within a period of six to twelve months. He suggests that government could procure about 1,200MW of power from Turkish company Karpowership under such an emergency solution. The contracts could perhaps be reduced to 10 years - from 20 years - to make it more palatable to those opposing the move.


Minister Mantashe was critical of the plan announced by the Eskom board and executives to bring about 6,000MW back online over the next 24 months by improving the energy availability factor (EAF) of the coal-fired fleet. Mpho Makwana, Eskom’s chair, told journalists on 22 January 2023 that they had a generation recovery plan to improve the EAF — a measure of the amount of energy being generated against the total installed generation capacity of Eskom’s entire fleet — from the current 58% to the targeted 70%. Minister Mantashe was unconvinced with the sufficiency of ESKOM’s plan, which proposes to improve the EAF to 60% by the end of March, then to 65% by March 2024 and 70% a year later.


Numerous analysts and commentators have urged government to speed up action to deal with the energy crisis, with the requisite urgency, which until now has been lacking. This was echoed at the ANC energy summit. Minister Mantashe reiterated the need for urgency and accelerated action at the summit: “I listened to the board of Eskom saying it will work to improve the EAF to 70% by end-2024. My argument is that this does not reflect [the] urgency [to solve] the crisis”, he said. According to the minister, if Eskom directed sufficient resources and skills towards the service and maintenance of its power stations, it could “accelerate the process of coming out of load-shedding”. Public enterprises minister Pravin Gordhan supported minister Mantashe’s view that Eskom’s recovery plan could (should) be sped up. If all the “supporting mechanisms” that Eskom and the government were putting in place through structures such as the national energy crisis committee “come together in the next five to 10 days”, the two-year recovery plan could be shortened, he said.


National Energy Crisis Committee (NECOM) progress report, 21 January 2023


The National Energy Crisis Committee (NECOM) six-month progress update on implementation of the Energy Action Plan (EAP) comes in the wake of load shedding being escalated to stage 6 in the period under review. This was due to a high number of breakdowns across Eskom’s generation fleet. The declining Energy Availability Factor (EAF) of Eskom’s fleet reflects the cumulative impact of historical underinvestment in maintenance and assets, exacerbated by flaws in the design of new power stations (Medupi and Kusile) in the last decade.


To respond to the severe impact of load shedding on households, small businesses and the economy as a whole, President Ramaphosa announced a range of measures in July 2022 to improve the performance of existing power stations and to add new generation capacity as quickly as possible. The EAP was developed through extensive consultation and endorsed by energy experts as providing the best and fastest path towards energy security.


NECOM was subsequently established to coordinate government’s response and ensure swift implementation of the plan. In mid-January, President Ramaphosa convened NECOM to accelerate government’s efforts to reduce load shedding. The president also engaged with a wide range of stakeholders, including political parties, labour unions, business associations, community groups, interfaith leaders, traditional leaders, premiers and mayors to ensure a collective response to this national challenge. The progress update outlined important steps that have been taken to follow through on the earlier commitments announced by the President.


These include:


  • Schedule 2 of the Electricity Regulation Act was been amended to remove the licensing requirement for generation projects, which will significantly accelerate private investment.

  • Since the licensing threshold was first raised to 100 MW, the pipeline of private sector projects has grown to more than 100 projects with over 9000 MW of capacity. The first of these large-scale projects are expected to connect to the grid by the end of this year.

  • NECOM instructed departments to cut red tape and streamline regulatory processes for energy projects, including reducing the timeframe for environmental authorisations to 57 days from the previous more than 100 days; reducing the registration process from four months to three weeks; and ensuring that grid connection approvals are provided within six months.

  • Project agreements for 19 projects from Bid Window 5 and six projects from Bid Window 6 of the renewable energy programme, representing 2800 MW of new capacity. These projects will soon proceed to the construction phase.

  • A new ministerial determination has been published for 14771 MW of new generation capacity from wind, solar and battery storage to accelerate further bid windows.

  • An additional 300 MW has been imported through the Southern African Power Pool, and negotiations are underway to secure a potential 1000 MW from neighbouring countries starting this year.

  • Eskom has developed and launched a programme to purchase power from companies with available generation capacity through a standard offer. The first contracts are expected to be signed in the first quarter of 2023.

  • A team of independent experts has been established to work closely with Eskom to diagnose the problems at poorly performing power stations and take action to improve plant performance.


While the power system remains constrained in the short term, these measures will soon reduce the frequency and severity of load shedding as new capacity is brought online.


At the release of the 21 January 2023 NECOM progress report, President Ramaphosa said: “South Africans are right to demand immediate action to address the devastating impact of load shedding on our lives and on the economy. The EAP provides a clear way out of this crisis. We do not need any new plans – we are focusing on implementing this plan fully, and effectively, to achieve energy security for all South Africans.”


The President has also instructed law enforcement agencies to ramp up efforts to protect electricity infrastructure and to combat the rampant corruption that is sabotaging recovery within the energy generation sector. A special meeting of the National Security Council was to be convened in the last week of January to receive a report on operations underway to disrupt criminal syndicates and address theft and sabotage at several power stations.


Risk Factors


The pathway our of the energy crisis is confronted with a number of material risks, such as:


  • Vacancies at the very top of Eskom’s organisational structure, including the CEO, COO and a number of other senior managers. These vacancies need to be filled urgently, and with capable individuals with proven skills and management expertise.

  • The restructuring of Eskom must be dealt with decisively, as indecisiveness will pose serious challenges to bringing about an improved business model

  • Disagreement between the two key ministries - SOE and DME - as to the direction to be taken to emerge from the crisis. As Head of State the President needs to step in and resolve this post-haste.

  • Eskom has an unsustainable debt burden exceeding 400 billion rand. Innovative ways needs to be found to lessen Eskom’s debt and to improve the utility’s balance sheet and capacity to raise capital in the markets. This may include the state taking over some of the debt.

  • The inability to finance Eskom’s capital build programme impedes the creation of new generation capacity. Conceptual opposition to private sector supply and/or public private partnerships needs to be addressed, and bureaucratic stumbling blocks removed.

  • Affordability of energy for the majority of households. There is little scope for large tariff increases, lest stability in society is to be put at risk. Social unrest is already starting to pop-up across society.

  • The already high cost of energy is negative impacting households and economic activity. With less disposable income households are struggling to service debt, and are spending less. This poses a serious macro-economic threat.

  • Lack of trust. Government’s tardy track record in dealing with the energy crisis, and its failures, has created widespread doubt that the crisis will be turned around in the stated timeframes. This is having a material impact on the business and investment confidence needed to underpin economic growth.

  • Dissent with regard to moving Eskom from SOE to DME oversight as per the ANC 55th Conference resolution. There has been strong opposition to this, first by players outside of the ANC and the media, and lately within the ranks of the ANC, including backers the president. The internal political squabbling has the potential to slow, even derail, progress.


Measures to ameliorate and obviate the energy crisis


Eskom has an installed capacity of 46000 MW. However, it has been reported that Eskom can only guarantee between 24000 – 26000 MW Energy Availability Factor (EAF) out of the 46000 MW installed capacity. The country needs between 4000 - 6000 MW of additional EAF to mitigate loadshedding immediately, whilst dealing with medium to long-term engineering solutions to fix plant performance and stabilize the grid.


It is estimated that one stage of loadshedding costs the economy about R1 billion a day with many small businesses collapsing. Six power stations have been identified for particular focus over the coming months through a comprehensive Generation Recovery Plan. Cabinet has decided that the immediate focus must be on the following initiatives and actions that will urgently contribute to the reduction and ultimately elimination of loadshedding in the next 6 to 12 or at most 18 months. These initiatives in the include:


  • Improving the EAF through maintenance of existing power stations

  • Procurement of emergency or short-term power

  • Purchase of electricity from neighbouring countries

  • Improving skills capacity at Eskom


Conclusion


There is general agreement amongst public policymakers that a national state of disaster must be declared and that the president leads a nation-wide, societal and inter-governmental effort to end the loadshedding and stabilise the energy supply.


The ANC National Conference, and their Lekgotla, have resolved that, in both the country’s interest and their own survival, a decisive national energy crisis action plan be urgently rolled out. This will be better enabled with the declaration of the national state of disaster. Such will enable better focus and mobilization of all government structures, resources and society. It is expected that, drawing from the Covid-19 experience, the president will constitute a national command structure that will include cabinet ministers, premiers of provinces, mayors, organized labour, business and other critical sectors of society.


To date government has not communicated sufficiently or timeously. This lack of communication has created uncertainty in the public mind and has, to the detriment of social and economic stability, heightened the trust deficit between the government and the public. They need to up their game. The president must be the leader and principal communicator of the government action plan to resolve the energy crisis. The public will not be satisfied by anything less.


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This report has been published by the Inclusive Society Institute

The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.


Phone: +27 (0) 21 201 1589

Web: www.inclusivesociety.org.za

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