Opinion: South Africa’s Ambitious, and Expensive, Energy Transition

NJ Ayuk, African Energy Chamber March 30, 2023

South Africa has great aspirations for its energy industry: Not only has the country committed to significant decreases in carbon emissions, but it is also intent on creating a thriving green economy that creates jobs and business opportunities throughout the country.

And with great ambitions come a great price tag, in this case, an estimated $99 billion.

No doubt about it — this is an optimistic vision. But I do not believe it’s beyond the realm of possibility.

In fact, the African Energy Chamber’s (AEC’s) new report, “The State of South African Energy,” forecasts a considerable increase in South Africa’s power generation mix between now and 2050, one that continues coal usage but adds natural gas and renewables. As a result, our report predicts, South Africa’s energy generation will see its carbon intensity drop from the current 829.38 kilograms of carbon dioxide emissions (CO2e) per megawatt hour (MWh—1,000 kilowatts of electricity generated per hour) to 250 kilograms of CO₂e/MWh in 2050.

However, South Africa, like the African continent, will need a pragmatic, multi-pronged approach to raising the necessary investment dollars to fund its energy transition. And that approach will have to include natural gas production and monetization.

A strong start

To its credit, South Africa has taken a proactive approach to developing its renewable energy sector and attracting investors. These efforts, in part, have been a response to the country’s decades-long struggle to deliver reliable electricity.

The nation sources more than 80% of its total energy supply from aging coal-powered plants, and Eskom, South Africa’s public utility, supplies more than 90% of the country’s electricity. While South Africa has a running average demand for roughly 27,000 megawatts (MW) of electrical power, Eskom struggles to produce an average of only 21,000 MW, a disparity that has culminated in the need for regular rolling blackouts, or load shedding, and a dire situation that has left South Africa’s population severely underserved.

Since 2007, the need for load shedding has steadily increased at an alarming rate, with 2022 taking the lead as the most load-shedding intensive year on record and December as its harshest month.

We must address these worsening conditions as the evolution of this crisis suggests it’s creeping rapidly toward a single outcome—the complete societal breakdown of Africa’s most industrialized and technologically advanced country.

To his credit, in February 2023, during his State of the Nation Address, South African President H.E. Cyril Ramaphosa declared a National State of Disaster in an effort to stem the tide of his country’s energy troubles. Along with this declaration, Ramaphosa introduced a new Ministry of Electricity, an appointment specifically tasked with decreasing the frequency and duration of load shedding and reversing Eskom’s direction.

These emergency measures come after more than a decade of positive progress toward the introduction of renewables to South Africa’s energy sector and promising investment developments seen in recent years.

Dating back to 2011, the Renewable Energy Independent Power Producer Procurement Program (REIPPPP) saw policy adoptions that led to South Africa’s successful procurement of almost 9.7 gigawatts (GW) of capacity from Independent Power Producers (IPPs) in the form of renewables like onshore wind, solar photovoltaic, solar thermal, small hydro, and biopower. The success of the REIPPPP led to a relaunch of the program in 2019 with the goal of furthering the transition to renewables while alleviating energy poverty and creating new jobs.

That was followed by South Africa’s Just Energy Transition Investment Plan (JET IP). Unveiled at COP27 in November 2022, JET IP details the amount and extent of the funding required to successfully implement a decarbonization agenda in the country. Starting with an initial $8.5 billion in financing sourced from the Just Energy Transition Partnership (JETP) with France, Germany, the UK, the U.S., and the European Union, South Africa aims to initiate its transition away from fossil fuels, acknowledging that upwards of $99 billion in funding will be required through 2027.

Estimates for supporting this transition and expanding clean energy infrastructure over the next three decades run as high as $250 billion.

South Africa has exhibited a genuine commitment to achieving the United Nations Sustainable Development Goals, the capacity for meeting the many necessary milestones on the way to those targets, and the understanding that getting there will require substantial outside investment.

Besides the demonstrated recognition that Eskom’s facilities require immediate revitalization to stabilize the country’s existing energy supply, the Ramaphosa administration exhibited its willingness for reform when it announced in August 2021 that it would raise the threshold for unlicensed electricity production from 1 MW to 100 MW. This regulatory adjustment cleared the path for the SOLA Group’s development of projects totaling approximately 4.5 GW while enhancing South Africa’s appeal to other private investors.

While South Africa has shown that it is taking the correct stance to begin combating the current energy crises with a partial focus on the eventual conversion to a low-carbon economy, it is the AEC’s position that the country must first develop and monetize its vast, untapped natural gas resources in the interim.

Reserve estimates for the Luiperd-Brulpadda project off South Africa’s southern coast indicate that 3.4 trillion cubic feet of gas and 192 million barrels of gas condensate await extraction, offering the nation just one of many opportunities to capitalize on its fossil fuel resources while attracting additional interest from the free market. The revenue raised by fast-tracking natural gas projects in the region could fund South Africa’s current efforts to restore its generation facilities and grid infrastructure while offering a consistent, economy-stabilizing income stream and a funding source for future endeavors.

By keeping its primary focus on addressing the immediate needs of its population, South Africa will remain on course toward manifesting its vision of a carbon-neutral future supported by renewables while attracting crucial investments and generating the necessary wealth to get there in time.

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