Neil Ford Reports on national and regional energy transition strategies in southern Africa
The energy strategies of many South African countries are heavily influenced by the difficulties of the state-owned South African energy supplier Eskom due to their role in the power supply of the Southern African Power Pool (SAPP) region. Some other Member States, including Botswana and Zimbabwe, either rely on Eskom to supply a large part of their base-load electricity needs, or rely on Parastatal to be able to supply electricity when other sources of supply are insufficient.
Eskom’s business is currently strained under the pressure of massive debt (see case study below). New generation projects have not developed as planned and are becoming a less reliable anchor for the entire SAPP. This has encouraged other South African countries to step up their efforts to realize their own generation projects.
The falling cost of renewable energy has made solar PV a more realistic option, including in Zimbabwe, where the government unveiled a plan in April to secure an additional 2.1 GW of capacity through renewable energy projects through 2030. The currently installed capacity is 1.9 GW, assuming all five thermal and hydropower plants are fully functional, which is well below demand.
The Zimbabwe Electricity Supply Authority (ZESA) was unable to develop new equipment due to the country’s longstanding economic problems, but Harare has now decided to open the market for IPPs. This applies mainly to solar energy, but also includes small hydropower and other renewable energy technologies. Given past failures in this sector, regional observers believe that it is vital that contracts are awarded through a call for tenders.
Angola is doing it alone
The situation in Angola differs from that in most other countries in the region, as it is not yet affiliated with the SAPP and therefore relies on its own generation resources. Luanda’s strategy is to develop a number of large hydropower plants and to convert all diesel plants to gas over the next three years. However, further progress is needed in extending the reach of transmission and distribution infrastructure. Funding these ambitions could prove difficult given the huge impact the Covid-19 crisis had on oil prices, which are driving Angolan’s export revenue.
In other parts of the region, progress has been made on several coal and gas projects in Mozambique. Two coal projects have been canceled in Botswana, but the country is taking its first steps to produce methane from the coal bed. Industry analysts say it’s surprising that the country hasn’t focused more on solar power as it has some of the world’s best solar resources. This situation could soon change with falling costs for solar construction.
Future uncertainties in demand
The emergencies and economic consequences of Covid-19 are likely to affect not only the pace of investment in the energy sector, but also the preferred generation technology in the long term. If the crisis affects global economic growth and energy demand as much as many fear, there will be less demand for new generation capacity in Africa than previously expected in the next five years.
The last coal-fired power plant may have been built in South Africa. The installed generating capacity in Egypt – South Africa’s rival in terms of generating capacity on the continent – rose to 50 GW due to the completion of its three new gas-fired power plants, so that the electricity supply situation had already become less critical.
A continued decline in the cost of solar and wind projects could make thermal projects not only less environmentally friendly but also less economically attractive when demand recovers. Although thermal power plants offer more uniform power generation than solar or wind power plants, they are much less flexible because the output cannot simply be adjusted up or down.
However, governments like Morocco, which are already fully committed to renewable energy, may be reluctant to become overly committed to solar energy unless improvements in battery storage necessary to maintain supplies come quickly.
Case study: Eskom’s problems are holding South Africa back
South Africa has long been an anomaly in the African energy sector. The vast reserves of coal developed under parastatal utility Eskom have enabled the country to develop 52 GW of generating capacity. But they also left the country largely dependent on coal-fired power plants, which were mainly supplemented by the nuclear reactors in Koeberg.
To diversify, several gas-fired plants have been built along the coast and now solar and wind power plants are being added to the generation mix. However, sector reform has been slow until recently.
Eskom’s poor financial condition has forced the hand of the government. Pretoria provided temporary financial assistance earlier this year while a syndicate of banks agreed a R15 billion (US $ 1.4 billion) loan to fund capital projects. However, the government is reluctant to pay off the utility company’s existing debt, which stood at R 450 billion ($ 43 billion) at the end of last year.
This is partly because it would hurt the state’s creditworthiness, but also because there is no guarantee that debt will not skyrocket again without comprehensive reform. The debts of the largest African energy company account for 15% of the total national debt of South Africa.
In February 2020, the South African Ministry of Public Enterprises described Eskom as “technically insolvent” as revenues were insufficient to cover operating costs and warned that Eskom’s existence was in jeopardy.
It is becoming more and more likely that the company will be restructured. President Cyril Ramaphosa has decided to unbundle Eskom into its generation, transmission and distribution components, but at the time of writing details of the proposed structure have either not yet been decided or have not been released.
Eskom is also under pressure from the parastatal Transnet colleague who manages most of the country’s transportation infrastructure. Transnet Freight Rail plans to increase the price Eskom charges for transporting coal to its power plants while quadrupling its business with Eskom. The government appears determined to force coal off the roads and onto the rails, so Eskom will likely have to pay the bill.
The Covid-19 crisis triggered a 9 GW decline in national electricity consumption by early 2020, which will also affect the company’s finances. At the end of April, Eskom gave the following assessment: “Electricity consumption in the country has fallen and has given us overcapacity. After the pandemic, electricity demand is likely to rise more or less at the same level as before. This means that the contribution of independent electricity producers to the grid must always be increased. ”
Even so, Eskom has been criticized by the South African Wind Energy Association for issuing cutback notices for renewable energy projects informing them that their production will not be needed for the foreseeable future, even though their PPAs are being extended to allow them recover their losses. South Africa’s wind power capacity is expected to increase from the current 1.9 GW to 3.3 GW by 2024. A further 14.4 GW are planned by 2030. The Ministry of Minerals and Energy expects wind power to make a greater contribution to additional power generation capacity than any other technology by 2030.
The erosion of Eskom’s dominant position could accelerate the pace at which South Africa is adopting renewable energy. Commercial solar PV, CSP and wind power programs are ongoing. The independent power generation program for renewable energies (REIPP) was launched in 2011. So far, orders have been placed for 9 GW, of which 1.5 GW is solar. South Africa has set itself the goal of installing more than 8 GW of solar by 2030.
Independent thermal systems could also create more competition for Eskom. Power outages have repeatedly forced the mines to shut down, most recently in December. Therefore, mining companies have already entered the electricity market with a capacity of 1.5 GW. It ensures that the mines can continue to operate while excess capacity can be sold to the grid.
Gas could also gain importance in the future energy mix if the reserves of the recent Brulpadda discovery off the south coast of South Africa are exploited commercially.
On the subject of matching items
Kenya and Ethiopia are leading the energy transition in East Africa
North Africa: Renewable energies build on the existing heat capacity
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