In this opinion piece, Laura Menzies contends that the Covid-19 pandemic can be viewed as a ‘reset opportunity’ for the energy sector, with potential to catalyse the development of a greener economy that creates jobs and supports efforts to mitigate climate change

As South Africa entered 2020, it was recovering from power supply shocks experienced in December 2019 and heading into a recession. Power supply problems were constraining economic growth and the country appeared to be on an incremental energy transition path.

In March, a strict Covid-19 lockdown was introduced, severely limiting economic activity. Demand for power dropped by as much as 9 000 MW during the first five weeks of the lockdown. Despite this, 2020 beat 2019’s record for load-shedding hours.

While this paints a grim picture, the pandemic can be viewed as a reset opportunity for the energy sector. The renewable-energy opportunity can be an enabler for investment and infrastructure development, catalysing the development of a greener economy that creates jobs and supports efforts to mitigate climate change.

Policy and Market Developments

In September, President Cyril Ramaphosa stated that government’s vision is “to lead South Africa through a just transition which ensures that as many people as possible benefit from the investment, growth and job creation that we can achieve through expanding our electricity generation capacity”.

This ‘just transition’ encompasses a range of aspects, including capacity additions, climate change goals and sector employment; part of an infrastructure-led strategy that focuses on energy security, local industrialisation and green economy interventions.

Significant developments include:

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releasing a request for proposals for 2 000 MW of emergency dispatchable power through the Risk Mitigation Procurement Programme, to be developed by June 2022;

* the gazetting of Ministerial determinations to enable the development of 11 813 MW of additional power generation (over half of which will be wind and solar based);

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prioritising the opening of Bid Window 5 of the Renewable Energy Independent Power Producer Procurement Programme by the end of this month;

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the Department of Mineral Resources and Energy issuing a request for information to assess nuclear technologies for a national programme to build 2 500 MW of new nuclear capacity;

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doing away with the licensing requirement for self-generation projects under 1 MW;

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improving the National Energy Regulator of South Africa’s licensing processes and turnaround time for facilities that can generate more than 1 MW; and

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the gazetting of a directive that provides a framework around electricity generation for municipalities.

State-owned utility Eskom was severely affected by Covid-19 and the associated lockdowns during the second quarter of 2020. For example, while the sudden drop-off in economic activity at the end of March made it possible for some generation units to be taken offline for maintenance, it also resulted in the utility issuing force majeure notices to 22 wind independent power producers (IPPs). However, there have been several developments indicating that change is being implemented with respect to power plant performance, generation capacity and organisational restructuring.

In terms of power plant performance, an enhanced maintenance programme is now under way. While this programme will increase the likelihood of load-shedding for the next 12 to 18 months, it is urgently required to prevent further deterioration of the system and improve long-term performance.

To support this, Eskom CEO Andre de Ruyter has spoken in favour of increasing the contribution of IPPs to the grid, thus taking some pressure off Eskom’s generation fleet, besides attracting investment and increasing competition.

In terms of restructuring Eskom, the current plan envisages the completion of the functional separation of generation, transmission and distribution by March this year, with legal separation of transmission by December.

Noteworthy private-sector developments during 2020 included a threefold global increase in the number of companies making net-zero commitments, more than 400 MW of utility-scale wind and solar generation projects starting commercial operation, and an increase in industry users such as Sasol tendering for renewable-energy IPPs to reduce their emissions.

These three developments signal increasing activity within the power sector in response to the need for energy security and economic recovery; policy reform picking up pace to enable increased agility in the sector; and increasing awareness in the private sector of local and global energy transition urgency.

Implications for South Africa’s Energy Mix

Many of these developments support the addition of lower-emissions power sources and the prioritisation of job creation and investment. However, further Ministerial determinations and investments will be required to meet the 2030 targets set out in the Integrated Resource Plan of 2019 (IRP 2019).

The level of development required varies by generation technology:

• Coal – including the 1 500 MW gazetted in 2020; 5 285 MW of coal generation capacity to be decommissioned.

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Nuclear – no further development is required for 2030 beyond the design life extension of the Koeberg power plant, but preparations need to be initiated for new capacity beyond 2030.

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Solar and wind – an additional 16 076 MW needs to be developed by 2030, equivalent to adding 1 600 MW to the grid each year.

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Gas – development of the 3 000 MW gazetted is to meet 2030 targets, with space for 450 MW of diesel power to be decommissioned.

The need to gazette an additional 16 076 MW of wind and solar energy shows that a sustained programme of renewable-power infrastructure development is needed to fulfil the IRP 2019. This provides a long-term opportunity to benefit from renewable-power development in terms of attracting investment, industrialising local economies and creating jobs.

Given the need to build renewables infrastructure over at least a five- to ten-year period, there is also an opportunity to build a manufacturing hub for renewable-energy equipment and infrastructure development in the country, creating jobs across the value chain and driving future growth. The Covid-19 pandemic has created an urgent need for an economic stimulus. Therefore, there is currently more incentive than ever to progress the energy build programmes that will contribute to the achievement of the IRP 2019’s goals and South Africa’s climate change targets. Last year saw action being taken to accelerate developments in the power sector, driven by the need to improve energy security, create jobs, attract investment and transition to a lower-carbon energy mix. The focus now needs to turn to implementation, if new capacity is to be added from 2022. This includes starting transparent tender processes that get projects ‘shovel-ready’ as soon as possible to support job creation, economic recovery and the energy transition.