The great opportunity to reform South Africa’s power sector

Over the past few weeks, there has been encouraging movement in South Africa’s electricity sector that indicates a gradual opening of the electricity market. NERSA recently confirmed that licensing of electricity generation over 1 MW will be allowed without ministerial sign-off, which could make the processing of renewable energy generation licences more efficient; and municipalities were recently granted the freedom to procure their own power. In addition, the prospect of the renewable energy bid window 5 (REIPPP 5) opening in December indicates that South Africa is starting to take the procurement of renewable electricity seriously. 

And whilst renewables still make up a small share of South Africa’s total generation capacity, the growing cost gap between the grid and solar, along with falling battery prices, means that South African electricity consumers are faced with something new in the context of our traditionally monopolistic electricity market: choice.

As was discussed in our previous piece on going off grid, it is clear that many consumers are choosing to go entirely off grid. However, mass grid defection is not necessarily the most optimal system for the majority of South African consumers. If the government suppresses private and distributed electricity generation, forcing customers to choose between staying on grid with expensive, unreliable power, and quitting the grid entirely, there may be large-scale grid defection as businesses choose to forego the unreliable and expensive grid. This will erode both Eskom and municipal revenue streams, driving more tariff increases that impact many South Africans. 

However, effective grid modernisation will turn potential defectors into ‘prosumers’, who choose to remain grid-connected and participate in a more open and mutually-beneficial electricity market. There are already some municipalities in South Africa that allow for grid feed-in (see this convenient list), which helps grid-tied solar PV systems become more profitable. However, we’re still a long way from a mature electricity market, where the cheapest electricity can be generated and consumed when it is required, enabling overall cost reductions of electricity. 

A modern grid will make use of enhanced infrastructure for better management of variable renewable energy, and ensure equitable electricity pricing that allows consumers to generate their own electricity and/or buy electricity from independent power producers whilst paying fees to utilise the electrical grid. This could generate new revenue that would enable better maintenance of the existing infrastructure, further replacing outages. 

However, we are still a way off from this “modern grid” idea. Some of the immediate steps that could be taken to enable grid modernisation, preventing mass defection and price increases, could include:

• Laws and standards must be updated to cater for all technologies in the energy mix. 
  • We’re starting to see some progress on this, but there is still a fair way to go, according to Anton Eberhard:

The minister granted this deviation from the IRP electricity plan on 1 FEBRUARY 2020 so that NERSA can licence a wider category of generators but NERSA only announces this on 30 OCTOBER 2020!
Regulators need to step up or step back.
Much better to simply exempt licences for <50MW https://t.co/z7TzrG37au

— Anton Eberhard (@AntonEberhard) October 31, 2020

• Grid operators should be assisted with tariff modernisation
• Arbitrary size restrictions on embedded generators should be reset based on rational technical and cost considerations. 
• Permitting and licencing authorities must be held to their mandates and assisted and upskilled where needed.

If we can ensure that these factors are considered, there will be a hopeful outlook for South Africa’s electricity future. The alternative picture is not as sunny, as our power system could devolve into something undesirable for businesses and inequitable for South African citizens.