SA's energy supply in need of major shake-up

Friday, March 4, 2011

Pretoria - While obstacles remain in ensuring that South Africa's energy supply is constant, the situation can still be improved significantly, say energy experts. 

Of the approximate 935 million people in Africa, only 7 percent of energy potential is used. In sub-Saharan Africa, 77.5 percent of people have no access to electricity. Experts say that high population growth, weak economic output, poor energy infrastructure and an over dependence on biomass remain as bugbears to ensuring energy supply. 

The Energy Department has said that the electricity distribution infrastructure requires urgent reform to support the country's growth targets with a current backlog of over R30 billion. 

Energy Deputy Minister Barbara Thompson recently said South Africa's electricity distribution infrastructure is in need of a major shake-up if the country is to meet its economic growth targets. 

The Integrated Resource Plan (IRP2) - which seeks to address the country's energy mix and supply in the next 20 years - will be presented to Cabinet on 9 March, after which it is expected to be promulgated on April 1 2011.

According to the IRP2010, which was released for public comment last year, the country requires 5 2248 MW of new capacity in order to meet the projected demand and provide adequate reserves.

Chairperson of the South African National Energy Association (SANEA), Brian Statham, says while there are problems with the IRP2, delaying will not necessarily make it better because the uncertainties are still there. 

"The consequences of delaying the implementation of the IRP and therefore running out of electricity capacity again are too horrendous to even contemplate. My view is that we should go ahead with what we've got. It's ... not good, but it's not bad either, so let's work with it and let's retain the flexibility to adjust and adapt as the future unfolds in front of us," says Statham. 

With the closure of EDI Holdings at the end of this month, the Energy Department is set to take over the electricity distribution industry restructuring process. Together with National Treasury, the department will identify a proper funding mechanism to address challenges encountered in distribution.

"When the government's direction is very clear, it means that investors can be more confident in coming into the country," says Statham.

Scott Brodsky, of Dewey & LeBoeuf, says the introduction of a REFIT programme (feed in tariffs) would benefit South Africa in that it will achieve renewable power generation as well as create jobs, while also encouraging investment in the sector. 

"The REFIT potential for the economy [is that] it will create new jobs. It is estimated that the renewable sector could create over 145 000 jobs in South Africa," he explains.

The energy ministry has on several occasions called for private participation in South Africa's power mix. In 2006, the department committed itself to a minimum of 30 percent participation by the private sector.

"The private sector in my view is not coming to the party as much as they should. They're still a little bit nervous and worried about risk. I think, however, that we are moving in the right direction," explains Statham.

Private participation in the sector is starting to look promising. "The picture is not complete; there are still a lot of gaps. It's like building a jigsaw puzzle, it takes you a while. Some of the pieces are in place but there are still lots of gaps. 

"If we use the jigsaw puzzle analogy, at least now we are all working towards the exact same picture. Three years ago we weren't sure if all the pieces belonged to the same puzzle," he says.

Eskom has said that it is ready to connect with Independent Power Producers (IPPs).

The decision by government to split the energy department from the original minerals and energy department, says Statham, is an indication that government is serious about energy matters. However, there is an opportunity for greater co-ordination between the Departments of Environmental Affairs, Water and Treasury, as well as the National Planning Commission on matters of energy.

"This is because energy is so fundamental to our economic well being and also for our social well being because if we don't have energy, we can't achieve the transformation we want to achieve in this country," explains Statham.

Last year, a United Nations Conference on Trade and Development report found that there had been about a 36 percent fall in foreign direct investment in Africa due to unclear legislation and in some areas, political instability. 

Responding to this, Statham says the fall was due to the economic meltdown which saw investors retreating from risk. 

"We were seen as one of the riskier environments. I think now there's an opportunity to take us further on the front-foot again. In fact, we heard from two bankers that their problem is not the ability to find money, it's to find the projects and to adequately describe the projects to make them attractive to the bankers. The money is there."

What concerns Statham is the current mindset among players in the energy sector. 

"There is a desire to have everything perfect before we move and I think that's unrealistic. The other thing we don't realise is how dependent we are on water, in its relationship to energy provision, and of cause water is a scarce resource in South Africa."

Jayendra Naidoo, the co-founder of the J& J Group -- an investment holding and management company, which has investments in companies operating in the financial services, healthcare, information technology and industrial sectors - says the notion of cheap and abundant power no longer exists.

"The world has been getting addicted to cheap power. We are now at a stage where we have to go to rehab," he says, adding that in the future, power labeling is likely while in the next two decades, the conventional car may be cut out in favour of cleaner alternative. 

On the issue of further electricity blackouts, Statham says: "I have faith that South Africans will come together and we will learn to use electricity more wisely." - BuaNews