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South Africa Power Report 2020/21

  • ID: 5086954
  • Report
  • April 2020
  • Region: South Africa, Africa
  • 151 pages
  • Cross-border Information (London) Ltd
Renewable Energy Targets are Unlikely to be Met

FEATURED COMPANIES

  • ABB
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Industry planners hope that the proposed unbundling of Eskom will herald in a new competitive landscape promoting capital investment flows into and within South Africa’s power sector, but new research by African Energy finds that renewable energy targets are unlikely to be met and the risk of value-destructive load shedding looks certain to be an unfortunate reality for the foreseeable future.

Make sound investment decisions with African Energy’s South Africa Power Report 2020/21 – a comprehensive guide to the risks, realities, opportunities and threats associated with entering South Africa’s electricity industry.

Providing incisive insight, expert analysis and unrivalled data on African energy industries
  • How does Covid-19 and the credit rating downgrade impact on South Africa's economy and medium-term outlook?
  • Will installed capacity meet government targets by 2030?
  • What future role does coal-fired generation have in sector planning?
  • What opportunities are there for alternative fuels such as gas?
  • After decades of dominance, are there early signs that the ruling ANC is losing its grip on power?
Reasons to buy this report:
  • Identify upcoming opportunities and threats
  • Assess South Africa's risk profile
  • Understand policy direction and regulatory requirements
  • Benefit from independent power generation forecasts based on the actual project development pipeline
  • Know the competitive landscape
  • Understand the political and economic context.
South Africa Power Report 2020 provides unique access to:

African Energy’s own Risk Management Index and 15-year (2010-24) power supply analysis using African Energy Live Data – our proprietary database of more than 6,500 power projects – to identify trends on installed capacity broken down by fuel, technology, provinces and more.

South Africa Power Report 2020 also provides comprehensive information on existing and planned generation projects; an appreciation of the political risk and the key players in the sector; an overview of the macroeconomic climate and outlook; details on the market structure and operations, analysis of policy and regulation including future plans, major legislation and legal requirements for generation, transmission and distribution; and natural gas resources and availability.

Key benefits of our reports
  • Independent expert analysis and forecasts – benefit from African Energy’s experience of constantly monitoring the sector since 1998
  • Competitive landscape modelling and benchmarking – examine your project or portfolio against other projects and what we consider to be Egypt’s benchmark wind and solar renewable projects.
  • Identify business opportunities and risks through our expert analysis of the latest projects, investments, regulatory changes and power sector trends.
  • Market positioning – our unique understanding of the project pipeline helps you position your project in the current and future competitive landscapes.
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FEATURED COMPANIES

  • ABB
  • Avon Diesel
  • Enel Green Power
  • Group Five Engineering
  • Nedbank
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1. EXECUTIVE SUMMARY
  • Country Snapshot
2. RISK MANAGEMENT REPORT

3. POLITICAL OVERVIEW
3.1 Structure of government
3.1.1 Political system
3.1.2 Three tiers of government
3.1.3 Executive authority
3.1.4 Legislative authority
  • Box 1: Cyril Ramaphosa: a multi-faceted career
3.1.5 An independent judiciary under heavy stress
3.2 Stability of political system
3.2.1 A social contract under pressure
3.2.2 Divisions within the African National Congress
3.2.3 ‘State capture’ and other governance concerns
3.3 The main political parties
3.3.1 Governing party: the African National Congress
  • Box 2: Profiles of leading ANC actors
3.3.1.i Factional divisions
3.3.2 The official opposition party: Democratic Alliance
  • Box 3: Profiles of leading Democratic Alliance figures
3.3.2.i Democratic Alliance splits: Good
3.3.3 Radical opposition: Economic Freedom Fighters
  • Box 4: Julius ‘Juju’ Malema and the EFF
3.4 Elections
3.4.1 Electoral system
3.4.2 Most recent election
3.4.3 Voter disenchantment
3.4.4 Next elections
3.5 Corruption
3.5.1 Resistance to change
3.5.2 Foreign courts and ‘state capture
3.5.3 Transparency International rating
3.6 Security risk
3.6.1 Personal security and criminality
3.6.2 Risks of political violence
3.6.3 Risk of terrorism
3.6.4 Risk of ethnic/tribal conflict
3.7 Political economy and major policy initiatives
3.7.1 Downgrades and gridlock in the political system
3.7.2 Economic policy
3.7.3 National Development Plan 2013-30
3.7.4 Economic stimulus, recovery plans and social uplift
3.8 Eskom and the ESI crisis
3.8.1 The politics of private energy investment
  • Box 5: Minister of mineral resources and energy Gwede Mantashe
  • Box 6: The 2019 Integrated Resource Plan
3.8.2 Climate change

4. MACROECONOMICS
4.1 Overview
4.1.1 Reform and missed targets
4.1.2 A very difficult outlook
4.2 Economic structure and stunted growth
4.2.1 Trends/projections
4.1.2 Breakdown of economy by sector
4.3 Inflation and the central bank
4.4 Fiscal deficit and debt: rising fast under SOE burden
4.4.1 State-owned enterprises
– Eskom
– South African Airways
– Denel
4.4.2 The 2020 budget
4.4.3 Risk of debt distress
– Debt-to-GDP
– Debt service-to-revenue
4.4.4 Major creditors and future borrowing
4.4.5 Potential IMF deal
4.5 Balance of payments
4.6 Foreign reserves and the rand
4.7 Credit ratings
4.8 Key lending rates
4.9 WBG Ease of Doing Business
4.10 Major recent developments
  • MAP: SOUTH AFRICA’S ELECTRICITY INFRASTRUCTURE
5. POWER SECTOR OVERVIEW
5.1 Overview
5.2 Market structure
5.2.1 Future developments
5.3 Profiles of institutions
5.3.1 Utilities
– Eskom Holdings
5.3.2 Regulators
– National Energy Regulator of South Africa
5.2.3 Ministries
– Department of Mineral Resources and Energy
– Department of Public Enterprises
– National Treasury
– IPP Office
5.4 Market operation
5.5 Sector history
5.5.1 Ownership and organisation history
5.5.2 Role of independent power producers
5.6 Regional electricity trade
5.7 Financial challenges
5.8 Main consumers of electricity

6. POWER SECTOR POLICY AND REGULATION
6.1 Overview
6.2 Major legislation
– National Energy Act, 2008
– National Energy Regulator Act, 2004
– Electricity Regulation Act, 2006
– Nuclear Energy Act, 1999
– Grid Code
– National Environmental Management Act, 1998
– Public Finance Management Act, 1999
– Draft Public Procurement Act, 2020
– Carbon Tax, 2019
– Independent Market Operator Bill, 2019
6.3 Sector plans and policies
– White Paper on Energy Policy, 1998
– Renewable Energy Policy White Paper, 2003
– Integrated Energy Plan, 2016
– Integrated Resouce Plan, 2019
– Gas Utilisation Master Plan
– Eskom Transmission Plan, 2020-2029
– Roadmap for Eskom in a Reformed Electricity Supply Industry
  • Box 7: Key aspects of the Eskom Roadmap
6.4 Legal requirements
6.4.1 Generation
6.4.2 Transmission
6.4.3 Distribution
6.4.5 Economic empowerment
6.5 Procurement
6.5.1 Competitive bidding
– Renewable Energy Independent Power Producer Procurement (REIPPP) programme
– Small Projects Independent Power Producer Procurement (SPIPPP) programme
– Coal Baseload IPP procurement programme
– Battery energy storage systems
– LNG-to-power IPP procurement programme
– Risk Mitigation Power Purchase Programme
6.5.2 Municipality procurement
6.6 Tariffs
6.6.1 Regulatory clearing account
6.6.2 Wholesale
6.6.3 Retail
6.6.4 Differences between Nersa and Eskom tariffs
6.7 Currency risk
6.8 Major adverse incidents affecting IPPs
– Eskom refusing to approve REIPPP projects
– Budget quote and transmission delays for REIPPPs
– Sacking of Karén Breytenbach
6.9 Guarantees and mounting government liabilities
  • Box 8: Eskom – a failing giant
7. FROM THE NEWSLETTER

8. RESOURCE AVAILABILITY
8.1 Overview
8.2 Hydrocarbons market
8.2.1 Overview
8.2.2 Key agencies
– PetroSA
– Petroleum Agency of South Africa
– iGas
– Transnet
8.2.3 Legislation
– The draft Upstream Petroleum Resources Development Bill
8.2.4 Licensing
8.3 Coal
8.4 Crude oil
8.5 Natural gas
8.6 Liquified natural gas
8.7 Geothermal
8.8 Solar
8.9 Wind
8.10 Hydroelectricity
8.11 Shale gas
8.12 Regional gas
8.12.1 SADC master plan
8.12.2 Mozambique: from ‘modest producer’ to global player
– Export LNG project
– Potential pipeline projects
8.12.3 Sasol’s Mozambique play and gas transition strategy
8.12.4 Potentials for indigenous gas production coupled with LNG imports
– Other sources of gas
  • MAP: SOUTH AFRICA’S OIL AND GAS INFRASTRUCTURE
9. COMPETITIVE LANDSCAPE
9.1 Overview
9.2 Landmark power projects
– Largest power plant: Medupi Coal
– Kusile Coal
– Largest nuclear: Koeberg Nuclear
– First IPP: Rand Central Electric Works Coal
– Largest operating IPP: Avon Diesel
– First REIPPP: Kalkbuit Solar
– Largest state-owned project: Kendal Coal
9.3 First renewable IPP procurement round: REIPPP round 1
9.4 Under construction generation projects
– Aggeneys Solar PV
– Bokamoso Solar PV
– Copperton Wind
– Droogfontein Solar PV II
– Dyason’s Klip Solar PV I
– Dyason’s Klip Solar PV II
– Garob Wind
– Greefspan Solar PV II
– Kangnas Wind
– Karusa Wind
– Konkoonsies Solar PV II
– Ngodwana Mill Lignin Expansion
– Nxuba Wind
– Oyster Bay Wind
– Perdekraal East Wind
– Roggeveld Wind
– Sirius Project One Solar PV
– Soetwater Wind
– Waterloo Solar PV
9.5 Selected key developers
– Actis 115
– Biotherm Energy
– Acwa Power
– Juwi Renewable Energies
– Mulilo Renewable Energy
– Sasol
– SolarReserve South Africa
9.6 Selected key financiers
– Absa Bank Ltd
– Nedbank and Nedbank New Energy Finance
– Phakwe Group
– Old Mutual Investment Group South Africa Ltd

10. TRANSMISSION AND DISTRIBUTION
10.1 Overview
10.2 T&D losses
10.3 Critical issues facing the network
10.4 Sector reforms
10.5 Planned grid improvements
10.5.1 Strategic Grid Plan 2040
10.5.2 Transmission Development Plan (2020-2029)
10.6 Regional trade
10.6.1 Southern African Power Pool
– Bilateral contracts
– Competitive market
10.6.2 Existing interconnections
10.6.3 Planned interconnections
– Botswana-South Africa (BoSa)
– Mozambique-Zimbabwe–South Africa (MoZiSa)
10.7 Electricity imports/exports
10.7.1 Imports
10.7.2 Exports

11. OFF-GRID
11.1 Overview
11.2 Off-grid legislation and strategies
11.2.1 Integrated National Electrification Programme
11.2.2 New Household Electrification Strategy
11.3 Electrification and access rates
– National
– Urban
– Rural
11.4 Initiatives and programmes
11.4.1 Off-grid Solar Home System Programme South Africa
11.5 Off-grid regulation
11.5.1 Electricity Regulation Act of 2006
11.5.2 Solar Home Systems
11.6 Selected off-grid players
11.6 Embedded generation
11.6.1 Mines

12. DEMAND AND SUPPLY OUTLOOK
12.1 Overview
12.2 Demand
12.2.1 Projections
12.2.2 Factors influencing growth
12.3 Generation
12.3.1 Government projections
– Medium-term system adequacy (2019-2024)
– Integrated Resource Plan 2019 (2019-2030)
12.3.2 African Energy pipeline 2020-2024
12.4 Demand and supply outlook, 2020-2030
12.5 The cost of cleaner coal

13. DATA TABLES
– Methodology
– Installed capacity, RE vs non-RE, 2010-2024 (MW & %)
– Installed capacity by fuel type, 2010-2024 (MW)
– Installed capacity by fuel type, 2010-2024 (%)
– Installed capacity, liquid fuels breakdown, 2010-2024 (MW)
– Installed capacity, liquid fuels breakdown, 2010-2024 (%)
– Installed capacity by technology type, 2010-2024 (MW)
– Installed capacity by technology type, 2010-2024 (%)
– Installed capacity by ownership type, 2010-2024 (MW)
– Installed capacity by ownership type, 2010-2024 (%)
– Installed capacity by provinces, 2010-2024 (MW)
– Installed capacity by provinces, 2010-2024 (%)
– Installed capacity by fuel, Eastern Cape, 2010-2024 (MW)
– Installed capacity by fuel, Free State, 2010-2024 (MW)
– Installed capacity by fuel, Gauteng, 2010-2024 (MW)
– Installed capacity by fuel, KwaZulu Natal, 2010-2024 (MW)
– Installed capacity by fuel, Limpopo, 2010-2024 (MW)
– Installed capacity by fuel, Mpumalanga, 2010-2024 (MW)
– Installed capacity by fuel, North West, 2010-2024 (MW)
– Installed capacity by fuel, Northern Cape, 2010-2024 (MW)
– Installed capacity by fuel, Western Cape, 2010-2024 (MW)
  • Project listings
– Operating
– Under construction
– In development
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In some contexts, the South African electricity supply industry (ESI) has been viewed as an attractive destination for investment due to its stable government, economy and policy direction. This was especially the case as the government rolled out its ground-breaking Renewable Energy Independent Power Producer Procurement (REIPPP) programme in 2011.

However, for all South Africa’s strengths – which include a robust judiciary and banking sector – a number of underlying tensions and challenges mean that long-term investments are far from being risk-free. The South Africa Power Report 2020/21 outlines the market’s attractions and downsides for power developers, financiers and other industry stakeholders.

A changing of the political guard

The South African political landscape appears, in many ways, a picture of stability. The ruling African National Congress (ANC) has been victorious in every election of the post-apartheid era, which began with the abolition of white rule in 1994. This masks a more unpredictable reality, however. While the ANC won 62.15% of the popular vote in the 2019 election, it is torn by rampant factionalism. Meanwhile, the recent rise of opposition parties – such as the Economic Freedom Fighters (EFF), led by political firebrand Julius Malema, and the rebranded Democratic Alliance – points to a shifting political landscape, providing plenty of political intrigue and fuelling crony relationships that have had a significantly negative impact on business.

Within the ANC, battle lines have been drawn across ideological and pragmatic lines. Those loyal to ex-president Jacob Zuma, who resigned in disgrace in 2018, rally around a cry for “radical economic transformation”. New leader President Cyril Ramaphosa promises to deliver foreign investment, revive the economy and restore the South African government’s domestic and international reputation by rooting out corruption.

The impact and consequences of apartheid-era politics are deeply felt to this day, as high levels of inequality and unemployment remain embedded in society. Broader anti-government frustrations have brewed since the ANC to power in 1994, caused by sometimes alarmingly poor levels of governance, widespread corruption and statist politics. While the legacy of apartheid looms over these issues, history will likely judge that many of these abuses were eminently avoidable.

The jury is out on whether he will succeed, but Ramaphosa seems almost uniquely placed to begin repairing the social contract. The president, a close ally of national icon Nelson Mandela, was the first general secretary of the influential National Union of Mineworkers (NUM). Ramaphosa remade himself as a leading entrepreneur – and has thus been promoted as a financially sensible and trustworthy candidate, in stark contrast to Zuma – and enjoys broad support among the general populace.

Ramaphosa scored an approval rating of 62% in a February 2020 poll, which outstrips the approval of the party he represents by around seven percentage points. However, balancing much-needed reform with the support of key policy-makers is a political tightrope, and there is a palpable impatience resulting from the government’s sluggishness in addressing key issues.

Tackling corruption and state capture

Since Ramaphosa assumed office, there have been some tangible improvements in pushing back the frontiers of kleptocracy that were normalised under Zuma. Under the previous administration over R500bn ($34bn) is alleged to have been stolen from state companies and government departments. Milestones include the arrest in November 2019 of Zuma ally, former minister Bongani Bongo. Zuma and his cronies have been put on trial in a system where the courts proved sufficiently robust to withstand ‘state capture’ even if some judges and police bodies were caught (and literally bought) in the Zuma web.

While this represents progress, critics argue that the pace of reform – reviving both the public’s and international partners’ confidence in the South Africa state – has been far too slow. Zuma’s protracted trial, a steady drip of revelations and crises in institutions crippled by poor governance, led by state utility Eskom, mean the crisis of governance has not strayed far from the forefront of public consciousness.

Overly cautious economic policies have proven too little, too late

The long-held hope of a post-apartheid transformation, which would blend social equity with economic opportunity (and accelerated growth), has been undermined by a decade of disappointing growth. As South Africa Power Report 2020/21 went to press, South Africa was alarmingly close to losing its last remaining investment-grade credit rating (assigned by Moody’s Investors Service, which was widely seen by markets as being too understanding towards the South African sovereign, unlike Standard & Poor’s and other agencies).

Promises of reform by the incoming president have been welcomed by international investors but have often seemed too sluggish or half-hearted in delivery to overcome the legacy issues that went unchecked by previous administrations. South Africa remains confronted by unsustainably high unemployment, a moribund economy (which in late 2019/early 2020 was reflected in successive quarters of negative growth) and flailing state-owned enterprises (SOEs).

SOEs continue to siphon money from public coffers, rather than contributing positively to the national economy. These shortfalls are exemplified by Eskom, which has become symbolic of national economic malaise, as the state power utility struggles with over-employment, dependency on coal for power generation and responsibility for the ever unpopular need for load-shedding. Prescriptions for reversing Eskom’s decline go to the heart of many of country’s most pressing debates.

While South Africa has a vibrant financial services sector, and its market is sufficiently large and open to attract entrepreneurs and innovators, opportunities for private investors may be constrained by the continued dominance of the state and ‘statist’ perceptions; these perceptions continue to play a major role in ANC, EFF and other policy prescriptions offered to a majority of voters who have hardly benefitted from the fruits of a globalised, liberal economy. It could be argued these benefits would have been much greater if South Africa had been truly liberalised and liberated. But that is a matter of great debate within the ‘rainbow nation’, with consequences for those investing in the country potentially for decades to come.

A power sector in crisis

The electricity supply industry’s struggles are well documented, and the government’s broken promise to prevent load shedding has developed into a serious political and economic issue. The sector’s institutions have been seriously undermined, as highlighted by the resignation of Eskom chair Jabu Mabuza in January 2020. Reliable power supply is critical to economic activity; its absence is particularly ruinous to the mining sector, a key source of income and jobs. The problems are well-known and their resolution is urgent, but such is the depth of South Africa’s crisis that deeply unpopular and value-destructive load-shedding looks certain to be an unfortunate reality for the foreseeable future, as the government itself admitted in early 2020.

Despite once being heralded as a world-leading model for state-led power management, years of financial mismanagement have resulted in chronic failures of state utility Eskom, which now requires significant structural reform. The government published the Roadmap for Eskom in a Reformed Electricity Supply Industry in late-2019; this outlined plans to legally separate generation, transmission and distribution (in structures reminiscent of the forward looking, but not properly implemented Energy White Paper of 1998). Despite promising ‘bold actions’ to put Eskom on a track to financial sustainability, many of the more difficult decisions were shirked on distribution, private participation and labour issues in particular.

A decade of renewables, but coal remains the dominant fuel

Despite the power sector’s struggles in recent years, the Renewable Energy Independent Power Producer Procurement (REIPPP) programme has had a profound impact on the energy mix and investor landscape. Remarkably, between 2011 and end-2020, both renewable energy and IPP capacity as percentages of the energy mix will have increased by more than threefold. The programme has been implemented via four rounds of bidding, plus an additional concentrated solar power round. A fifth REIPPP round is planned.

The on-grid energy mix remains dominated by coal, which accounts for 73% of total capacity and has been prioritised in energy planning. Coal remains of real political significance as a source of employment – suggesting that projects driven by ‘clean coal’ will remain an important element in the energy mix despite efforts for South Africa to accelerate its carbon transition.

In 2019, following a highly protracted and politicised process, which exposed competing interests from within the coal and nuclear lobby, a new Integrated Resource Plan (IRP) was published; this key document for energy sector planning had not been updated since 2010. The latest version included priority procurement of 2GW-3GW to help minimise load-shedding and expenditure on diesel, including a substantially increased capacity for renewable energies but also, controversially, maintaining a commitment to coal.

Bold reform plans face many challenges

However, the successful implementation of the new IRP is already being called into question. While African Energy Live Data’s pipeline of in-development generation projects suggest that installed capacity will reach the IRP’s medium-term target of 63,914MW in 2024, longer-term aspirations will hinge on the ability to reform the debt-laden and loss-making Eskom. The ‘junking’ of South Africa’s credit rating is expected to result in slower economic and electricity demand growth. The consequences may be a reduction in Eskom’s ability to both cover its operating costs and to administer the necessary reforms that will make the sector competitive; this is likely to make meeting the IRP’s long-term supply targets more challenging. Beyond new capacity additions, improving availability levels at existing power plants will be crucial in ending rolling blackouts. Even with lower demand growth, the current availability levels of 60% will result in the supply deficit growing from -4.4% in 2019 to -6.3% in 2024.
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  • Avon Diesel
  • BioTherm Energy
  • Canadian Solar
  • Concor
  • Consolidated Power Projects
  • ELB Engineering
  • Enel Green Power
  • Engie
  • Eskom Holdings
  • Exxaro Coal
  • General Electric (GE)
  • Group Five Engineering
  • GRS
  • iGas
  • Juwi Renewable Energy
  • Lekela Power
  • Mitsubishi Hitachi Power Systems Africa (MHPS)
  • National Energy Regulator of South Africa
  • Nedbank
  • Old Mutual Investment Group
  • Pele Green Energy
  • PetroSA
  • Petroleum Agency of South Africa
  • Phakwe Group
  • Raubex Infra
  • Sasol
  • Scatec Solar
  • Siemens
  • Sola Group
  • SolarReserve South Africa
  • Sturdee Energy Southern Africa
  • Standard Bank
  • SunEdison
  • Vestas
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