South Africa eases path for companies to generate power

South Africa is to allow companies to produce more electricity on their own as it tries to mitigate the impact of the rolling blackouts that have crippled the economy.

Investors, including some of the world’s biggest miners, will be able to set up independent power generation of up to 100 megawatts without having to go through a complex licensing procedure, President Cyril Ramaphosa said on Thursday.

South Africa is in the middle of “the worst economic crisis in our country’s recent history” and it urgently needs to liberalise energy supplies to avert the “massive risk” of blackouts, Ramaphosa said.

State-owned Eskom generates nearly all of South Africa’s electricity, but its fleet of mostly coal power stations suffer regular breakdowns after years of neglect and graft under Jacob Zuma, the former president. This has forced the indebted utility to impose frequent cuts on mines, smelters and businesses, hobbling promises that Ramaphosa made to turn South Africa’s stagnant economy around.

As breakdowns have worsened, rolling blackouts have returned in recent weeks at the start of South Africa’s winter, in the middle of the country’s mass rollout of coronavirus vaccines.

The rise in the limit for so-called ‘embedded’ generation, up from a previous threshold of one megawatt, is double what business and mining groups had been asking for. Meridian Economics, a South African energy research firm, estimated that up to 5,000 megawatts of pent-up independent power projects could be built in South Africa in the next four to five years if the limit rose to 50MW.

The increase is an “excellent starting point,” said South Africa’s minerals council, which represents miners. “Our initial estimates are that this development could lead to additional short and medium-term investment by the industry solely in embedded generation projects of around R27bn [$2bn],” it said. The generation threshold will be lifted in the next 60 days, Ramaphosa said.

Eskom supported the move to allow some of its biggest customers to supply more of their own electricity because it will relieve pressure on the utility and allow it more time to repair the broken coal fleet, Ramaphosa said.

While analysts say that the move could leave Eskom with even less cash to fund maintenance, Ramaphosa said: “This is not a death spiral for Eskom. When Eskom is able to solve its current problems, it will resurge . . . if anything it could be the rebirth for Eskom.”

The unexpectedly large increase also signals that Ramaphosa is willing to push major reforms to open up the economy despite resistance in his party. Gwede Mantashe, the mining and energy minister, said as recently as last month that companies were “not ready” for an increase beyond 10MW.

Ramaphosa’s government also plans to resume procurement of renewable energy from independent suppliers this year. The government is also in the final stages of a separate multibillion dollar plan to procure emergency power from so-called powerships.