Opening SA’s power grid to competition can be just what the country needs to escape years of sluggish growth which has worsened inequality, poverty and unemployment. This is exactly what some of the proposed amendments to the Electricity Regulation Act, published recently for public comment by mineral resources & energy minister Gwede Mantashe, aim to achieve by allowing private electricity producers to generate and sell electricity.
State-owned power utility Eskom, which has for decades held a near monopoly in the generation and supply of electricity in SA, has been unable to keep up with energy demand in the country and this has resulted in repeated power outages that cost the economy billions of rand in lost output. It is estimated that an additional 4,000MW-6,000MW of power is needed just to stabilise the grid. This is about 16% more power than Eskom is now generating.
After the large economic contraction in 2020 due to the pandemic, the IMF said in a statement last week that it estimated GDP growth in SA to recover to 4.6% in 2021, but to then slow to 1.9% in 2022 and an average of 1.4% thereafter.
In a report reflecting on its Article IV consultation with SA in December, the IMF highlights Eskom’s “low productivity and quality of service delivery” as one of the main constraints on the economy.
To liberate SA from the energy shortfall, the Washington-based lender suggested that Eskom had to “abandon its outdated business model, reduce its footprint in the sector, and compete on a level playing field with private participants, including the producers of renewable energy”.
Many of these outcomes can be achieved through the implementation of “fundamental changes” to electricity supply in the country as contained in the proposed amendments to the Electricity Regulation Act, which President Cyril Ramaphosa referred to in the state of the nation address last week.
In part, the amendments to the act, which Ramaphosa said would “enable a competitive multimarket for electricity generation”, seek to broaden and reform the national regulatory framework for electricity supply by allowing private producers to sell electricity.
A new section in the Electricity Regulation Amendment Bill calls for the minister of public enterprises to establish an independent state-owned transmission company, the Transmission System Operator, “to provide for an open market that will allow for a non-discriminatory competitive electricity trading platform”.
This transmission company will be responsible for developing a transmission expansion plan, maintaining the transmission grid, and operating a national control centre to control the integrated power system and related systems. In addition, the Transmission System Operator will manage the buying and selling of electricity between willing buyers and sellers via a transparent trading platform.
This proposal is in line with the processes now under way to separate Eskom into separate generation, transmission and distribution businesses.
It also outlines a new market structure that will allow for electricity to be traded between willing buyers and willing sellers on an hourly and daily basis; or licensed and registered generators may enter physical bilateral contracts for energy production with customers and traders; or trading can happen as regulated transactions in which a central purchasing agency will conclude power purchase agreements with generators to ensure sufficient supply to meet the demand.
Comments on the draft bill must be submitted by March 11 and the proposed changes will then need to be vetted by parliament before being signed into law.
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