A lack of political will and the obstructive role of Eskom are impeding the move to a competitive energy sector and costing billions in lost investment, says Avesh Padayachee, CEO of renewable energy company Fibon Energy.
“The promise of the Electricity Regulation Amendment Act is to allow for electricity trading which is competitive. What we are seeing is Eskom taking Nersa to court to revoke five trading licences it issued,” he says.
“New players are coming and the rules have changed. But they are being changed by people that are still playing the game, which is a massive conflict of interest. Eskom can't be the referee and player at the same time.”
One of the biggest impediments to the energy liberalisation programme is Eskom as both grid operator and competitor in power generation, reserving space on the grid for its own often underfunded renewable projects, he says.
“This a game Eskom is playing at the moment, and it's having a material adverse impact on new generation capacity coming online by private individuals.
“There's no transparency in queue management at all. In terms of administrative law we're falling very short regarding the processes, how things are adjudicated, reasons for decisions. This is holding back billions of rands of investment.”
When the process loses credibility international companies lured by the promise of an open energy market leave the country, he says. “They go to other markets, it's as simple as that.”
The “silver lining” is the commitment of the government to bolster the existing grid and transmission line and open that up to the private sector.
“The problem is we need a minimum of 1,400km a year for the next 10 years, and the last time I looked there was about 220km of new transmission line under development for this year.”
That 14,000km is linked to 53GW of additional power the country needs, assuming it continues to grow at the existing rate of 0.8%. Looking at the 4% or 5% growth the country actually needs, that number becomes exponentially larger.
“We have developers that want to build that power, and they have the ability and have committed funds and financial resources to doing so. They're faced with two challenges. One is that the person they're asking for approval to do so is their competitor, Eskom. Their competitor determines their fate in terms of the success of that project. That is the first glaring issue. You cannot develop this market if you have players and referees in the same game.”
When you have mega projects all the cockroaches come out of the woodwork.
— Avesh Padayachee, Fibon Energy CEO
Electricity minister Kgosientsho Ramokgopa's announcement in April of an independent transmission programme is at least official recognition of the need to bolster existing transmission capacity, and that is a positive, says Padayachee.
“Until this year it was not clear. Some people believed transmission lines should not be bolstered, and secondly was the view that if it had to be done then as an asset of national security the private sector should not be allowed to use or control that asset. So that's a fundamental shift, which is also positive.
“Now government needs to act with far greater determination and not allow Eskom and other parties to obstruct the process.”
This is essential to affirm investor confidence given that the grid upgrade and transmission requires investment of “billions and billions of rands”, he says.
“Any global company that wants to see this as a commercial opportunity needs to have confidence in the programme itself, in its credibility. It's a long-term investment in the country, and the thing you need most is a clear, unequivocal expression of 'We are open for business, this is how it will work, this is what we'll need from you.'”
“Investors need transparency in terms of what the programme will look like and what are the rules of engagement. Currently, we don't have that in place. There's some documents that are circulating to certain parties, but there's certainly not enough to ignite billions of rands of investments by companies that are specialised in this.”
What's holding the process up are ideological constraints and vested interests.
“When you have mega projects all the cockroaches come out of the woodwork. What we're seeing is that there are some players that are looking at this and saying, 'Yes it's an opportunity for the country, but how do we ensure that certain people are enriched by it?'”
The question he keeps asking himself is that with all the legal, financial and technical expertise available in South Africa, why has there not been more progress?
“The expertise is there, the need is there. Why is there not sufficient urgency to put this together?”
The reason is not the fault of the private companies involved in the process, but the slowing down of companies in connecting to the grid, approvals from the players involved — “being Eskom” — and the delays in that process, which has a knock-on effect in terms of meeting the timelines.
“Part of that is the mixed messaging which Eskom is sending into the market, which says, 'We are going to be the ultimate authority in terms of determining whether your project is successful by connecting it to the grid. And by the way, we are also setting up a renewable energy division that will build solar and wind projects. We're not ready now but when we get there we will connect to the grid.'”
That messaging in the market is exceptionally damaging for the country, he says.
“In effect Eskom is saying, 'Let's lock in a portion of the capacity, but not for projects that are able to come online that have been developed over years.' They're saying, in effect, 'We will exclude current power from coming on line that is feasible, that will create jobs and stimulate the economy. And we'll do so because this is something we want to do to protect our revenue stream.'
“The independent transmission programme at its core is a catalyst for growth, a stimulus for the economy, an enabler of industry. But the only way we can get this to work is if there's political will. At the end of the day that is what is going to drive this. And it hasn't come through in the way it needs to as yet.”
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