Power continues to pose threat to SA economy

 Power continues to pose threat to SA economy

Power supply in South Africa has remained in a sporadic state of crisis since 2008. The country has explored several solutions to address the issue, yet it continues to pose a threat to the country’s economy. A potential solution that has been brought to the attention of the government is the import of power from surrounding countries in the SADC region with a multitude of opportunities, from hydropower in Zambia to coal-based power from Botswana.

The sentiment surrounding base load power supply in South Africa of late is inclined towards nuclear energy; however, the decision to implement that power source has been overturned by the Cape High Court due to the unlawful and inexpert approach that the government undertook in the process of procuring nuclear energy from Russia.

In view of the High Court’s decision, an alternative to nuclear energy would be the use of coal power stations. However, issues continue to arise surrounding the longevity of existing power stations and their competence to generate sufficient future power supply considering the oldest power station, Komati, is about 56 years old. So far, Eskom has planned to decommission five of the country’s oldest power stations including 2 000MW Hendrina, 1 600MW Camden, 1 000MW Komati, 3 000MW Kriel and 1 200 Grootvlei in the next five years. Relatively high maintenance costs and billions to be allocated in refurbishment fees to achieve emissions compliance are cited as reasons.

In addition to these factors, domestic funding for the refurbishment and the construction of new coal-based generators is locally limited as local banks find themselves overexposed to the sector given the high capital requirement of each project. This was apparent in the funding of both Thabametsi and Khanyisa, where the projects were affected by financial institutions limiting the capital that they invested or even pulling out due to risk associated with overexposure to a single asset class.

Khanyisa and Thabametsi have recently faced further challenges due to serious environmental concerns about planned plants. In another High Court ruling concerning the Centre for Environmental Rights (CER) against the KiPower and Colenso IPPs, the High Court documented climate change as a law, ruling that a comprehensive climate change assessment is a prerequisite for the authorisation of new coal-fired power stations. This ruling resulted in the suspension of authorisation for the Thabametsi coal-fired power station as the Department of Environmental Affairs (DEA) was unable to provide a complete climate change assessment.

In another struggle, the CER has confronted the DEA and the Department of Energy (DoE) to guarantee the exhaustive evaluation of environmental impact and climate change prior to the authorisation of the Khanyisa power station. These assessments are encouraged on behalf of Earthlife and groundwork, who are deliberating on taking legal action against the government departments as well as developers regarding the power stations.

South Africa has confirmed prior predictions made by KPMG and transformed into a non-investment-grade jurisdiction, making it increasingly susceptible to being overlooked by international investors. Eskom can explore the option of international funding, but the country’s recent downgrade to junk status will yield high interest rates for the company, making the cost of generating power domestically more expensive. 

South Africa’s DoE has taken steps to implement renewable energy as a significant part of the country’s energy mix through the Renewable Energy Independent Power Producer Programme (REIPPP) established in 2014. This establishment of a renewable power base is and will continue to be successful. However, solar and wind-based renewable energy can never replace base load generation given its full reliance on unpredictable weather conditions. It is understandable that the government does not want to be tied to the to the use of only coal-based power in the future, and renewable energy is all good and well but it is unable to completely replace coal baseload power supply. The perfect solution to this problem is to attain a combination of coal baseload power and renewable energy. It is not only cost effective but also ensures a sufficient and ongoing supply of energy. 

To generate this solution and resolve issues concerning national power stations, South Africa’s best bet is to import coal-based power from neighboring countries such as Botswana, which has more than enough power capacity and is close enough to provide an easy connection to the local grid. Importation will effectively emancipate South Africans from high power tariffs considering the country’s economic and environmental state. With importation used in combination with the REIPPP, the country’s energy supply ought to be adequate for decades to come.

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