South Africa: The Benefits Of Private Power

Last Updated: 30 November 2011
Article by Happy Masondo

The national electricity utility Eskom Holdings (Eskom) is caught between multiple facets of the proverbial rock and a hard place. On the one hand it acknowledges the global calls made for countries to reduce the impact of greenhouse gas (GHG) emissions in line with South Africa's commitment to curb climate change. On the other hand it will be bringing the Kusile and Medupi coal fired power stations on stream in the next few months.

At the same time, Eskom continues to support the Request for Proposals (RFP) process and programme of bidding for the production of renewable energy by Independent Power Producers (IPPs). This is despite the fact that this process will, in time, erode Eskom's long standing status as a monopoly in the generation of energy in South Africa.

As if all of the weight on Eskom was not enough, there are now several reports indicating that the organisation (amongst other state utilities), contravened certain environmental regulations during the financial year 2010-2011. It would appear that this was done in relation to Eskom's construction of the Kusile power station, as well as the Bethal and Camden facilities.

These contraventions would ordinarily subject private companies to punitive measures by the Department of Environmental Affairs (DEA). The DEA is now said to be amending legislation to enable it to take the same enforcement action against state owned entities as it does against the private sector. "The National Environmental Management Act 107 of 1998 was being amended to enable criminal prosecutions to be brought against organs of the state".1

All of these developments are unfolding at the time that the world is praising South Africa for finally embracing renewable energy sources for the production of electricity.

The green economy

It is an economic and environmental imperative for all stakeholders in the energy generation industry to embrace alternative forms of producing power.

The imperatives are found in all sectors of the economy and are starkly amplified by South Africa's hosting of the 17th Conference of the Parties (COP 17) to the United Nations Framework Convention on Climate Change (UNFCCC) from 28 November to 9 December 2011.

This is the meeting of the parties to the Kyoto Protocol at which South Africa will not only showcase its commitment to cut emissions by 42% within 15 years, but will also, through the Department of Energy (DOE ), announce the preferred bidders under the renewable energy procurement programme RFP.

The South African government does not only acknowledge the environmental imperatives through the commitments referred to above, but it has also set aside funds to support the projections towards reducing GHG emissions. The Industrial Development Corporation (IDC) has set aside a total of R22 billion for the development of green projects, as well as a further R3 billion for producing green products.

These funding projections are only the beginning of a much larger development project for the government of the Republic of South Africa. The Minister of Economic Development, Ebrahim Patel, has recently outlined the government's proposed strategic shift from consumption to investment led growth. Ebrahim Patel stated that, "although the solar water heater project was symbolically important, it was only one aspect of a much larger drive towards a greener economy".2

The renewable energy RFP is also an indication of the South African government's commitment to greening the economy. Through the submission of the proposals on how IPPs will produce alternative energy from solar, wind, biogas, biomass and other technologies, the growth of a green economy is given a much needed impetus.

The requirements of the RFP provide for economic development, local content and black economic empowerment. The submissions made for the first uptake of the 3 725 MW of renewable energy incorporate other aspects of a green economy.

Community trusts will be set up solely to empower the communities in the areas where the alternative energy facilities will be constructed. They are given an opportunity to be shareholders in the companies that will produce alternative energy.

The value of a community trust being a shareholder in a project company (worth billions of rand and running a facility for at least 25 years) is not lost on these local communities. The more immediate benefits can also be found in the local communities' participation in the companies that will operate and maintain the facilities. These facilities will earn an income from the uptake of the energy generated and sold to Eskom.

Eskom is the buyer of the energy generated from renewable energy sources and it will transmit the energy generated and sold to it by IPPs into the national grid for on selling to South African consumers. This is an opportunity which hitherto would have been completely elusive to a community or a trust established to benefit such a community.

The result of all of these developments is that renewable energy is used to promote environmental sustainability while benefitting the communities living in the areas where the energy facilities are located.

Private and public sectors in competition

The renewable energy programme RFP has also promoted a very healthy competition between the private and public sectors. While Eskom is precluded from participating in this current RFP bidding process, it is getting ready to develop its own concentrated solar power plants (CSP).

The World Bank funding granted to Eskom to build, commission and operate the coal based Medupi and Kusile power stations was on the precondition that Eskom illustrated its commitment to cleaner sources of power.

The World Bank has once again granted Eskom a US$250 million loan to help it implement what is said to be two of the largest renewable energy projects on the African continent. "Eskom is going ahead with its long standing project to establish a 100 megawatt CSP plant"3 in the same area of the Northern Cape and in parallel to the DOE RFP process open to the private sector.

The Northern Cape has earned the status of the solar corridor and will now be a beneficiary of the stringent economic development, local content, job creation, community socioeconomic development and black economic empowerment criteria.

The private sector participants in the renewable energy procurement programme will benefit from the government set up infrastructure. "The park is based on the economies of scale principle, with private developers benefitting by sharing infrastructure established by government".4

The greatest benefit for the private sector is the undertaking by various government bodies to expedite the regulatory requirements including a single environmental impact assessment for the entire solar corridor project.

There are synergies and benefits derived for both the public and private sectors. There are, however, also environmentalists (such as Greenpeace) who are of the view that the efforts taken by the government through the DOE and Eskom, are simply not enough.

On the morning of November 7, 2011, Greenpeace staged a protest by locking the gates, refusing the construction workers entry into the Kusile construction project and scaling the construction cranes. This, they stated, was to register their dissatisfaction at Eskom for failing to protect the environment by continuing to construct, develop and commission coal fired power stations and not making sufficient investments in renewable energy projects.


The benefits of private power will be felt throughout the South African economy and environment. This is despite the criticism of non-governmental organisations like Greenpeace and pending amendment of NEM A by the DEA to prosecute Eskom for its environmental transgressions in constructing Kusile, amongst other projects.

The prospect of a community trust being part of a team of technical specialists maintaining and operating renewable energy facilities is a significant benefit for an economy that has hitherto ignored local communities.


1 Blaine, S. (November 2011) New bid to subject state owned enterprises to green laws, Business Day

2 Donnelly, L. (4 - 10 November 2011) Banking on Infrastructure, Mail & Guardian

3 Schneider, M. (October 2011) The Green Report: Renewable Energy finally becomes a reality, Financial Mail, p22

4 Ibid, p23

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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