Given South Africa's heavy reliance on energy-intensive
industries such as mining and manufacturing, it should come as no
surprise that the country now boasts Africa's most
comprehensive and transparent energy policy.
Ensuring a secure source of power is central to the
country's growth. South Africa currently uses some 40 percent
of the total electricity consumed on the continent and –
outside of a few peak periods where power is imported from the
Democratic Republic of Congo (DRC) – the country is largely
self-sufficient in power generation. With steadily climbing
economic and demographic growth rates, it is clear that the country
will require continuous capacity increases to keep pace with
A STABLE AND SUSTAINABLE PLAN
It is encouraging, therefore, that South Africa has developed a
long-term energy plan that clearly identifies the country's
future needs and articulates a practical and sustainable investment
strategy to achieve these goals.
The plan, known as the Integrated Resource Plan for Electricity
2010-2030 (or IRP2010) details the capacity, investment costs,
timing requirements and technologies that the country requires to
meet anticipated demand over the next two decades. The plan also
takes into account other key economic and social considerations
such as climate change mitigation, diversity and security of
supply, job creation and sustainable development.
Moreover, the plan takes definitive measures to reduce the
country's reliance on coal generation. Between 2010 and 2030,
the plan envisions coal's proportion of generation capacity
falling from 90 percent to 65 percent, while renewable energy
sources will rise to 9 percent from a virtually non-existent
baseline in 2010. Nuclear and gas generating capacity is also set
to increase to replace coal.
IPPS FOR IRP2010
For the most part, IRP2010 places a significant focus on
leveraging independent power producers (IPPs) to rapidly increase
capacity without the need for Eskom – South Africa's
state-owned utility – to take on new funding obligations. In
the first 2 years of the plan, the IRP2010 envisions IPPs making up
10 percent of the country's generation capacity, increasing to
30 percent by 2030. The energy authority is currently considering a
wide range of proposals including renewable energy generation,
self-generation and cogeneration as well as more conventional forms
of generation such as coal-fired facilities.
Having already conducted two distinct tender rounds led by the
Department of Energy, the National Treasury, Eskom and NERSA (the
electricity regulator), the country has received a wealth of
proposals both from domestic and international players.
Foreign players seeking a foothold into the continent will find
South Africa's legal and regulatory environment well-suited to
investment. Beyond having what is arguably the continent's most
transparent and structured energy policy, the plan also includes
strong government backing which means that any deals that are
struck are essentially highly-bankable for at least 20 years.
A word to the wise: success in the South African power market
will largely depend on the ability of international players to
partner with local investors and conduct at least part of their
procurement within the domestic market. As expected, the government
intends to use the energy infrastructure development program to
address the country's socio-economic imperatives –
creating investment opportunities for historically disadvantaged
citizens, creating local manufacturing capability where possible
and maximizing job creation particularly for the local community
where a project is based. Understanding the local environment,
marketplace and regulatory regime will be key for international
players coming into the country.
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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