Overview of the current energy mix, and the place in the market of different energy sources

The energy mix in South Africa is made up of renewables, gas, coal, hydroelectric and nuclear. Electricity generation is undertaken primarily by state-owned power and utilities company Eskom, however increasingly by independent power producers. The transmission of electricity is undertaken by Eskom and electricity distribution (the final delivery of electricity to end users) is currently undertaken by Eskom together with various local municipalities. South Africa is heavily reliant on coal based energy sources, which generated 39,126 MW of the country's 51,981 MW installed capacity in 2018 – approximately 75%. At present, hydro, pumped storage, PV and wind sit at approximately 4%, 5.5%, 2.8% and 3.8% of installed capacity respectively, while nuclear remains an auxiliary power contributor, providing 3.5% of installed capacity.

Changes in the energy situation in the last 12 months, which are likely to have an impact on future direction or policy

Change in ministerial responsibility

On 29 May 2019, President Ramaphosa (the President) announced the appointment of a reconfigured national executive following the 2019 South African general elections. The President committed to a process of further reforms to "promote coherence, better coordination and improved efficiency" of government. Accordingly, the Department of Mineral Resources and the Department of Energy are to be merged into a single department named the Department of Mineral Resources and Energy (DMRE). The previous Minister of Mineral Resources, Mr Gwede Mantashe (Minister) has been appointed as the Minister responsible for this new consolidated department.

Unbundling the national utility

On 7 February 2019, the President announced that Eskom would be unbundled into three separate state-owned entities, responsible for generation, distribution and transmission respectively. The need for unbundling stems from the poor financial, structural and operational performance of Eskom. The decision to unbundle Eskom follows a recommendation from a President-appointed task team comprising experts in the electricity sector, established to provide recommendations on improving Eskom's performance. The task team found that the unbundling of Eskom would assist in the allocation of costs and responsibility within the national utility.

Unbundling involves the separation of energy production activities from transmission and distribution. Eskom will undergo a form of legal unbundling, which will separate the State utility into three separate legal entities. These entities will be owned and controlled by an Eskom holding company. It is expected that this will also allow for and necessitate the separation of bookkeeping across the energy generation, distribution and transmission entities. Eskom's largest source of debt relates to coal purchases and plant maintenance, which falls into the generation component of the energy supply chain. Separate bookkeeping of the respective entities would free Eskom's transmission and distribution entities from this historic debt, and enable each entity to borrow money, secure debts and raise investments separately from one another.

It is uncertain whether the unbundling of Eskom will create a more competitive environment for Independent Power Producers (IPP) to enter and participate in the electricity market. Currently, Eskom's transmission branch has a propensity to give its own generation plants preferential access to the grid. Because the three entities for generation, distribution and transmission will all be state-owned, it is unlikely that unbundling will result in greater private participation in the energy sector. On the contrary, should the unbundling be successful in revitalising Eskom, IPPs may struggle to compete with a fully functional state utility (supported by tax revenue and government administration).

Developments in government policy/strategy/approach

Integrated Resources Plan

The South African Integrated Resource Plan (IRP) is an electricity capacity plan, which sets out an indication of the country's anticipated electricity demand, how such demand is to be addressed and the cost thereof. In terms of the Electricity Regulation Act, 4 of 2006 (ERA), the National Energy Regulator of South Africa (NERSA) is required to issue rules designed to implement the Integrated Resource Plan. The IRP hence provides insight into the development of the nation's energy mix.

On 6 May 2011, the Department of Energy released the Integrated Resource Plan 2010– 2030 (IRP 2010) in respect of SA's forecast energy demand for a 20-year period from 2010 to 2030. To date, the Department of Energy has implemented IRP 2010 by issuing Ministerial Determinations in accordance with section 34 of the ERA. The IRP 2010 is a living plan intended to be updated by the Department of Energy, although no such update has been formally published to date.

A review has been necessitated by a number of changes in the assumptions utilised in the IRP 2010, and an updated draft Integrated Resource Plan 2018 (Draft IRP) was released by former Minister of Energy, Jeff Radebe on 27 August 2018 for comment by the public.

The Minister has subsequently announced that the Draft IRP is in the process of being finalised and will be tabled before Cabinet for approval. During an interview in August 2019, the Minister said that, although nuclear energy generation has been de-emphasised, the Draft IRP, once final and published, will make provision for use of modular nuclear technology. The Minister added that nuclear energy generation would compete with other power sources to replace energy capacity, which will be decommissioned in the medium to long term. Accordingly, the timelines for any nuclear build will become clearer once the Draft IRP is approved.

The Draft IRP contemplates the following additional capacity:

  • 1,000 MW of coal-generated electricity;
  • 2,500 MW of hydro-generated electricity;
  • 5,670 of solar PV-generated electricity;
  • 8,100 MW of wind-generated electricity; and
  • 8,100 MW of gas-generated electricity.

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