Budgeting on a successful
energy transition

As we review the Budget for 2023, it is evident that energy will be at the centre of almost every discussion across the public and private sector.  It will continue to put a break on growth and the economy’s ability to create new jobs and grow the taxpayer base, for as long as we continue to struggle to meet the energy needs of the country.

The president was clear in his state of the nation address that energy is key priority that needs to be addressed and has introduced some measures that are intended to increase power to the grid over the next 18-24 months. We remain curious about the tangible impact of the declaration of a state of disaster on business and society.

Government has also recognised that it can no longer address the energy crisis without input from the private sector and international funders, and is therefore trying to create an environment in which new energy projects can be brought on quickly and efficiently.

The cap on private sector generation projects has been lifted, allowing the private sector to bring on more projects that not only service their own operational requirements, but also have the opportunity to return power to the grid. The eminent tax incentives linked to the rollout of rooftop solar panels by business and households will be welcomed by all.

The decision to relax procurement rules for renewable energy projects is also an important short-term win. It allows projects that have achieved financial close to be brought online sooner, which should ease pressure on Eskom, and give it much needed space to conduct critical maintenance without weighing down the broader economy.

The establishment of a National Energy Crisis Committee (NECOM) that focuses exclusively on the 6 poorly performing power plants to return 6000MW to the gird over the next 24 months as well as the plans to appoint a Minister of Electricity in the Presidency is also encouraging. Progress in this regard will be watched with much interest. The bottom line is that more needs to be done if we want to put an end to the country’s energy crisis.

Absa’s direct relationship with Eskom is led from a strategic viewpoint, with the aim of assisting the utility with addressing its strategic needs. Where required, we will engage with the utility’s key representatives including the board and shareholders with the intention of coming up with sustainable solutions.

The bank has also positioned itself as a funder of choice for the renewable energy sector and has partnered on a significant number of projects with the private sector. In South Africa, Absa has participated and successfully financed c. 58% of renewable energy projects from REIPPP rounds 1 – 4. This equates to 5,224MW which is 424MW more than the installed capacity of Medupi or Kusile.

In REIPPP 5 Absa was awarded the mandated lead arranger role in 21 of the 25 projects that were announced as preferred bidders. We have also been awarded the mandated lead arranger role in various captive power opportunities and have successfully closed c. 200MW of private offtake agreements.

There is no question that this is a tough budget and South Africa is facing very real challenges as a result of Eskom and the energy crisis, but it’s important that we do not lose sight of the fact that many major projects are now reaching financial close and there is a real sense of urgency across the board from all stakeholders. As a leading participant in public sector funding, we are excited to see an increasingly collaborative approach being adopted between the public and private sector and we believe 2023 may just surprise to the upside.