Solutioning for South Africa’s
energy crisis


Msizi Khoza

Head of Environmental, Social
and Governance, Absa CIB


South Africa is a country with immense potential. Yet, the nation finds itself in a profound polycrisis with high levels of unemployment, deep social inequality and a protracted and crippling energy environment.

On one hand South Africa is the most advanced economy on the African continent with a financial services sector and ecosystem that consistently punches far above its weight. On the other, it is amongst the “most unequal societies in the world” as stated by the World Bank in a 2022 report, all while having to navigate an energy crisis which has become all-consuming and crippling to business activities.

According to Absa’s macroeconomic research division, had it not been for loadshedding, South Africa’s economic growth would have been 1.3 percentage-points higher in 2022. By all indications, loadshedding in 2023 will be more severe and more crippling – thus further slamming the brakes on an already struggling economy.

South Africa’s energy crisis can be summarised in a single problem statement: How do we add enough new generation capacity in order to give Eskom the headroom it requires to perform necessary maintenance across its coal-fired generation fleet?

Here, an international example might prove instructive. In one year, Vietnam’s installed solar capacity increased by a factor of 25, thanks to an ambitious rooftop solar installation programme.

Vietnam – which is the second largest power consumer in Southeast Asia – managed to add 9.3 gigawatts of electricity in just six months through an aggressive rollout of 101 000 roof-top solar installations. What makes this even more remarkable is that this was achieved between June 2020 and December 2020 while the world was grappling with COVID-19 lockdowns.

The reason Vietnam is such a notable example for South Africa to follow is that there are many structural similarities between the two countries. Both economies are very coal energy dependent and face limitations around investments in transmission networks while having to grapple with foreign investors aggressively cutting back on investments in coal-powered infrastructure.

How did Vietnam do it?

Both the public and private sector knew the country could not afford replacing aging coal power stations and overhauling its transmission and distribution networks. This would result in major disruptions to a society which was already contending with the harsh realities of global lockdowns and economic contraction.

Instead, they opted to focus on a mass rollout of roof-top solar and allowed their citizens to not only protect their own access to electricity, but also be rewarded for tackling the broader electricity crisis the country was facing.

A key feature of the incentive scheme was a generous feed-in tariff for solar users to sell surplus power back into the national electricity grid at a price guaranteed for 20 years - a model which saw citizens of the country feel like they were playing a collaborative role in tackling the energy transition. We are seeing some encouraging signs coming out of the Western Cape to implement a similar model and we should see this adopted by other provinces as roof-top solar gains traction.

While there are some ideological challenges which dominate news headlines and public discourse, the shift toward a greener and more sustainable energy mix is irreversible. The pace of transformation has been slower than required, but the Independent Power Producer (IPP) initiatives are being recognised as some of the best in emerging market.

The 2023 Budget will be delivered against a backdrop in which there is nothing, more pressing or more mission-critical a task than to resolve the energy crisis.

South Africa can learn two very important lessons from Vietnam’s success.

First, Vietnam added 16.5GW of solar power in just two years. This is proof that it is possible to deliver a step change in additional energy capacity in a short span of time. Second, incentives matter. There is a large toolbox of regulatory and legislative instruments, policy options and incentives that can drive desired outcomes. It will be interesting to note the details around the tax incentives for solar power and other measures, as announced by President Cyril Ramaphosa in his state of the nation address.

With a crisis comes to the opportunity to emerge stronger than before.  We have invested time and money in understanding the issues plaguing our energy environment and we have tried various solutions. We as country cannot allow a good crisis to go to waste, we have the opportunity to re-imagine a new energy future. Indeed, inspiration has come from the unlikeliest of places – Vietnam. Let us get to work.

Author: Msizi Khoza

Head of Environmental, Social and Governance, Absa CIB

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