South Africa is facing its worst power crisis ever, with daily scheduled blackouts disrupting economic activity and crippling growth. The country’s power grid is under severe strain as Eskom, the state-owned utility, struggles to keep its ageing fleet of coal-fired power plants operational.
Eskom, which supplies about 95% of South Africa’s electricity, has a debt of over $30 billion and relies on government bailouts to stay afloat. The utility says it needs close to $19 billion over the next 10 years to build the transmission infrastructure that can connect new power projects to the national grid.
However, Eskom does not have the capacity to fund this expansion from its own operations, and the government is reluctant to increase its debt burden. This is where private sector participation comes in, according to Mteto Nyati, the chairman of Eskom’s board of directors.
“Private sector participation, yes, but the asset is going to end up with the government,” Nyati said in an interview
Nyati said that the transmission unit, which will be separated from Eskom’s generation and distribution units as part of a reform plan announced by President Cyril Ramaphosa in 2019, will be operational this year. The new distribution entity will follow suit in 2025.
He also predicted that Eskom’s generating company would be the sole provider of the baseload electricity required to keep the grid running, but with independent power projects increasingly involved in adding new generating capacity.
The government is working to add more renewable energy sources, such as solar and wind, to the power mix, as well as gas and nuclear options. A government planning document released for public comment last month called for a massive programme of power plant construction to ensure adequate electricity supply to 2050.
The private sector has shown interest in investing in South Africa’s power sector, especially after the government lifted a cap on the size of self-generated power projects that do not require a license. Several mining companies, industrial firms and retailers have announced plans to build their own power plants or buy electricity from independent producers.
The private sector can also help Eskom improve its operational efficiency, reduce its costs and enhance its governance, according to experts.
Eberhard also said that Eskom should consider selling some of its assets, such as its finance company, its property portfolio and some of its power stations, to raise funds and reduce its debt. He said that the government should also consider restructuring Eskom’s debt and converting some of it into equity.
The power crisis in South Africa has a huge impact on the country’s economy, which contracted by 7% in 2020 due to the COVID-19 pandemic and the lockdown measures. The International Monetary Fund projects a modest recovery of 2.8% in 2021, but warns that the electricity shortages pose a major downside risk.
The power crisis also affects the quality of life of millions of South Africans, who have to cope with frequent and unpredictable power cuts that disrupt their work, education, health and entertainment. Many households and businesses have resorted to using generators, batteries, candles and other alternatives, which add to their expenses and environmental impact.
However, there is hope that the power situation will improve in the coming years, as more private investment flows into the sector, as Eskom implements its reform plan, and as the government pursues its long-term energy vision. The power crisis may be an opportunity to transform South Africa’s power sector into a more sustainable, competitive and inclusive one.
Source: Reuters
