ANC-EFF coalition threatens load-shedding progress

An ANC-EFF coalition could threaten the progress South Africa has made in addressing its energy crisis, as it could discourage private sector participation in the energy sector.

This is according to BMI power and renewables analyst Sithobile Khoza, who spoke at BMI’s recent pre-election webinar.

Ahead of the elections on 29 May, BMI expects that the ANC will lose its majority for the first time since it took power.

This will push the ANC to partner with an opposition party to form a coalition, which will allow the ruling party to stay in power.

BMI said any of the coalition groupings would pose headwinds to policymaking, negatively impacting investor sentiment.

However, an ANC-EFF coalition would likely result in a significantly adverse market reaction, negatively impacting bond yields and the rand.

BMI predicts that an ANC-EFF partnership could see the country’s fiscal deficit widen, GDP growth slow, poor investor sentiment, a weaker rand and closer ties to Russia and China.

Khoza further said that a coalition between the two parties presents a downside risk to private sector participation in South Africa’s energy sector.

This will severely hamper investment in the sector and, therefore, present a downside risk to Eskom’s plans to expand and upgrade its grid.

South Africa needs around R390 billion to upgrade its transmission grid to enable new energy projects to connect to it, and the government is looking to tap the private sector’s liquidity without giving up control.

Earlier this year, Electricity Minister Kgosientsho Ramokgopa said upgrading the transmission grid is vital to end load-shedding. 

This upgrade will have to be completed with most of the finance coming from the private sector as Eskom and the government do not have strong enough balance sheets to finance the R390 billion upgrade. 

Ramokgopa has also previously said the government needs to build 6,000 km of transmission lines in the next three years. 

This is far beyond what is currently forecasted to be 1,400 km over the next three years. 

Eskom’s transmission grid currently has a total expansion backlog of 14,000 km, which South Africa desperately needs to connect more renewable energy projects in the country’s coastal areas. 

Professor Sampson Mamphweli said South Africa’s Cape provinces, in particular, need new grid capacity as that is where the country’s best renewable resources are. 

He estimated that around 3,200 MW worth of projects have not been able to connect to the grid due to the lack of capacity in those provinces. 

South Africa’s grid is designed to carry electricity from large, central power stations in the country’s northeast to other parts. 

Renewable energy generation is decentralised, with generation facilities located almost anywhere. 

The areas, such as the Western Cape, Eastern Cape, and Northern Cape, which have rich renewable resources, do not have the grid capacity to distribute electricity to the rest of the country. 

The grid in these areas can only carry limited load, which is insufficient for large-scale projects.

Connecting renewable energy projects to the grid is key to solving South Africa’s energy crisis in the long term, which cannot be done without private sector investment.