South Africa’s R390 billion grid headache

South Africa needs around R390 billion to upgrade and expand its transmission grid. This is to allow new energy projects to come online, ensure the country has surplus electricity, and enable the economy to grow. 

The government and Eskom do not have the capital required to fund this expansion, forcing them to turn to the private sector to invest heavily in transmission infrastructure. 

This problem has mainly been created by the rapid rise in private investment in renewable energy projects. 

South Africa’s transmission grid was designed to transfer electricity from the large, coal-fired power stations in the country’s northeast to other parts. 

Renewable energy is decentralised, and generation facilities have predominantly been built in the country’s Cape provinces with rich renewable resources. 

However, there is no longer any excess capacity in these regions as the grid was not designed for them to host large generation facilities. 

Effectively, the country’s grid will have to be ‘flipped’ around, with the majority of generation capacity coming from the country’s southwest to the major load centre in Gauteng. 

“We do have a major grid transmission problem. To bring all the additional capacity from private generators, we will need a huge amount of investment in the grid from power lines to substations,” the head of fixed interest research at Coronation, Mauro Longano, said. 

Eskom’s chairperson, Mteto Nyati, said it would need around R390 billion over the next ten years to build sufficient transmission infrastructure. 

“While this will not be a cheap exercise, there is no way around this. We have to spend the money and develop the transmission grid infrastructure,” he said.

Longano said it will most likely end up costing even more than the government estimated as these issues are not limited to South Africa. 

There is increasing global demand for transmission infrastructure and components, resulting in delays and increased costs. 

To illustrate this, South Africa needs around 1,500 km of transmission lines a year for the next decade, but the country only manufactures around 400 km yearly. 

Longano explained that the country could circumvent this through short-term ‘cheats,’ such as forcing new projects to be built in areas with excess grid capacity or ensuring new projects have battery storage to manage their contribution to the grid. 

However, if the country wants to permanently end load-shedding and ensure there is enough electricity to grow the economy, it will have to spend billions upgrading its grid. 

“We can’t really sleep comfortably until there is sufficient capacity for much more renewables to come online,” Longano said. 

Real reason for grid capacity constraints

While the shift to renewables is a short-term cause of South Africa’s grid capacity problems, a much longer-term cause has led the country to this point. 

This is the government’s intense focus on generation over transmission since the early 2000s, a lack of skills, and inefficient procurement when it became clear additional capacity was needed. 

Energy analyst and managing director of EE Business Intelligence, Chris Yelland, said Eskom’s grid is not dilapidated but that it had been neglected over the past decade and a half. 

Yelland explained that the transmission grid is generally in good condition and performs well but is under increasing pressure as new renewable capacity comes online. 

Access to Eskom’s grid is severely limited, with the utility needing to build new substations, upgrade existing infrastructure, and build thousands of kilometres of new transmission lines. 

“There is a significant opportunity to raise a substantial amount of capital. In fact, money is not the problem from the private sector,” Yelland said. 

The main problem is that the private sector does not think many of these projects are financially viable and is thus unwilling to commit capital to them. 

“The whole ideological issue around private sector involvement is very real. There is significant distrust between the government and the private sector. This needs to be overcome.” 

However, progress has been made in this regard, with Eskom’s transmission entity being unbundled into a new, separate company called the National Transmission Company of South Africa.

This company is set to facilitate private-sector investment in the country’s transmission grid and will not be weighed down by Eskom’s significant debt burden.