South Africa’s new electricity challenge

South Africa will need to spend around R390 billion to upgrade and expand its electricity transmission grid, providing capacity for new renewable energy projects. 

However, the government has been slow in shifting its focus to this new challenge, and its poor financial health will limit its ability to fund this ambitious infrastructure expansion. 

President Cyril Ramaphosa acknowledged this new electricity crisis in his Opening of Parliament Address, saying his government will focus on investing in the transmission grid over the next five years. 

“We will complete the most consequential transformation of South Africa’s electricity industry in more than a century,” the President said. 

Since the creation of the Energy Action Plan in 2022, private renewable energy projects have rapidly come online, placing immense pressure on the country’s transmission grid. 

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. 

The costs associated with this infrastructure buildout are estimated to be around R390 billion. 

“We already have a huge pipeline of renewable energy projects, representing over 22,500 MW of new generating capacity, estimated to be worth around R400 billion in new private investment,” Ramaphosa said. 

Earlier this month, the largest-ever private energy project connected to the grid near Lichtenburg in the North West, with over 390,000 solar panels that will add 256 MW to the grid.

As these projects come online, the pressure on the grid is only expected to increase, and the government has failed to move quickly enough to tackle this issue. 

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

Furthermore, Eskom’s chairperson has admitted the utility does not have the funds to build this capacity and will have to turn to the private sector for money. 

“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,” the head of fixed interest research at Coronation, Mauro Longano, said. 

Longano stated that the final cost will probably exceed the government’s estimate since these challenges are not unique to South Africa.

The rising global demand for transmission infrastructure and components is causing delays and escalating costs.

Longano explained that the country could bypass this issue with short-term solutions, such as requiring new projects built in areas with excess grid capacity or ensuring new projects include battery storage to manage their grid contribution.

However, billions will need to be spent upgrading the grid to permanently end load-shedding and ensure sufficient electricity for economic growth.

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

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.

More trouble coming

The reform of South Africa’s electricity sector has accelerated in recent years, with Eskom set to be unbundled into three entities: Generation, Transmission, and Distribution.

However, much of this reform has focused on the Transmission division, as the legal separation has been completed, and it has received licenses to operate. Very little effort has been made regarding the Distribution division.

This area of the electricity sector is largely the responsibility of municipalities and is an important source of revenue for them.

In recent years, many outages and equipment failures have occurred at this level, exacerbating load-shedding.

Electricity Minister Kgosientsho Ramokgopa warned of such a crisis at the beginning of May, calling the collapse of municipal infrastructure the “next front” in the battle against outages. He has since repeated this warning several times.

In a media briefing, Ramokgopa said he was particularly concerned about the rapid deterioration of municipal infrastructure, which is likely to accelerate in the future.

“This threat and the risk has come to pass as a result of perennial underinvestment in the distribution infrastructure by municipalities,” he said.

For example, he referenced investments in transformers and substations, which are the responsibility of South Africa’s municipalities.

Ramokgopa also attributed these issues to municipalities’ poor planning and management, as well as a lack of technical capacity.

“We have seen that little to no investment has been made in the replenishing, maintenance, upkeep, and modernisation of this infrastructure, and as a result, municipalities are under severe strain,” he said.

This strain has led many municipalities to implement load reduction, which is similar to load-shedding.

Load reduction is a long-established process that Eskom uses in specific areas when there is sufficient electricity available, but a transformer’s integrity is at risk due to overloading.

Load-shedding is used when the national grid is constrained, and there is not sufficient capacity to generate electricity to meet demand.

Ramokgopa explained that, essentially, South Africa’s distribution infrastructure does not have the capacity to meet the country’s reticulation demand.

“That has nothing to do with the performance of Eskom. It has everything to do with downstream inaction on the part of municipalities. That’s the crisis that is confronting us,” he said.