SOUTH AFRICA
South Africa has a new energy plan . But will it break the bank ?
By Stephen Labson
THE PLAN ASSUMES TREND GROWTH IN ELECTRICITY DEMAND OF 2.7 % PER YEAR .
The release of South Africa ’ s long awaited update to the Integrated Resource Plan is certain to inspire renewed debate about the country ’ s energy future . Once public consultation has taken place the plan will drive policy decisions on the mix of renewables , nuclear , coal and gas fired power generation to be added to the grid until 2050 .
In briefing the media , Energy Minister Tina Joemat-Pettersson pointed to a number of factors that had been incorporated in the updated plan . Importantly , it addresses the fundamental shift in South Africa ’ s electricity demand ; the implications of technological innovation in decreasing the costs of renewables ; and the addition of new generating capacity that has quickly turned the country ’ s electricity deficit to surplus .
But one important matter is surprisingly absent in the discussion . Can the county afford the energy plan ?
Funding the plan
In normal times an energy plan might not need to focus on issues of finance and funding . But with South Africa ’ s credit rating under review , the National Treasury ’ s ability to provide support to the sector reaching its limits , and Eskom ’ s finances under threat , normal does not apply . In looking at funding issues , the first point to clarify is that private sector development of power projects offers no panacea . It is largely irrelevant whether these facilities are developed by the private sector or through public-private partnerships . In either case government will need to provide financial guarantees to make them bankable . This has been the case for government ’ s partnership with the private sector in bringing more than 1800 MW of renewable power generation online , and for Eskom ’ s capital expansion programme which will add well over 10000 MW of new power generation capacity to the grid by 2022 .
The problem is that government guarantee exposure to the power sector is already very high . At some R368 billion at the start of the financial year , this represents the lion ’ s share of total government guarantee exposure of some R467 billion .
This very point was raised by two rating agencies late last week . Moody ’ s Investor Services highlighted the “ downward pressure ” on the nation ’ s credit rating brought about by the accumulation of these contingent liabilities while FitchRatings cited concern over the level of government guarantees to independent power producers .
Eskom is essentially the “ man in the middle ”. Government is relying on the utiliy ’ s ability to repay borrowings used to fund its capital expansion programme , and pay for power supplied from the private sector . Government stands as guarantor for both . How is Eskom proposing to meet its obligations ? First up , it sees tariffs needing to increase by some 13.6 % year-on-year through to 2021 to cover the costs of power purchases . Add to this the cost of borrowings needed to complete Eskom ’ s build programme . This could add another R50 billion or more to the tariff base by 2022 .
The probability of Eskom receiving double digit tariff increases to the end of the decade has to be low . Consumer sentiment is negative , and there is a growing backlog of tariff determinations awaiting resolution in the Courts . If adding to these risk factors the hundreds of billions of added exposure
32 Business Times Africa | 2016