AFRICAN ENERGY
19
State of the SA energy sector
With news of the first negative emissions power plant in Iceland going viral, the
road ahead for the South African energy sector isn’t looking quite so healthy.
By Denton
According to Noor Kapdi, Africa chief executive
officer & South Africa managing partner at Dentons
law firm, South Africa’s energy sector will remain in
this rather static state until regulatory and political
stability return.
This lack of investment in energy is particularly troubling
because energy capacity and economic growth are
so tightly intertwined. “Energy infrastructure requires
long-term investment, and so is particularly dependent
on investors’ confidence in the country’s stability, and the
forward trajectory of its economy. Unfortunately, South
Africa is ticking neither of those boxes at the moment,”
Kapdi said.
Kapdi also highlighted overall policy uncertainty and the
fact that South Africa having had three energy ministers
in the past year made it difficult to finalise integrated
and energy resource plans. “Our energy sector is not an
investment magnet,” he said.
“To complicate matters, any economic growth that takes
place will be reliant on there being enough capacity to
meet increased demands for energy. Getting this balance
right is hard enough at the best of times, and particularly
difficult under present conditions.” Policy uncertainty,
particularly regarding the energy mix, is particularly
counterproductive because it deters even those investors
who might be willing to assume greater risk.
Currently, Kapdi said, there is no certainty as to the
relative importance of nuclear, solar, wind, coal, and gas
in the energy account. No investor will commit capital
to a project whose inclusion in the national energy
strategy is doubtful or uncertain. The effects of this
failure to provide a confirmed energy strategy can be
seen in the lacklustre investor interest in the proposed
gas pipeline from the Mozambican offshore fields as well
as shale gas exploration in the Karoo. A further drag on
investment is the disarray at most of the key parastatals.
Eskom’s current oversupply and oscillating attitude
towards renewables is one example, as is the delay in
commissioning its new coal-powered power stations.
Another is the delay and uncertainty related to the
contribution of natural gas to the energy mix and economy.
www.plumbingafrica.co.za
The initial considerations and excitement created around
the importation of LNG, the migration to a regional gas
feed supplied by a pipeline, and eventual exploitation of
shale gas seems to have lost momentum. This ambitious
but achievable natural gas endeavour would require
several SOEs to be aligned, most importantly Transnet,
who has to provide the receiving harbour infrastructure,
pipeline development, and operations.
South Africa’s political and economic travails prompted
downgrades from the ratings agencies, with more a
real possibility. The downgrades have raised the cost
of capital, thus placing further constraints on energy
investment. If another downgrade occurs, Kapdi points
out, capital costs will rise yet more, placing investment in
energy infrastructure still more at risk.
All of these are problems that are largely of our own
making. Kapdi explained that it was important not to
forget that investment in our energy sector was also
affected by global issues — one being the reduction in
foreign direct investment (FDI).
“FDI is one of the drivers of economic growth, and when
it goes down, our economy feels it. For example, Britain
remains one of our leading providers of FDI to South
Africa, but investment interest is subdued in the wake of
Brexit. And, of course, other sources of FDI are deterred
by our political and economic woes,” he argued.
“While it is very difficult to pinpoint one factor as
fundamental, I would say that in the end it all comes down
to the economy: if there is growth, investors will want to be
a part of it. So, while all the issues noted above need to be
addressed, I believe the starting point must be to get our
economy back in line with the National Development Plan,
and on a growth trajectory. Once that is happening, we can
begin to address the other issues,” he concluded. PA
“Our energy sector
is not an investment
magnet.”
January 2018 Volume 23 I Number 11