There’s scope for optimism about SA’s energy future
• A powerful amount of intellectual property and ‘dry powder’ is being hobbled by red tape
Renewable energy is gaining momentum around the world, and SA is no exception. As the country seeks to reduce its dependence on fossil fuels and transition to cleaner, more sustainable energy sources, investment and financing in the renewable energy space have become increasingly important.
This shift towards renewables has created growing demand for capital to fund projects and infrastructure, while also presenting opportunities for investors looking to capitalise in the rapidly expanding market. We have been in discussions with a considerable variety of foreign investors from Europe and the rest of Africa, boasting vast intellectual property (IP) and gravitas in the sector.
These discussions revolved around the challenges involving the future of the coal-fired power stations and how to get traction on new renewable energy projects quickly; while the biggest frustration we heard was related to the transmission grid and government obduracy in freeing up the market. Several companies have for years been offering to build their own grid to integrate into Eskom’s national grid — an offer continually rebuffed by the government’s excessive red tape.
Underlying this reluctance is perhaps an important behavioural issue: while Europeans have long been accustomed to expensive energy, a factor that sparked innovation in renewables from an early point, South Africans have historically been used to cheaper electricity. Consequently, at a consumer and business level we have neglected energy efficiency or even taking elementary measures such as installing solar geysers. Done timeously, a more ubiquitous rollout of solar geysers alone could have given SA an average 30% saving in electricity consumption.
From a fixed direct investment perspective, we have potential clients who are looking for an equity partner in energy-intensive projects, but investors are cautious. Even where in most cases the local businesses are relatively small operators that may have a strong pipeline of work, they nonetheless lack the balance sheet to fund their own power supply for their projects.
The positive I take from discussions with renewable energy investors and financiers is that there is a powerful amount of IP and “dry powder” in this country that is imminently going to be investing in the sector. The single biggest obstacle is crime and corruption. Investors have made it clear they won’t have their capital go via the government but rather directly to independent power producers (IPPs). They have set up conduits to manage the flow of funds to make this work.
There is also a cautious consensus that the appointment of an electricity minister seems to be a good move in achieving a high level of focus. Business is keen to provide material support to the governmental task team, motivated by a desire to remove investment bottlenecks in renewable energy. There are clearly a lot of initiatives under way, a pleasant scenario that creates optimism that there’s perhaps 18 to 24 months of real pain ahead before private sector IPP-type solutions make a noticeable effect on energy supply.
Notwithstanding widespread scepticism, there is more happening in the energy sector than most people are commonly aware of, which in aggregate is the output of a Medupi power station. Unfortunately, African countries are acting alone in the absence of a co-ordinated power grid. It was this factor that greatly assisted Europe in the wake of the Ukraine-Russia war, to redeploy power from other regions to replace Russian power. There is no equivalent in Africa.
In some ways this could help Africa to adopt a decentralised power grid that could enable the skipping of a generation or two of technology advancement — much as has occurred with mobile telephony. This has spread throughout Africa without a ubiquitous national phone service ever having been established in most countries. In the power sector, decentralised hydrogen cells represent the potential to replace a centralised grid with a vast number of stand-alone units throughout rural parts of Africa, as these hydrogen cells are considered “batteries on steroids”.
Foreign interest in Africa lies at the bottom of the many initiatives under way in SA. There is a palpable — almost desperate — intent to achieve success in SA, to develop a platform that can be replicated in the rest of Africa for investors. There is a pool of international investors active in SA who already have a deep knowledge of the continent and its challenges. These are impressive people with impressive IP.
Just as such investors wish to shy away from handing money to government bodies, so is the intent to fix the country’s energy problem irrespective of the government. The only thing that prevents a solution emerging more quickly is that the government stops it from happening. Top CEOs and foreign investors are increasingly expressing extreme frustration directly to the president’s office as to the poor return this country is getting from its taxes.
That may be changing, as there appears to be a trend for the government to loosen up on allowing IPPs to start integrating and on private sector focus on transmission. While the Eskom grid has always been — and still is — untouchable, the transmission grid is becoming a bit more collaborative in terms of finding solutions.
SEVERAL COMPANIES HAVE FOR YEARS BEEN OFFERING TO BUILD THEIR OWN GRID TO INTEGRATE INTO ESKOM ’ S NATIONAL GRID