Mindset on energy policy must shift

It’s time to call out the nonsensical nature of SA’s energy policy. After three years of stalling, 2021 will be make or break not just on actual energy policy but for credibility of the government’s commitment to an economic recovery in the eyes of local and foreign investors.

This isn’t about the fact that we are finally due in the new year to get the next bid window of the renewable energy independent power producer procurement programme, or that Eskom is stabilised, or that new regulations have been signed. This is about a mindset problem at the heart of energy policy that must be swept aside.

A decision must be made on the role of the state versus a liberalised system that sidesteps the state. Is the energy regulator (Nersa) working? Is the department of mineral resources & energy working and capacitated? Is the existing integrated resource plan (IRP) process correct? Is the Electricity Regulation Act fit for purpose? Is the right leadership in place?

Proper performance management within the government will soon highlight that the answer to these questions is no.

At the moment the private sector is made to feel grateful that there is a bid window for renewables coming. This is mad. Changing a regulation that allows municipalities to procure independent power producer power is meaningless if the process still rests on opaque and delayed ministerial discretion. Removing the need for a ministerial authorisation to deviate from the IRP is meaningless if private projects cannot navigate a Nersa process in a timely manner. Similarly, the IRP is out of date, as Eskom’s own recent system planning exercise showed, and a dangerous 5GW gap between supply and demand is still likely to emerge in the coming years that will result in unprecedented load-shedding.

It is this fear that has led Eskom CEO André de Ruyter to call for liberalised energy procurement to allow him to achieve his number-one job target — keeping the lights on.

A key part of his ability to do this is going to be a spun-out independent transmission system market operator. Eskom has been clear that it is getting ready for this. Yet the process and the “by end-2021” target is doomed to failure because of the nine regulatory and legislative steps required to allow Eskom to spin it out. All of these involve the department. The consensus in government circles seems to be that it will be three to five years before there can be an independent transmission system market operator given the lack of leadership on the issue.

The problem is that the energy situation is a complex puzzle that has many inputs and outputs at a micro level but with macro consequences.

Next year will see increasing alarm from fixed capital and portfolio investors about the carbon content of electricity into final goods and services produced in SA. But it will also see alarm about the challenges of being able to remedy this.

It is interesting to note that despite some headline promises of streamlining Nersa’s processes and time limits, there is still not only a lack of trust in the regulator among experts but also deep confusion and tea-leaf reading every time they make a move. This is not a reputation a regulator should have.

Foreign and domestic companies will be forced to look at carbon on a total look-through basis — forced by shareholders and governments. The EU plan for a carbon import tax will spread to other countries quickly in 2021 and so SA will again stand out like a sore thumb. This will be especially so given slow movement and our risk aversion to making any commitment towards a zerocarbon point.

A 2050 net zero-carbon target for the country needs to be put in place before the middle of 2021. This would start forcing discussion on a Just Energy Transition (JET) into firm policy since decommissioning rates for Eskom (and Sasol and others) would have to accelerate meaningfully and be specific.

There would be strong signalling benefits globally, and especially into the COP26 conference in the UK in November 2021, to make such a commitment that has previously been politically impossible. Such a commitment is also crucial to gaining access to the JET financing that Eskom needs to manage its decommissioning process. If the country misses this point next year, this whole plan becomes harder to finance at the required scale.

A carbon commitment should then be the foundation for a new IRP that is automatically run every two years through an outsourced, competitive process between expert modellers along guidelines set by the government. The result should then, with feedback but not sign-off from Nedlac, become government policy, thus sidestepping the bizarre sight of unions with no mandate arguing for a nuclear policy.

As it is, 2021 risks being a year of nuclear, new coal and exaggerated gas-to-power procurement confusion. Equally, Eskom’s need to decommission will arrive with a bang in 2021, and while it has made valiant efforts on a just transition so far, this will suddenly become a much bigger issue as political interference starts.

So much will depend on perceptions of whether SA “gets it ” (beyond the specifics) with energy and climate policy in 2021 or falls behind. It will be the seminal nexus of issues for the year, with consequences well beyond. A reshuffle might be a good place to start.