‘Energy highways’ are the key to greater growth
SA needs 14,000km of infrastructure if it is to distribute electricity more efficiently and equitably
● The current energy crisis must be managed to protect South Africa’s long-term socioeconomic interests while balancing our sustainability obligations to the South African people and our international commitments to climate change. While critical efforts have been made towards enabling private sector investment in energy generation, actions to mitigate ailing transmission capacity are vital in ensuring our long-term energy security and energy sovereignty, meeting global decarbonisation targets and resuscitating the economy. Energy availability must lead the country’s economy.
Grid capacity has fallen short of what is required for further generation capacity as detailed in the Integrated Resource Plan (IRP) 2019 and the draft IRP 2023. It is expected that 53GW will require connection to the grid by 2032, requiring more than 14,000km of new transmission lines, as per Eskom’s Transmission Development Plan (TDP). Transmission infrastructure can be thought of as the N1 highway for electricity to reach households and businesses.
The political economy perspective underscores the importance of transmission infrastructure, highlighting the intricate interplay between economic development, political stability and social welfare. Transmission infrastructure is not merely a technical necessity for electricity distribution but a pivotal element in fostering economic growth, reducing inequality and enhancing political stability.
Investing in modern, flexible transmission systems will facilitate South Africa’s shift towards sustainable energy production, aligning economic development with environmental conservation.
Eskom’s current financial position places significant limitations in attracting sufficient capital towards expanding transmission infrastructure with the delivery rate of seven to 10 years. It has been found that Eskom’s transmission build rate needs to scale up about eight times, from 300 to 2,300km per year, to meet our 2030 energy security demands.
To address the lack of grid investment, it is critical that a programmatic procurement approach is adopted while removing impediments to network rollout and advancing the requisite levels of investment to expand South Africa’s grid. Investment in the grid has been suboptimal, resulting in a need for R390bn over the next decade. This highlights the critical need to explore competitive and alternative solutions to encourage transmission infrastructure investment, specifically within the context of Eskom’s financial position and the country’s fiscal matrix.
The most suitable model for South Africa must recognise that full or partial privatisation will render a strategic and key national asset no longer under government oversight. This is an untenable situation
that cannot and must not be countenanced. The government’s role is to create an enabling, predictable policy and regulatory environment, allowing for offbalance sheet financing to be raised, while noting that the National Energy Regulator will play a crucial role.
Several funding solutions can be considered for modernising and expanding the transmission network, which includes Independent Transmission Projects (ITPs) or Independent Power Transmission (IPTs). In December 2023, the cabinet endorsed the creation of an Independent Transmission Projects Office (ITPO).
We are progressing in earnest with the implementation of this solution and the ministry is at an advanced stage in facilitating the establishment of this office, which will be located in one of the country’s development financial institutions with well-respected procurement processes and a proven good governance track record.
ITPs have proven a globally successful model in terms of achieving off-balance sheet financing needs for the development of transmission infrastructure in several emerging markets including Brazil, Colombia, India, Peru and Chile. In Brazil, Chile, Peru and India between 1998 and 2015, ITPs enabled almost 100,000km of new transmission lines and mobilised private capital in excess of $24.5bn, with India attracting more than $6bn since 2002. Case studies demonstrate that ITPs unlock private and development capital and mitigate inherent risks. Many ITPs have achieved cost savings of 35% to 40%.
An ITP is responsible for financing, constructing and operating defined transmission infrastructure, made available to a system operator, in this case the National Transmission Company of South Africa (NTCSA), which remains responsible for operating the transmission system. Operations, in this instance,
refers to the minimisation of technical losses on transmission infrastructure and thus is limited to that of maintenance and repairs and does not imply the operation of the transmission system itself, which vests solely with the NTCSA.
South Africa’s Independent Power Producer Office represents a successful example of a programmatic approach in the electricity sector, unlocking substantial domestic and international capital. ITPs will enjoy similar benefits, through the ITP Office (ITPO), with the adoption of a programmatic procurement approach to ensure cost efficiency and the expedited delivery of transmission infrastructure, importantly underpinned by a robust governance framework.
While work has commenced on the operationalisation of the ITPO, two short-term interventions, based on ITP principles that will leverage private participation, have been identified. This includes a build-own-operate-transfer model for the Cape corridors and a revised REIPPP round to colocate generation and transmission.
The development and modernisation of the country’s transmission infrastructure is fundamental to achieving sustainable economic growth, reducing inequality, ensuring political stability and transitioning to a greener economy. The strategic importance of transmission infrastructure transcends technical dimensions and represents an inextricably crucial component of South Africa’s socioeconomic and political landscape. It is a strategic imperative requiring co-ordinated efforts across government and different sectors of the economy and society. Our public purpose imperative dictates that we ensure the advancement of South Africa and its people.