The Department of Public Works and Infrastructure (“DPWI”) has published its National Infrastructure Plan 2050 (“NIP 2050”) for public comment. The Plan, published in the Government Gazette (Number 44951, in Vol. 674 of 10 August 2021), covers four critical network sectors, viz., energy, freight transport, water, and digital infrastructure. This except from the Gazette includes the Executive Summary and the portion dealing with the government’s plans regarding energy.
Public comments on the draft National Infrastructure Plans 2050 should take the form of written submissions and should reach the DPWI on or before 17 September 2021. Submissions should be addressed to the Chief Director: Infrastructure and can be either delivered by hand to the Department of Public Works and Infrastructure, 256 Madiba Street, Pretoria Central, Pretoria, or emailed to NIP2050Inputs@dpw.gov.za
Infrastructure development is critical to attaining South Africa’s long-term economic and social goals. In the context of a developing country seeking significant structural change, the public sector must lead this effort. Infrastructure delivery will be one of the most significant contributors to South Africa’s transition from its historically closed minerals economy to its future as an increasingly globally and regionally integrated and inclusive economy, promoting dynamic investment in the industries of the future.
Public infrastructure investment is central to achieving greater productivity and competitiveness, reducing spatial inequality and supporting the emergence of new job-creating sectors. It is thus one of the non-negotiable foundations of transformation and inclusive growth. The construction of infrastructure generates employment and broad-based black economic empowerment opportunities, further contributing to the goals of the National Development Plan (NDP).
The NDP targeted a 30% investment-to-GDP ratio, one-third of which would be delivered by the state. This is primarily delivered through provincial and local government and state-owned enterprises. A small proportion of spending is directed through national government. It is estimated that the cost of delivering infrastructure to meet NDP development objectives will be in excess of R6-trillion between 2016 and 2040, with energy and transport accounting for over 72% of that.
The National Planning Commission (NPC) prepared an extensive review of public sector and State-Owned Enterprise (SOE) infrastructure delivery and performance, culminating in its December 2020 Review of Economic Progress .
It found that the delivery of public sector infrastructure has not met the required contribution in support of the NDP’s objectives. The NPC makes constructive and concrete recommendations for course correction.
The National Infrastructure Plan 2050 (NIP 2050) ensures that the foundations for achieving the NDP’s vision for inclusive growth. It has been prepared by Infrastructure South Africa (ISA). The NIP 2050 offers a strategic vision and plan that links top NDP objectives to actionable steps and intermediate outcomes. The aim is to promote dynamism in infrastructure delivery. It addresses institutional blockages and weaknesses that hinder success over the longer term, and guides the way to building stronger institutions that can deliver on NDP aspirations. The NIP 2050 does not seek to be comprehensive – it is not meant to be a database of all projects, a consolidation of master plans, a spatial mapping of projects or a mechanism for centralised decision-making. The aim is to identify the most critical actions needed for sustained improvement in public infrastructure delivery that will have impact in the short term but with the longer-term imperatives in view.
This phase of the NIP 2050 focuses on four critical network sectors that provide a platform:
- Freight transport
- Digital infrastructure
There will be a second phase that focuses on distributed infrastructure and related municipal services. This first phase of the NIP 2050 is being released for public comment, and ISA will lead extensive public engagement to gain feedback.
The NIP 2050 gives guidance on themes common to the four sectors, which would see significant emphasis in building capacity in:
- Knowledge and innovation services for capability in planning, monitoring, budgeting, finance, procurement, project preparation, project management and sector-specific innovation. This enables evidence-based decision making, improves cost effectiveness, mitigates risk, helps optimise and can dramatically contribute to improving infrastructure quality, delivery and sustainability.
- Public-private cooperation and stimulation of competition where appropriate in the delivery of public infrastructure
- Blended project finance and innovative green finance.
- Executive management and technical capability within the state and its entities, to be stable and able to lead and deliver with confidence
- Economic regulation
- Capacity and orientation that promotes industries that promote inclusive development and employment
An emphasis on industrial development and localisation in the design and approach to implementation. Examples include localisation of supplier industries to infrastructure projects, driving the establishment of Special Economic Zones around intermodal transport linkage nodes, and the stimulation of the civil construction and supplier industries.
- Driving efficient modes of delivery
- Delivering on an Africa regional infrastructure programme
- The SA civil construction and supplier industries so that local industry gains from state infrastructure investment
By 2050, energy supply should be enabling, and not a constraint, of economic growth and development. The energy mix must be bolder on sustainability and in achieving least cost. This will require reduced reliance on coal and growing reliance on renewable energy, especially solar and wind which are the least-cost technology, and where South Africa has significant comparative advantage.
By 2050, energy demand is projected to increase by 30%. Installed capacity will more than double from 53 GW in 2018 rising to between 133 GW and 174 GW by 2050, depending on the energy mix at that time. By 2030, 25 GW will be added to installed capacity.
To achieve this vision, the NIP 2050 recommends that:
- The approach to defining the energy mix become technically strong and responsive. The imperative for expanded capacity in a context of accelerated technological change and a changing energy mix requires that the institutional planning and delivery mechanisms become more adaptive, responsive and dynamic, and guided by evidence. The IRP will be revised to extend to 2050, and medium term targets updated in 2021/2 to reflect a focus on sustainability and least cost.
- Market structure facilitate more responsive and sustainable supply. This will require stabilisation and separation of Eskom and the introduction of greater private participation.
- Capacity in the state and its entities be strengthened to effectively regulate, plan and oversee energy delivery.
- Electricity is delivered in a financially sustainable way
- The transition away from fossil fuels progresses in a convincing and just manner. New installed capacity consists primarily of wind and solar where South Africa has comparative advantage. Stakeholders, whether business, workers or communities) involved in fossil fuels are supported through this transition.
- Industrial diversification be promoted through energy infrastructure delivery
- A centralised database will be maintained, with the requisite confidentiality protection, for reporting of expected generation capacity investments by market players to enable transmission and distribution planning.
Recommendations are made in respect of augmenting the existing SIPs and priority actions to be delivered by 2023/4. For example, it is recommended that the ITSMO be established, and the 100 MW embedded generation be regulated in 2021/2. The top ten municipalities which deliver to large populations must either be given support and/or capacity developed to adequately maintain distribution systems by 2023/4. A plan to reduce reliance on coal, including elements of a just transition, must be finalised in 2021/2 with implementation starting in 2022/3.
Specifics on energy procurement are indicated: 4000 MW emergency power in 2021/2; 3200 MW renewable power from IPPs in 2021/2; 10 000 MW of renewable IPPs procured in 2022 to cover medium term demand; municipalities enabled to procure power from IPPs; acceleration of transmission infrastructure investment; up to 1000 MWh battery storage procured by 2023/4.
Features of South Africa’s energy profile by 2050
Energy supply will be enabling, and not a constraint, of economic growth and development. The energy mix will be bolder on sustainability and in achieving least cost. Reliance on coal will be reduced and reliance on renewable energy will be dramatically lifted, especially solar and wind, which are least cost options and where South Africa has significant comparative advantage. The goals are to ensure financial and environmental sustainability and also to ensure that our exports do not face border carbon taxes.
By 2050, energy demand is projected to increase by 30%. Installed generation capacity will more than double from 53 GW in 2018 rising to between 133 GW and 174 GW by 2050, depending on the energy mix at that time. By 2030, 25 GW will be added to installed capacity.
How this will be done
- The approach to defining the energy mix will become technically strong. The imperative for expanded capacity in a context of accelerated technological change and a changing energy mix requires that the institutional planning and delivery mechanisms become more adaptive, responsive and dynamic.
- Market structure will facilitate more responsive and sustainable supply. This will require stabilisation and separation of Eskom and the introduction of greater private participation.
- State capacity will be strengthened to effectively regulate and oversee energy delivery
- Electricity will be delivered in a financially sustainable way
- The transition away from fossil fuels will progress in a convincing and just manner. New installed capacity will consist primarily of wind and solar where South Africa has comparative advantage.
- Industrial diversification will be promoted through energy infrastructure delivery
- A centralised database will be maintained, with the requisite confidentiality protection, for reporting of expected generation capacity investments by market players to enable transmission and distribution planning.
The vision for the energy sector
In line with the NDP, the energy sector will promote:
- “Economic growth and development through adequate investment in energy infrastructure” (generation, transmission and distribution) and “reliable and efficient energy service at competitive rates, while supporting economic growth through job creation” by stimulating supply chains.
- Social equity through expanded access to energy at affordable tariffs and through targeted, sustainable subsidies for needy households.
- Environmental sustainability through efforts to reduce pollution, reduce water usage and mitigate the effects of climate change.”
By 2030, the NDP set a target that more than 90% of the population should enjoy access to grid connected or off-grid electricity by 2030. To realise this vision, South Africa's energy system will be supported by effective policies, institutions, governance systems, regulation and, where appropriate, competitive markets. Coal will contribute significantly less to primary energy needs in the future, while gas will have an important enabling role, energy supply will be increasingly dominated by renewable energy resources – especially wind and solar which are least cost and where South Africa has a comparative advantage. Off grid innovations such as micro grid solutions will increasingly contribute to electrification, while at the same time providing opportunities for industrialisation and empowerment.
Energy sector status in 2021
South Africa has long depended on electricity from coal-fired power stations, delivered by Eskom as a vertically integrated monopoly. In 2010, 87% of 254 TWh of power was coal-fired. By 2019, annual electricity production was 3,5% less at 245 TWh, with coal accounting for 79% and renewables for 12%. Of the 18 000 MW of new generation capacity committed to under IRP 2010, about one-third was from renewable energy independent power producers (with only half of that operational by 2020). The process of procuring via the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) was globally recognised as one of the leading initiatives of its kind.
The NIP 2050 aims to create certainty in energy sector reforms, which is expected to address critical blockages to potential economic growth and development. Load shedding since 2014 has been caused by a combination of factors such as delayed commissioning, underperformance of new build coal generation capacity, and degradation of existing Eskom coal fleet, with energy availability factor declining from 94% in 2002 to 67% in 2019.
Until recently, Eskom’s form had not substantially altered. Policy indecision over the past two decades has significantly contributed to Eskom’s financial demise, with its pricing not historically in line with depreciation, constraining its ability to retain earnings for future investment. Eskom has declined from a world leading utility to one that is financially insolvent, operating at very low levels of energy availability and struggling under the load of poorly designed and project managed new mega coal projects.
Sector reform, that introduces competition and alternative funding models, will be essential going forward: this is for energy security, as well as financial sustainability in energy, for the fiscal stability and for the economy as a whole.
Significant strides have been made in addressing challenges at Eskom, as evidenced by the unbundling of the entity into separate Generation, Transmission and Distribution divisions with ring-fenced balance sheets and governance structures. The Transmission Division is on track for separation by the end of 2021, giving life to an independent ITSMO.
The lifting of the licence limit for embedded generation from 1 MW to 100 MW is another recent show of government’s commitment to market reform and to ensuring electricity is available.
There are meant to be two medium-term plans issued and regularly updated to guide energy investments. The Integrated Resource Plan (IRP) is meant to guide on forecasted energy demand, indicate how it will be supplied and at what cost. NERSA is required by the Electricity Regulation Act, No 4 of 2006 (ERA) to issue rules designed to implement the IRP. It is meant to be a living document, updated every two years.
The Integrated Energy Plan (IEP) is meant to guide infrastructure investments, take into account all viable energy supply options and guide the selection of appropriate technology to meet energy demand. The National Energy Regulator Act, No 34 of 2008 (NERA) requires the Minister of Mineral Resources and Energy (DMRE) to develop the IEP and then review and update it annually. An IRP 2010-2030 was published in 2011 and then updated in 2019, still with a horizon to 2030.
The approach to electricity planning needs to be substantially strengthened to more effectively meet changing demand and supply conditions, as well as global technological advancements and delivery options. The NDP’s electricity sector reforms related to planning, decision-making, institutions and delivery models continue to be relevant in this regard.
The IRP 2019 projects energy demand and supply to 2030, and the Council for Scientific and Industrial Research is South Africa (CSIR) extended the IRP’s view to 2050.
This assists us to envisage a longer-term result of current plans. The proposed energy mix sees a falling but still significant role for coal, and a growing role for gas, so that ‘dirty power’ accounts for 40% of installed capacity by 2030 and includes plans for “new coal” and peaking gas. By 2050, this path would see coal and gas respectively accounting for about 17% and 10% of installed capacity. In contrast, a least cost path would see coal and gas respectively accounting for about 5% and 3%. Storage is very lightly recognised in the IRP2019, whereas it accounts for over 7% of installed capacity in a least cost scenario by 2050. By then, about 57% of installed capacity would be accounted for by solar and wind as compared to 40% in an extended IRP 2019 view.
The IRP 2019 will need revision and updating to adequately account for the pace of global innovation and cost reductions realised in the renewable energy sector in determining the least cost energy plan for SA. Moreover, South Africa is a Paris Agreement signatory, with the world aiming to achieve Net Zero greenhouse gas emissions by 2050. The shift to a least cost path increasingly reliant on renewables is imperative for five main reasons:
- SA cannot afford to overspend while dramatically expanding capacity
- Renewables can be built quickly and in modular form thereby avoiding many of the challenges associated with mega projects.
- Trade partners are expected to increasingly impose border carbon taxes harming SA exports
- SA will need to commit to emission reductions as a global citizen.
The energy sector globally is experiencing the fastest rate of technological change and innovation ever in history, with significant growth in private participation at all stages of the value chain. There is clearly appetite in South Africa private and public sectors to leverage these opportunities for a course correction.
Conditions required to achieve ensure that the electricity sector delivers on SA’s 2050 vision
The significant transformation to achieve least cost sustainable energy in quantities that fuel economic development and growth will require public institutions that are responsive, enabling of competition and private participation. The national IRP must adequately incorporate the rapid pace of change in the global energy sector, especially in a post-Covid context that has seen a rapidly accelerating global Energy Transition.
Five conditions must be met to achieve the 2050 vision:
1. The reform of the energy sector must be sustainable and progressive
- Sector policy and regulation must become forward-looking, aligned to global energy transition leading practice and ensuring access to energy for all South Africans.
- There must be recognition of South Africa’s commitment to climate mitigation in line with Paris Agreement, with the importance of remaining globally competitive in light of carbon tax and Net Zero markets
- Energy markets must be opened and competitive, with reformed state utility functions focused on ensuring robust national infrastructure energy networks
2. Best practice energy services must be in play, ensuring globally competitive economic growth
- Global technology learning curves must be leveraged to ensure benefits as well as lowest cost energy and quality of supply for South Africa.
- A robust national grid capability must be developed, enabling rapid and deep penetration of renewable technologies, including development of storage and new age transportation through electric vehicles
- The full cost of electricity, including externalities, must be accounted for in regulated pricing
3. There must be a pivot to a low carbon energy sector, including a just transition:
- There must be a significant migration from South Africa’s aging fossil fuel asset base to renewable technologies that lower the levelised cost of electricity and supports a low carbon pivot for the economy.
- Low carbon technology pathways that attract foreign direct investment and stimulate economic activity such as accelerated roll-out of significant renewables capacity, electric vehicles and, in the longer term, green hydrogen, should be accelerated.
- There must be consideration of importation and use of natural gas as a key enabling fuel for the transition from coal to renewable power and industrialisation.
- Significant support must be made available to enable the energy transition for communities and companies
4. Access to energy sector opportunities must be enabled
- Clear, consistent and complementary energy, environmental and industrial policies and regulatory frameworks should incentivise investment and optimises local content and private sector opportunities in the transformation of South Africa’s energy sector asset base.
- New technologies and multi-year capital programmes should enable new local industries and local business to empower youth, create new-age skills and digital capabilities.
5. State institutions must be capable in driving energy sector reform and delivery
The regulator (NERSA) must be strong, capable and responsive, and a policy department (DMRE) must guide and support energy sector reform and delivery. At a minimum this involves:
- Eskom’s transmission and energy procurement must be separated into a legally separate entity
- Eskom must be stabilised financially and operationally, with clarity for its role as a vibrant contributor to an emerging energy sector
- State oversight must be simply designed. Functions and mandates must be clearly delineated according to proper governance rules
- The Eskom Board must be appointed based on independence and skills-set as required to strategically guide the organisation
- Planning systems must be regularised and integrated into policy planning and execution on a regular basis.
How the 2050 vision will be achieved
2050 Vision – How it will be done
The approach to defining energy mix becomes technically strong
• The vision and pathway will be identified for the energy mix to 2050, with a focus on sustainability and lowest lifecycle cost.
• New energy capacity planning process will move to the Independent Transmission System and Market Operator (ITSMO). Security of supply at least cost with environmental considerations will become paramount.
• Energy projects become increasingly modular and more geographically distributed.
Market structure comes to enable more responsive and sustainable supply
• Competition will be stimulated where appropriate, starting with the establishment of an independent ITSMO in 2021/2.
• Multi-markets will be stimulated – with centrally procured Independent Power Producers (IPPs) selling to the grid and other IPPs selling to traders or qualifying customers; There will be an introduction of electricity consumers acting as suppliers
State capacity is strengthened to effectively regulate and oversee energy delivery
• Capacity in the DMRE will be strengthened in respect of policy coherence, stability, and leadership
• Energy planning capacity and link to policy planning will increasingly work with centres of energy planning excellence
• The IRP will be extended to 2050. It will be reviewed on a regular basis (at least every two years) to be adapted to new circumstances, while still offering certainty to stakeholders.
• The appointment of regulators will be done in a way that enables NERSA to operate independently, with a transparent Appointments Committee. Clear criteria will exist for qualifications and experience, which should include some regulators with regulatory economics capability.
• Introduction of appeal process will be created, similar to that found in the Competition Act, to strengthen accountability of regulatory decisions
• Systems of accountability will be introduced to ensure DMRE and NERSA are implementing planning, rule-making and regulating according to legislative requirements (as set out in the ERA and NERA).
• SOE capacity will be strengthened, starting with stable and capable top executive and boards appointed according to acceptable governance norms
• Municipal capacity to maintain distribution systems and billing will be strengthened
Electricity is delivered in a financially sustainable way
• Blended finance models and private participation in energy infrastructure projects will become a prominent source of energy finance
• Eskom finances will be stabilised and the Eskom corporate model serves long term sustainability of itself and the sector
• Revenue collection is strengthened
• A short-term solution will be found to ensure that companies that pay for electricity in municipalities that do not in-turn pay Eskom are not nevertheless shut off
• Externality costs will be internalised in the pricing of electricity
• New and innovative revenue streams will be sought
• There will be a move away from government guarantees and assessing new forms of guarantees, such as performance guarantees
There is a transition away from fossil fuels progresses in a convincing and just manner
• Reliance on coal will be significantly reduced and the reliance on renewable energy dramatically lifted, especially in solar and wind where South Africa has significant comparative advantage.
• Incentives will encourage transition, discourage resistance to this change
• Green finance opportunities will abound
• Stakeholders involved in traditional energy sources (business, workers, communities; coal plan decommissioning) will be supported through the energy transition
• The Just elements of the Just Energy Transition will be prioritised.
Energy infrastructure delivery stimulates industrial diversification
• Manufacturing and services related to energy delivery will be stimulated through predictability and certainty of investment in renewable energy.
• Digital services will become the norm across the sector (advanced metering, distribution system monitoring, etc.)
• Energy diversification opportunities will be found in such as hydrogen, Electric Vehicle (EV) manufacture, rare-earth mining for batteries, and similar
• Innovation in related products and services will be stimulated to ultimately become a product leader globally
There is a comprehensive data base on energy projects
A centralised database will be maintained, with the requisite confidentiality protection, for reporting of expected generation capacity investments by market players to enable transmission and distribution planning.
Top Priority Strategic Integrated Projects (SIPS)
• SIP (no 8) includes: Green energy projects, including procurement of renewable energy under the Independent power Producer Procurement Programme (REIPPPP).
• SIP (no 9) includes: expansion of electricity generation capacity, including from Kusile, Medupi and Ingula (completed), with attention to reducing carbon footprint.
• SIP (no 10) includes: expanding electricity transmission and distribution network
• SIP (no 20) include: • Emergency/Risk Mitigation Power Purchase Procurement Programme (2000 MW): National • Small IPP Power Purchase Procurement Programme (100 MW): National • Embedded Generation Investment Programme (EGIP) - 400 MW: National • The Energy SIPs will be augmented as outlined in the 3 year action steps below:
• The IRP 2019 will be revised to extend to 2050 and the medium term targets will be updated and revised in 2021/2 and in 2023/4, with focus on sustainability and least cost.
• Eskom will be restructured into three legally separated entities for generation, transmission and distribution. The ITSMO will be established by 2021/2. An energy planning Centre of Excellence will be established in 2022 and moved to the ITSMO by 2023.
• The commitment to lift the licence limit to 100 MW self-generation will be implemented in 2021/2. There will be central database of projects to enable effective planning, especially of transmission infrastructure.
• The process of appointing NERSA councillors will be reviewed to ensure independence. An appeals process will be created to ensure accountability in regulatory decisions.
• SOE leadership capacity, starting with Eskom, at board and executive levels will be according to acceptable governance norms by 2022. There will be an approved plan to stabilise Eskom and a turnaround pathway to long-term viability and vibrancy.
• The top 10 municipalities that deliver to large populations and that demonstrate significant challenges will have support and/or capacity to adequately maintain distribution systems and billing systems by 2023/4.
• There will be a plan to reduce reliance on coal including a Just Transition by 2021/2 and meaningful implementation begins 2022/3.
• Progress in implementing the SIPS by 2023/4 will include:
• Emergency power procurement of 4000 MW in 2021/2.
• Procurement of power from renewable IPPs of 3200 MW in one bid window in 2021. Procurement of 10 000 MW of renewable IPPs in one window in 2022.
• 800 – 1000 MWh battery storage procured by 2023/4, of which 513 MWh battery storage procured by 2022. Substantially more required, with targets determined in 2021 and added to SIPS.
• Municipalities enabled to procure power from IPPs
• Target for embedded generation investment increased to 4000 to 5000 MW
• Acceleration in completion of SIP 9 completed by 2023.
• Acceleration of SIP 10 to include national plan for transmission infrastructure investment finalised and funded in 2021/2, with implementation beginning in 2021/2.
Table 1: How the 2050 vision will be achieved
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