Information from the Presidency

President Cyril Ramaphosa responded to questions put to him by the DA and EFF regarding the government’s efforts in the reduction of the frequency and severity of load shedding, and the financial package offered to assist the country in its transition from coal to cleaner forms of electricity generation.

John Steenhuisen, the Leader of the Opposition (DA), asked the president whether his recent assertion that the ongoing electricity outages (episodes of load shedding), which are being implemented more frequently and at more severe stages by Eskom, do not constitute a looming crisis, and in light of the challenges that these episodes of load shedding present to learners studying for examinations and vulnerable businesses trying to remain operational after almost two years of economic lockdowns due to the Covid-19 pandemic.

He wanted to know the relevant details of the government’s urgent plans to reform Eskom and the Republic’s energy market to address the electricity crisis, and any further emergency measures the government would undertake to augment the country’s electricity supply in order to shield the economy and citizens from the government’s failure to generate sufficient electricity.

In response, President Ramaphosa said that the recent load shedding – which he acknowledged has disrupted daily life for millions of South Africans and caused great damage to our economy – is a stark reminder of the severe and intractable challenges in our electricity system.

Load shedding is always the last resort where demand for electricity is greater than what can be produced, Ramaphosa explained. It is necessary to prevent the collapse of the power grid and a complete blackout. At its core, load-shedding is the inevitable consequence of the age of many of Eskom’s power plants and its inability over many years – due to debt, lack of capacity and state capture – to service its power plants.

The president said that Eskom has to undertake the fundamental maintenance necessary to improve the reliability of our electricity supply. As it continues with maintenance, load-shedding will remain a possibility for the immediate future. But, the president stressed, government is not simply waiting for the inevitable. It is working hard to fix this problem. While Eskom implements a generation recovery plan to improve the availability of generating capacity and minimise the risk of load shedding, government is undertaking measures to fundamentally change the trajectory of energy generation in South Africa, he added.

Ramaphosa reminds us that part of Eskom’s Roadmap is the division of the power utility into three subsidiaries for transmission, generation and distribution. The legal separation of the transmission entity is planned for 31 December 2021 and legal separation of generation and distribution is scheduled for December 2022, Ramaphosa said.

The president explained that the Electricity Regulation Act and Electricity Pricing Policy is being amended to reflect the new structure of the electricity industry. The restructuring of Eskom will transform the sector and will enable greater competition and investment in new generation capacity, he said, adding that some municipalities are already getting ready to take advantage of what flows from this transformation and have declared the clear intention to generate power for their residents.

According to Ramaphosa, this reform will remove the risk of relying on one entity for power generation, will have a positive impact on economic growth and improve the reliability and efficiency of our electricity supply.

Over the last year, the president said, South Africa has added several measures to address energy constraints:

• Schedule 2 of the Electricity Regulation Act has been amended to exempt embedded generation projects up to 100 MW from having to apply for a license. This will allow for more private sector investment in electricity generation capacity without any public funding and will reduce the risk of load shedding.
• Eight preferred bidders, that can deliver electricity into the grid within 3 to 12 months from approval, have been appointed for the 2000 MW Risk Mitigation IPP Procurement Programme.
• The Renewable Energy Independent Power Producer Procurement Programme has been revitalised, and 25 preferred bidders have been announced in the fifth round of the programme. Together, they are expected to produce around 2600 MW of electricity from wind and solar photovoltaic energy.
• From renewable energy Bid Window 4, 1600 MW had been connected to the grid by the end of June 2021 and an additional 400 MW will be connected by the end of the year.

While anticipate that substantial new generation capacity will come onto the grid in the near future, there are still many challenges which need to be addressed to secure a stable and reliable supply of energy, the president said. These include the management of Eskom’s debt, overcoming the skills deficit within the company, steadily improving municipal revenue collection, further improving Eskom’s maintenance capabilities, addressing procurement challenges, and rooting out all forms of corruption and criminality.

There are no easy solutions to load shedding, he added. However, we have a roadmap for a revitalised Eskom within a transformed energy industry. We are making significant progress in implementing the roadmap and are determined to persevere – regardless of the difficulties and obstacles – until we have achieved energy security in this country, Ramaphosa concluded.

Regarding foreign financial support to help SA transition from coal to cleaner electricity generating technologies

J S Malema (EFF) asked the president about the terms and conditions surrounding the R131-billion loan the partnership of the EU, Germany, France, the UK and the US are offering for the country’s transition from coal to clean energy, and what the repayment terms of those loans would be.

The president replied by saying that climate change is an existential crisis. South Africa, as a signatory to the Paris Agreement to Combat Climate Change has obligations to contribute its fair share to reducing greenhouse gas emissions. The Paris Agreement places an obligation on developed economies, which are responsible for about 76% of historical emissions, to provide support to developing economies to adapt to the effects of climate change and transition to a lower-carbon future.

The political declaration announced at COP26 in Glasgow, which took place in November 2021, gives effect to some of these obligations, both South Africa’s obligations and those of developed economies. In response, the aforementioned countries have offered an initial amount of US$8,5-billion (around R131-billion) to support South Africa’s just transition efforts.

According to Ramaphosa, this support will take the form of various financial instruments, ranging from grants to concessional loans at a lower interest rate. This funding will be made available over the next three to five years, with a view to longer-term engagement.

This is an initial commitment, the president added, which could increase as discussions progress and further funds are identified. However, South Africa does not have to accept this offer as such, nor does it need to accept unfavourable terms, especially if the financing arrangements would impact negatively on the public fiscus.

The president explained that the political declaration is in line with the obligation on the part of developed economies – as historical beneficiaries of high carbon emissions – to provide support to developing economies to transition to a lower-carbon future. The pace and extent of decarbonisation in South Africa will be determined by the financial support available and will take account of the country’s social and economic challenges, he said.

South Africa will continue to chart its own developmental path and continue to affirm its right to develop its economy in a sustainable and inclusive manner. This is certainly not a blank cheque, he said. The country must take its context into consideration. A significant proportion of funding is expected to be used for Eskom’s just transition plans, which includes decommissioning, repowering and repurposing old coal-fired power stations in line with the Integrated Resource Plan 2019.

Funding will also be allocated towards the development of new sectors such as electric vehicles and the implementation of the Green Hydrogen Sector Master Plan. More importantly, the declaration recognises that a transition to a lower carbon economy must also address the needs of workers in affected industries and communities, Ramaphosa said.

Funding offered through the Political Declaration will be used for targeted programmes of reskilling and up-skilling, creating employment and providing other forms of support to ensure workers, women and youth are the major beneficiaries of our shift to a greener future, the president explained. Achieving South Africa’s Nationally Determined Contribution targets and implementing the IRP 2019 requires significant investment.

The president said that a negotiations team will be established between South Africa and the partner group of countries. “We will have our own top-class finance people drawn from the public and private sectors as well as trade unions to discuss these matters if it even gets there. This process is expected to be finalised over the following months”, Ramaphosa said.

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