This article was originally posted on Celine’s LinkedIn.
It has indeed been a tumultuous few years for the energy industry in South Africa, from the delay in the release of the country’s Integrated Resource Plan (IRP) – which is essentially the road map of our energy future – to uncertainty around the signing of power purchase agreements (PPAs) that would progress the renewable energy program, to talks of nuclear energy potentially dominating the energy mix, to board changes at Eskom, South Africa’s electricity public utility.
The question is, will 2019 be the year where a new energy dawn is on the horizon or can we expect further delays and uncertainty? The IRP is due to be released in the first quarter of this year with a large focus on renewable and gas. South Africa’s government is recognizing the need for change and restructuring with Eskom and dedicating resources to upskilling and training people to deal with renewable energy. Total SA recently opened up a new “world-class” oil and gas province off the coast of South Africa after making a significant gas condensate discovery there after drilling its Brulpadda prospects in the Outeniqua Basin. The future is beginning to look bright(er).
In this article I’d like to examine some key stabilizers and disruptors for the South African energy industry that we can anticipate in 2019, and address what energy companies should start considering to ensure they are agile and can respond to the constantly changing industry.
Unbundling our state-owned utility
In early December 2018 President Cyril Ramaphosa deployed a task team to help state-owned utility Eskom to address some of its critical issues. However, two resignations have already taken place, citing conflict of interest and insufficient time to be able to serve effectively.
Following the submission of the task team’s recommendation report, President Ramaphosa announced in February that Eskom would be split into generation, distribution and transmission businesses under a state holding company, with the aim of enabling each unit to manage its costs more effectively and making it easier for them to raise funding.
This announcement has been received with mixed emotions by the public, with some parties – mainly the unions – arguing that this equates to the privatization of Eskom, which will benefit capitalists at the expense of the working class and will result in massive job cuts. On the other side of the coin, the argument is that the unbundling will boost competition in the electricity supply industry and separate the potentially competitive elements of the electricity industry — power generation — from the natural monopoly component – transmission.
Independent power producers (IPPs) under the Renewable Energy Independent Power Producers’ Program (REIPPP) is another contentious topic in the Eskom debacle. It is still unclear whether Eskom will be able to honor the PPAs signed during 2010 – 2016 at the agreed-upon tariff, as the utility is arguing that it’s too expensive. This has further entrenched the narrative in the market and among the unions that renewables are unaffordable; however there seems to be a lot of misinformation in the market as the cost of renewables has come down considerably over the past few years.
When will the Integrated Resource Plan be finalized?
South African Energy Minister, Jeff Radebe, recently stated that the ministry is aiming to finalize the IRP in March, after which another round of renewable energy deals will be launched. The release of the long-anticipated IRP will further enhance investor certainty, provide a clear road map for South Africa’s energy future to 2050, and pave the way for the impending gas-to-power program. The IRP examines three scenarios between now and 2050 and how the energy make-up in the country could look based on low-, medium- and high economic growth. We see that coal is dying, nuclear is a prospect in the very distant future, and gas is growing exponentially along with renewables.
The impact of SA’s government elections on the energy sector
In May 2019, SA will hold General Elections to elect a new National Assembly and new provincial legislatures in each province. The ANC is expected to retain power, and its recent manifesto indicates that energy security and the transition to renewable energy seems to have moved up higher on their agenda. The party’s 2019 manifesto has committed to:
- Continue to support the use of renewable technology in the country’s energy mix to reduce the cost of energy, reduce greenhouse emissions, build the local industry through increased localization, and create jobs
- Take forward Nedlac’s Green Economy Accord on renewable energy by ensuring that workers are reskilled and treated fairly and that the needs of the people and the environment are at the centre of a transition to a sustainable and low carbon energy future
- Develop and implement a dedicated renewable energy education and training program targeting young people
- Contribute to investment to boost greater demand in the energy sector
- Reposition Eskom to play an active role in the renewable energy sector and promote public ownership in renewable energy infrastructure
- Investigate the cost benefit of introducing solar panels in state buildings and mandate new commercial and residential developments in the medium term to use renewable energy technologies to reduce utility costs.
What energy companies should keep in mind for 2019
Define your purpose and live it: H+K has worked with numerous companies to help them to identify their purpose, namely, what their organization aspires to be and do. When times are tough, companies that are driven by a solid purpose tend to outlive companies that purely focus on the bottom line. Your purpose becomes your key differentiator and a conscious expression of how an organization intends to evolve and transform itself.
In times of uncertainty, get agile: If there is one thing energy companies operating in SA have come to understand over the years, it is resilience. From policy uncertainty to industry delays, companies have had to rise to the occasion and do what is necessary to stay in business. We can learn from the past by preparing for multiple scenarios, building brands that are resilient and innovative in tough times, and preparing for disasters.
Speak your truth: Develop messaging that resonates with your audience and communicates your purpose. Authenticity is key, so make sure your actions reflect your purpose.