Energy Sector

The South African electricity sector is dominated by the national utility Eskom, which is responsible for the majority of generation, transmission and distribution of electricity. South Africa is however also home to Africa’s biggest IPPs market, which is envisioned to contribute 30% of South Africa’s future generation capacity. 137 municipal power companies, that are buying 40% of electricity generated by Eskom to supply end users, hold negligible generation capacity. Generation is currently dominated by coal power, however this dominance is expected to decline in anticipation of increased investments in gas, renewables, and nuclear power. Being an integral part of the South African Power Pool (SAPP), South Africa is both importing and exporting power from and to its neighboring countries. The electrification rate in South Africa is comparatively very high for the region, standing between 85 and 90%.

Electricity Demand

Peak demand in South Africa has been 34,481 MW in 2015/2016 with Eskom transmitting/distributing 214,487 GWh to South African customers. Eskom’s electricity is mostly sold to municipalities (42%) that further distribute electricity to end-users, followed by industrial consumers (23%) and mining (14%). When distinguishing electricity consumption by the type of end user, regardless if supplied by Eskom or municipalities, industrial (41%) and residential users (37%) are responsible for the bulk of electricity consumed.

Electricity sold by ESKOM (2015/2016) to different groups (left) and electricity sold distinguished by end-users (right)

Source: Eskom

Growth in electricity demand has been low (~1%), partially attributed to the economic slow-down faced by the South African economy. This has resulted in electricity demand forecasts being revised downwards, estimating peak demand of ~ 350,000 GWh by 2030 in the draft Integrated Resource Plan (IRP) 2016, as compared to a forecast of 450,000 GWh by 2030 in the IRP 2010. These revisions are shown in the figure below.

Peak demand forecast (GWh)

Demand Side Management

The South African economy is extremely energy intensive compared to international standards, with only a handful of countries having higher energy intensities. South African industrial energy efficiency is on average significantly lower than in other countries.

In 2015, ESKOM introduced load-shedding due to drought and insufficient investment having rendered existing capacity inadequate to meet demand. In addition to now heavily investing in expanding generation capacity, the Government is additionally promoting the adoption of solar water heaters (SWH) in households and commercial buildings. The National Development Plan targets an additional 4 million SWH to be installed, resulting in a target of 5 million SWH by 2030. Eskom is in parallel distributing energy efficient light bulbs (CFLs) and increasing awareness of energy efficiency measures. The Government has also introduced fiscal energy efficiency incentives for businesses and industries.

Electrification Rates

The Integrated National Electrification Programme (INEP) targets to achieve universal access (defined as 97%) by 2025 through grid connection (90%) and Solar Home Systems (7%) and has thus identified 300,000 households to be electrified with off-grid technologies.

In 2013, electrification rates in South Africa were reported to be 90% in urban areas and 77% in rural areas, leading to an overall electrification rate of 85%. Eskom reports that 158,016 households were electrified during the year (March 2015/ March 2016), reaching almost 90% of all households electrified nationwide.

Installed Capacity and Share of Generation

At present, electricity generation capacity is dominated by the state-owned utility Eskom, which holds 91% of the country’s effective/nominal generation capacity. Remaining generation capacity is held by municipalities (1.77%) as well as Independent Power Producers (IPPs) that sell power to Eskom (7.21%).

South Africa, integral part of the South African Power Pool (SAPP) is furthermore trading electricity with Botswana, Lesotho, Mozambique, Namibia Swaziland, Zambia and Zimbabwe. Total imports were 9,703 GWh in 2015/2016 with exports of 13,465 GWh in the same period.

Eskom’s generation assets are distinguished by coal (85.12%), gas (5.63%), hydro (4.67%), nuclear (4.34%) as well as wind (0.23%) power plants. Municipal generation assets consist of coal (64.4%) and gas (14.66%) fired power plants, as well as was pumped storage hydro power plants (20.91%). As per March 2016, Independent Power Producers (IPPs) availed 3,392 MW of generation capacity to Eskom. Due to South Africa’s successful procurement programme for renewable energy (Renewable Energy Independent Power Procurement Programme; REIPPPP), recently commissioned renewable energy power plants have contributed to a decrease in load shedding. IPP-owned renewable energy generation has gained traction with 2,145 MW of available capacity. Solar (inclusive of PV and CSP) and wind are responsible for 34.34% and 28.60% of IPP-owned capacity, respectively. Coal (13.56%), gas (17.33%), and others inclusive of cogeneration, landfill gas (5.87%), and hydro (0.29%) are relatively less relevant.

Effective/Nominal Electricity Generation Capacity[1] Inclusive of Pumped-Storage Schemes

[1] Inclusive of Pumped-Storage Schemes

Eskom reported generation of 219,979 GWh in 2015/2016 with 9,033 GWh bought from IPPs and 9,703 GWh imported from other Southern African countries. It is further estimated that ~ 3,500 GWh was generated by municipalities. Eskom’s electricity generation mix is heavily dominated by coal power (91%). When adding electricity generated by IPPs, municipalities, as well as from imports, the relative importance of coal drops to 85% – shown in the figures below:

Electricity Generation Source – Eskom (left) and incl. IPP, municipalities and imports (right)

Planned Expansion to Generation Capacity

South Africa’s Integrated Resource Plan (IRP) 2010, policy-adjusted IRP capacity scenario, targeted an increase in capacity to 89 GW from current 47 GW by 2030. The scenario that requires investment in 56,539 MW of new capacity (considering the planned decommissioning of existing capacity) envisions a shift away from coal-based power:

IRP 2010 – Policy adjusted IRP capacity scenario

Achieving the new capacity requirements is expected to be driven by investments made by the national utility Eskom as well as through IPPs – with the target for IPPs to provide 30% of the total capacity in 2030.

As of July 2016, the DoE through the REIPPPP, had already contracted 6,376.7 MW of renewable energy-based generation capacity, resulting in an additional 4,032.7 MW to be added to the already operational renewable energy IPPs.

Total REIPPPP capacity contracted

All the IPPs from REIPPPP projects sell their electricity to Eskom. Average tariffs for Solar PV and Wind technologies have fallen to USD 72.9/MWh and USD 57.4/MWh respectively in bid window 4, a decrease of 72% and 46% in rand terms respectively from bid window 1.

However, Eskom had recently decided not to sign any further Power Purchase Agreements (PPAs) for renewable energy power producers that bid above a tariff of 62cR/kWh, as Eskom forecasts a generation surplus by 2022.

ESKOM is currently implementing Medupi and Kusile coal power plants, which will each add approximately 4.8 GW of power to the South African grid. The plants are under construction following various delays. The first 794 MW unit of Medupi is now online. Completion of all units is expected by 2020 for Medupi and 2022 for Kusile. In the DRC, the construction of the 4,800 MW Inga 3 hydropower project is expected to commence. South Africa is expected to import up to 2,500 MW from Inga 3 from 2030 onwards. Inga 3 forms the first phase of the ambitious 40 GW Grand Inga Project

Revised capacity additions in the new IRP 2016 are summarized in the table below. Despite general reduced capacity across all technologies, notable changes are that nuclear power is only included in the IRP beyond 2030, while the relative importance of gas, wind and solar technologies have increased.

Revised IRP 2016 capacity forecasts (MW)

[1] Does not include 9.6 GW already being implemented by ESKOM

Existing Transmission and Distribution Network

Eskom owns, operates and maintains 95% of the national transmission network and shares the distribution network with ~187 licensed municipal distributors. Transmission and distribution losses were 8.59% in 2015/2016. Given frequent blackouts in the recent past, partially as a result of aging infrastructure, Eskom has been focusing on the maintenance and refurbishment of the transmission and distribution network, in addition to network strengthening towards the achievement of N–1 Grid-Code compliance and the integration of new generation sources.

In order to give project developers an understanding of the available transmission and distribution capacity for integration of generators, Eskom Transmission published the Generation Connection Capacity Assessment for the 2016 Transmission Network (GCCA-2016), which has been recently updated (July 2015) to provide a 2022 view (GCCA-2022). The assessments have indicated a constrained transmission network, particularly in the Northern Cape, Eastern Cape and Western Cape provinces, where most of the successful RE-IPP projects are located. Details can be accessed here:

Planned Transmission and Distribution Expansion

In order to allow integration of the committed generation capacity, ESKOM describes the envisioned transmission capacity requirements in its Transmission Development Plan 2016-2025.

ESKOM Transmission Development Plan 2016-2025

Source: Escom

In terms of enhancing the transmission network as well as connectivity with neighboring countries, South Africa is contributing to the implementation of the Mozambique-Zimbabwe-South Africa (MOZISA) transmission project.

The Cities of Johannesburg and Tshwane are currently implementing smart prepaid meters with certain municipalities engaged in setting up pilot schemes for smart grids. In that context, the South African National Energy Development Institute (SANEDI) has also established the South African Smart Grid Initiative (SASGI) with the objective of developing relevant policies and regulations.

Electricity is distributed through Regional Electricity Distributors (REDs), which buy electricity from ESKOM at a tariff set by the National Energy Regulator of South Africa (NERSA) and aim to offer electricity at a competitive price, with efficient service. ESKOM and municipalities operate within three tariffs types: residential, rural and urban. Urban and rural tariffs are applicable to all users not classified as residential. Under the three zones there are further tariff classifications, which are based on the specific power requirements of different consumers. The table below provides a summarized overview of the different tariffs:

Electricity tariffs South Africa

Source: http://www.eskom.co.za/tariffs

South Africa’s Integrated National Electrification Programme (INEP) intends to achieve universal access to electricity by 2025, with the objective of reaching 90% of the population through grid connections and 10% through SHS or other cost effective, non-grid RE technologies. INEP intends to achieve this through subsidizing grid connections, off-grid systems, and grid network infrastructure such as substations and HV inter-connections, through an annual budget of 400 million USD. The subsidy leads to ~200,000 grid connections and the distribution of 10,000 SHS per year. Companies can benefit from this subsidy by tendering to become concessionaires included in the INEP. In order to support poor households, the Government also provides 50 kWh/month of grid electricity per month to all households free of charge.

To roll out SHS, the Government has been utilizing a concession approach for specific geographic locations, with a predetermined number of SHS allocated. A single concessionaire (tendered) is appointed to a designated area within which it has the exclusive right to supply SHS services for five years. The concessionaire is furthermore responsible to maintain installed systems per the terms of a 20-year contract.

Off-grid technologies are provided on a fee-for-service basis, requiring customers to contribute a once-off connection fee (not exceeding R89) followed by a small monthly payment thereafter. This model was decided by the Government in order to ensure that concessionaires establish and maintain local presence in the areas they serve. The monthly service fee covers lifetime running costs, including the operation, maintenance, replacement of batteries, fee collection, customer service, support and management of the system. The Government subsidizes about 80% of the capital costs of the systems and 100% for those households that are classified as indigent, using the free basic services grant.

With EU support, the non-grid electrification programme is currently being redesigned to improve the quality of the service offering and strengthen institutional capacity, including the establishment of an off-grid electrification authority. The purpose of this proposed off-grid management authority is to ensure that the off-grid electrification programme is reinvigorated to ensure meaningful contribution to universal access as well as promoting off-grid energy access more generally. As such, the proposed enhancements to the programme include mini-grid/hybrid technology packages as well as biogas systems.