Powering Progress: Policy shifts and economic frameworks to enable South Africa’s energy transition

June 05, 2023


Powering Progress: Policy shifts and economic frameworks to enable South Africa’s energy transition

June 05, 2023

Maryam Fatima Rasheed

Senior Analyst, Policy & insights

Maryam is a senior analyst at Economist Impact. Based in Dubai, she works on a range of research projects spanning environmental sustainability, technology and business innovation for both private and public sector clients. Prior to joining The Economist Group, Maryam has worked as a sustainability consultant at KPMG Lower Gulf. In this capacity, she conducted capacity building sessions, implemented ESG strategies within local governmental entities and developed sustainability reports to align with internationally established frameworks.

In 2020, Maryam graduated from the University of Pennsylvania with a Masters in Environmental Sciences degree. She also holds Bachelor of Arts degrees in Economics and Journalism from New York University.

 South Africa is currently in the midst of its worst power crisis in recent decades. The country is set to face 250 days of blackouts this year and a US$13bn loss to the economy. The crisis has been decades in the making, a result of mismanagement of the monopoly utility firm Eskom, an overreliance on coal and limited power generation capacity.

To address this, South Africa is embracing a just energy transition, an approach that aims to deliver equitable gains while transforming energy systems. Built upon inclusive planning principles, it aims to offer affordable electricity, initiate corporate reforms, involve communities in power generation, empower society and protect the environment.

In this report, we delve deeper into the state of the power sector in South Africa and explore the policy shifts that need to be prioritised for a sustainable and just energy transition.

Key findings of the report

Policy gaps and rigid legislation continue to hold back South Africa’s energy transition. A key framework governing the energy landscape is the 2019 Integrated Resource Plan (IRP), but the consensus among policy experts is that the strategy is incomplete and outdated. The Renewable Energy Independent Power Producer

Procurement Programme (REIPPPP), designed to attract private-sector investment and expertise into grid-connected renewables, also needs to be transformed. Better
bidding practices and more favourable terms for participation can enhance the programme. In addition, revising the programme to focus on transmission instead of generation could add greater value to the grid. Agile policies and robust technical expertise must inform regulatory interventions to support the energy transition

Without suitable supporting policies, the unbundling of South Africa’s energy sector is unlikely to progress at the necessary pace. Efforts to unbundle Eskom into three subsidiaries for generation, transmission and distribution are following a state-issued plan aimed at energy diversification, revenue maximisation and debt reduction. More broadly, privatisation of the utilities sector remains a contentious subject for change-resistant politicians and unions, however there is plenty of evidence to suggest that renewable power will offer inexpensive and reliable electricity for low-income households. 

Engaging in international partnerships can drive accountability, implementation and funding to support a just energy transition. The most prominent of these is the Just Energy Transition Partnership ( JETP), formed with governments of South Africa, France, Germany, the UK, US and EU. It includes US$8.5bn of concessional loans and investment guarantees to enable favourable borrowing terms and project de-risking. However, experts say that little has materialised from the JETP as the South African government has been slow to develop the investment and implementation plans.

Paradoxes in the government’s energy-related fiscal programmes must be addressed to create a sustainable and diversified energy mix. While subsidies to
support renewables exist, the South African government also supports fossil fuels through tax exemptions for the use of oil, coal and gas. In addition, the Climate Action Tracker has found that the current carbon tax is too low to motivate companies to reduce emissions. The government must take bold and coordinated steps to dismantle
regulations that run counter to the principles of a just and sustainable energy transition.

To deliver a just transition, creative and timely social policies must be deployed, with a focus on the youth. In the transition away from coal, more than 90,000 jobs are estimated to be lost, which is causing resistance from unions. However, the Brookings Institution shows that the JETP would create as many as a million jobs between 2023 and 2050 - more than three times the number of jobs that will be lost in the transition. To facilitate the transition of people from coal to renewable-energy jobs requires various forms of transition assistance—from temporary basic income to training programmes for reskilling.

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