R390-billion Grid Upgrade: South Africa’s Next Major Energy Dilemma

A R390 billion national grid expansion must be constructed and funded by the nation to link more power plants.

R390-billion Grid Upgrade: South Africa's Next Major Energy Dilemma
R390-billion Grid Upgrade: South Africa’s Next Major Energy Dilemma

R390-billion Grid Upgrade: South Africa’s Next Major Energy Dilemma

South Africa has to construct and finance an R390 billion national grid extension to connect additional power plants, which presents a significant challenge as it attempts to put an end to years of intermittent power outages that have crippled the country’s economy.

More than 80% of the nation’s electricity is provided by Eskom, which owns, operates, and maintains the transmission system. Despite this, Eskom has not kept up with plant maintenance or built enough new plants quickly enough to prevent energy shortages.

The state utility intends to install 14 218 km of power lines over the next ten years, which is more than three times as much as it did in the previous ten. Along with building additional infrastructure, it will also need to increase its transformer capacity by six times.

African National Congress’s Plans to Prioritize Investment

Before the 29 May election, load shedding was a major campaign topic because it reduced output, increased unemployment, and kept the yearly economic growth rate to an average of less than 1% during the previous ten years.

The main opposition parties also vowed to support the African National Congress’s plan to “prioritize investment in expanding the transmission grid so that more energy, including from renewable sources, can be supplied” in their election manifestos.

Finance for the expansion seems out of Eskom’s grasp. During former President Jacob Zuma’s nearly nine years in office, the company’s coffers were systematically looted, and it accumulated over R400 billion in debt before the national treasury intervened with a conditional bailout that severely restricted the loss-making utility from taking on new loans.

Attempts to Boost the Supply of Electricity

The chairman of the South African Independent Power Producers Association, Brian Day, stated that there is “a real emergency” as a result of the inadequate investments made in the grid. He claimed that more had to be done to speed up the installation of new lines and substations, as it is now moving too slowly.

Already, attempts to boost the supply of electricity are being thwarted by inadequate transmission infrastructure. The government failed to grant any of the contracts because the projects could not be connected, even after requesting bids from private contractors that would have doubled wind-power purchases.

In a letter to investors, Raine Adams, an analyst at fund manager Allan Gray, stated that an estimated 66GW of wind and solar projects that are now in various stages of development in South Africa are also in danger due to grid restrictions.

Building power plants next to abundant coal seams in the northeast of the nation, South Africa started constructing its electricity infrastructure more than a century ago to supply the energy required for the extraction of gold and other minerals.

Obligations to Reduce its Greenhouse Gas Emissions

Later, transmission lines were installed to connect the nation’s other regions. Some privately developed wind and solar power plants have been linked to the grid in recent years, but the connections in the most advantageous locations for these kinds of facilities have run out.

This is a problem that must be fixed if the nation is to fulfill its obligations to reduce its greenhouse gas emissions.

The largest challenges Eskom has in growing the grid are “statutory approvals and procurement turnaround times, followed by capital budgets.” Other possible difficulties were resolving the organized criminality that permeates South Africa’s construction sector and obtaining the land rights necessary to install cables.

Even if it did raise the funds, the utility’s capacity to install the necessary extra lines would still be in doubt considering its troubled history of carrying out massive projects like building two of the largest coal-fired power reactors in the world.

Final Estimated Cost

With an estimated final cost of over R460 billion, Medupi and Kusile, which were first announced in 2007, were supposed to be finished in eight years at a total cost of R163 billion. However, neither project is now operating at maximum efficiency.

“It will be difficult to deliver the grid, but we are taking the necessary steps to learn from the mistakes that were made in the Medupi and Kusile projects,” stated Eskom, adding that it will think about outsourcing some of the work.

The company plans to use a combination of debt and equity to finance transmission infrastructure, and it will reenter the capital markets after its 2026 year-end.

According to Kgosientsho Ramokgopa, minister of electricity, the cabinet has approved the establishment of an Independent Transmission Projects Office to assist in obtaining private funding for the grid, a model that has been implemented in nations like Brazil and India.

Private Businesses to Invest in Transmission

Although he sees an “insatiable appetite” among private businesses to invest in transmission, the process has been hindered by several procedural hurdles, including a drawn-out division of Eskom into units for generating, transmission, and distribution that would have facilitated grid access.

There is no way the transmission network will be privatized, according to the ANC.

According to Sanjeet Sanghera, head of grids and utilities at BloombergNEF, “financing by private investors can be seen as a loss of control to the sponsoring country” because transmission projects are frequently key assets.




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