The National Treasury has confirmed that South Africa is moving to pilot a model that will enable the private sector to participate directly in the development and operation of transmission grid infrastructure, drawing lessons from the country’s experience in procuring generation capacity from independent power producers (IPPs).

Deputy director-general Mmakgoshi Lekhethe reports that the model, which has been mooted by Electricity Minister Kgosientsho Ramokgopa for some time, is receiving priority attention in light of the scale of the investment required to unlock grid capacity for new renewables investment.

Speaking at the launch of a new report on mobilising clean energy, Lekhethe said that Eskom had been given permission to raise funding for grid investment despite still being bound by the terms of a debt-relief package that constrains its ability to raise new debt more generally.

However, government had also concluded that private finance and capacity would be required if South Africa was to add the grid infrastructure needed to unlock more renewables, including 1 400 km a year of new power lines by 2032.

“Given this, we are working very hard across the government to pilot a model that can bring in the private sector to help us scale up that much needed investment.

“This means that we may have to use the same model that we use for generation for transmission, while obviously making sure that it speaks to the unique set of circumstances faced by transmission,” she said.

Speaking on the same platform ahead of the new governance arrangements that would follow South Africa’s 2024 elections, during which no party emerged with an outright majority, special adviser to the Electricity Minister, Silas Zimu, expressed confidence that the Energy Action Plan (EAP) would continue, including reforms to enable private participation in the grid.

“We're not going to change it [the EAP],” Zimu insisted.

NOT A ‘CUT & PASTE’ EXERCISE

Meanwhile, IPP Office head Bernard Magoro argued that the IPP programme had proved it was possible to procure electricity infrastructure from the private sector. However, he said it would not be possible to simply “cut and paste” the model for the deployment of independent transmission projects (ITPs).

Magoro stressed that servitude acquisitions posed a distinct challenge to ITPs and South Africa would have to clarify upfront whether or not the National Transmission Company South Africa (NTCSA), which is in the process of being vertically separated from within Eskom, would be expected to lead land acquisitions and/or expropriations for such projects.

In addition, the fact that the ITPs would be transferred back to the NTCSA after a period of private operation would add another layer of complexity and risk that would have to be addressed.

Magoro argued, though, that some of the generic lessons from the IPP experience relating to risk allocation and the need for ongoing stakeholder buy-in and convergence, including with the National Energy Regulator of South Africa, could be transferred to ITP programme.

That said, he also cautioned that it could take some time to establish a procurement rhythm, noting that an entirely new “ecosystem” of participants would have to be created, as very few IPPs saw themselves as grid operators.

Meanwhile, Lekhethe reported that the National Treasury was also prioritising other initiatives to improve the environment for higher levels of clean-energy investment and to ensure that limited government resources were used to stimulate such investments.

While describing the R300-billion in contingent liabilities arising from government guarantees extended to support IPP procurement as “unsustainable”, she revealed that work was under way with the African Development Bank and the World Bank to assess prospects for a “credit guarantee vehicle” to help reduce government’s exposure.

The National Treasury was also seeking to unlock the $11.5-billion in pledges made to the country’s Just Energy Transition Investment Plan, including through investments made at a municipal level.

G20 GAMBIT

Lekhethe also announced that government aimed to use the platform that would be created by South Africa’s hosting of the G20 in 2025 to urge the International Monetary Fund to use its Special Drawing Rights assets in a way that could help Africa invest in green infrastructure.

“This is not going to be easy,” she acknowledged.

The ‘Mobilising Investment for Clean Energy in South Africa’ report calculates that South Africa alone needs to invest R600-billion up until 2030 in new clean generation and grid infrastructure “to set the country on a just energy transition pathway”.

Published by the Development Bank of Southern Africa in collaboration with the World Economic Forum and supported by Accenture, the report includes policy and nonpolicy recommendations for enhancing the investment environment in the country.