South Africa’s energy market has undergone significant reforms in recent years, opening up to competition and private sector investment. Legislative changes, the establishment of an independent transmission system operator and the creation of a market-oriented electricity trading platform will start the process of diversifying the country’s electricity supply and reduce its reliance on coal.
The energy regulator has to date licensed 10 traders, including Green Electron Market, Discovery Green, CBI Electric Apollo, Africa GreenCo and Eskom’s own National Transmission Company.
One of the biggest challenges facing the energy sector is a constrained transmission network which has limited the number of new renewable power plants that can be built. The National Energy Regulator of South Africa (Nersa) recently approved a curtailment framework to free up limited grid connection capacity which will benefit wind energy projects in the Western Cape and Eastern Cape. The additional generation capacity – 2 680MW in the Western Cape and 790MW in the Eastern Cape – will provide some relief to the grid while Eskom’s National Transmission Company embarks on an ambitious transmission development plan to build 14 000km of new transmission lines over the next decade. These new transmission lines will be built in partnership with the private sector on a build, operate and transfer model.
South Africa is not unique in terms of facing energy transmission challenges, says Sean Friend, portfolio manager at the IDEAS Fund, South Africa’s largest domestic infrastructure equity fund managed by African Infrastructure Investment Managers (AIIM). “In many countries power generation and procurement were prioritised while the transmission networks that should have been developed alongside the generators were overlooked, resulting in significant bottlenecks to new projects.”
It is estimated that African countries will need to invest more than US$45bn in its transmission infrastructure in the next few years.
Amongst the goals of government’s Operation Vulindlela 2.0 is addressing grid capacity and establishing an independent transmission system operator.
“South Africa’s newly established Independent Transmission Projects (ITP) programme, a copy of similar models that have been deployed in Brazil and Chile to add capacity, offer opportunities to concession parts of the national network for private development which will allow more renewable energy to get onto the grid,” says Friend, adding that the real innovation is likely to take place in the district networks.
The challenge for grid operators, he says, will be to manage the network as it shifts away from coal to cleaner forms of energy generation. “Eskom needs to replace its current diesel consumption with batteries, including lithium batteries. A gas to power project would also be positive, serving to balance renewables and thereby allow greater levels of overall contribution to the energy mix .”
Given that Mozambique’s gas supply is running out, Friend says it needs to be replaced with liquified natural gas (LNG). “While LNG is more expensive than on-shore gas, it’s very strategic because it’s flexible energy,” he says.
Friend anticipates that by 2030 the grid will be better managed, will have expanded to an aggregate 30GW of renewable energy and will idealy have gas terminals at either Coega or Saldanha Bay in addition to the logical choices of Richard’s Bay and Matola.
“A stable electricity supply has a positive knock-on impact on all areas of the economy, enabling export of agricultural products that require cold storage and improved productivity and output at mines and manufacturing plants. Interestingly, renewable assets become more valuable once the grid is stable,” says Friend.
The IDEAS Fund holds assets totalling R27.8bn, including significant interests in solar and wind facilities, toll roads, open-access fibre networks, public-private partnerships and waste management projects. In 2024, the IDEAS Fund, African Clean Energy Development (ACED), and Energy Infrastructure Management Services (EIMS Africa) reached financial close on its Northern Cluster Wind projects consisting of the Ishwati Emoyeni Wind Farm, Khangela Emoyeni Wind Farm and Umsinde Emoyeni Wind Farm in the Western and Eastern Cape. Combined, the three projects will generate 432MW, equivalent to approximately 200MW of Eskom coal-fired power. This means this single renewable project will be capable of mitigating 20% of one loadshedding stage.
“Private renewable energy developers have achieved as much in the last two-and-a-half years as REIPPP did over a decade,” says Friend.
He sees huge potential in public-private partnerships to fund, develop and operate public infrastructure. “However, government needs to get better at allowing the private sector to get involved in projects that make commercial sense for them and rather deploy the state’s limited balance sheet to high risk projects where it is difficult for the private sector to mobilise capital. The Lesotho Highlands Water Project, for example, is too high risk for the private sector so it makes sense for the state to fund that project. Airports, ports and sections of the rail network, on other hand can be very efficiently managed by the private sector. Key to achieving economic growth is ensuring a reliable energy supply and ensuring efficient logistics.”