Energy Sector

Electricity 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 to 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, do only hold negligible generation capacity. Generation is currently dominated by coal power which importance is however expected to decline due to up-scaled investments in gas, renewables and nuclear power. Being an integral part of the South African Power Pool (SAPP), South Africa is importing and exporting power from and to its neighboring countries. Electrification rate in South Africa currently stands between approximately 85-90%.

 

Electricity Demand and Electrification Rates

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 costumers. 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.

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

 

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

 

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 intensities. In addition, South African industrial energy efficiency is on average significantly lower than in other countries.

In 2015, ESKOM had to introduce load-shedding given that due to drought and insufficient investment, existing capacity was inadequate to meet the demand. In addition to heavily investing in generation capacity, the Government further promotes the adoption of solar water heater (SWH) geysers 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 (CFL’s) and creating awareness on energy efficiency. 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 through 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.

 

 

Electricity Generation

 

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, for details see section Strategies, Policies, Acts, and Regulations), especially IPP owned renewable energy generation has gained traction with 2,145 MW of available capacity. Solar (inclusive of PV and CSP) and wind sign responsible for 34.34% and 28.60% respectively of IPP owned capacity. Coal (13.56%), gas (17.33%), and others inclusive of cogeneration and landfill gas (5.87%) and hydro (0.29%) are relatively less relevant.

 

Effective/Nominal Electricity Generation Capacity

  Coal Gas Nuclear Wind Solar Hydro[1] Other Total
Eskom 36,441 2,409 1,860 100 2,000 42,810
Municipalities 536 122 174 832
IPPs 460 588 970 1,165 10 199 3,392
Total 37,437 3,119 1,860 1,070 1,165 2,184 199 47,034

[1] Inclusive of Pumped-Storage Schemes

 

Recently commissioned renewable energy power plants, have heavily contributed to a strong decrease in load shedding.

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% – both 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 which is expected to drop to 46% by 2030 from its current actual installed capacity level of 80% in 2016:

 

IRP 2010 – Policy adjusted IRP capacity scenario

Technology Total MW 2030 Generation mix % Capacity additions (MW)
Coal 41,071 45.9% 16,383
Gas (OCGT and CCGT) 9,700 10.8% 7,300
Hydro (incl. pumped storage 7,671 8.6 3,991
Nuclear 11,400 12.7 9,600
Wind 9,200 10.3 9,200
Solar (PV and CSP) 9,600 10.7 9,600
Other 890 1.0 465
Total 89,532   56,539

 

 

The new capacity required is envisioned to be implemented through investments by the national utility Eskom as well as through several IPP programmes for renewables and non-renewables with the target for IPP’s 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

Technology Capacity (MW)
Biomass 51.5
Solar CSP 600
Landfill Gas 18
Wind onshore 3,366
Solar PV 2,321.8
Small Hydro 19.1
Total 6,376.7

 

All the IPPs from REIPPPP projects sell their electricity to Eskom. Average tariff for Solar PV and Wind technology has fallen to USD72.9/MWh and USD57.4/MWh respectively in bid window 4, a drop 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, thus expecting the up-take of further IPPs to negatively affect its financial performance.

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

In November 2016, DOE issued an updated Integrated Resource Plan (IRP) incorporating a downward revision of demand and resulting capacity needs due to lower economic growth assumptions, as well as capacity forecasts up to 2050.

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

 

Revised IRP 2016 capacity forecasts (MW)

MW PV Wind Other RE Nuclear Gas Coal[1] Large-scale hydro
Already procured 3,861 3,366 265 0 0 900 0
Total 2030 8,541 10,366 515 0 12,732 6,150 1,000
Total 2050 21,461 40,766 765 20,385 33,717 15,000 2,500

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

 

 

Transmission and Distribution

 

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 predominantly 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 as follows:  http://www.eskom.co.za/Whatweredoing/GCCAReport/Documents/GCCA2022Document%20Jun2015.pdf

 

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

 

In terms of enhancing the transmission network as well as the connectivity with neighboring countries, South Africa is currently contributing to implementation of the Mozambique-Zimbabwe-South Africa (MOZISA) transmission project.
City of Johannesburg and Tshwane in South Africa 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 to develop relevant policies/regulations.

 

 

Electricity Tariffs

Power consumers choose between supply from the national power utility company (ESKOM) or municipalities (supplied by ESKOM). According to the regulations, all local authorities obey the tariffs under the local authority rates approved by regulator NRERSA. 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

Net tariffs in c/kWh [ZAR], effective from April 2016[1]
RESIDENTIAL TARIFFS
Eskom’s residential tariffs [VAT incl.]
Block 1 [< 600kWh] 124,59
Block 2 [> 600kWh] 196.72 – 200.34
Network capacity charge [ZAR/POD/day] 5.34 – 20.65
Local authority’s residential tariffs [VAT incl.]
Block 1 [< 600kWh] 124,59
Block 2 [> 600kWh] 196.73 – 200.36
Network capacity charge [ZAR/POD/day] 5.34 – 20.65
Eskom’s residential tariffs (bulk) [VAT incl.]
Energy charge [c/kWh] 163.57
Network capacity charge [ZAR/kVA] 33.85
URBAN TARIFFS
Eskom’s Urban tariffs [VAT incl.] (Business rate)
Energy charge [c/kWh] 106.31 – 286.06
Ancillary service charge [c/kWh] 0.41
Network demand charge [c/kWh] 15.01
Network capacity charge [ZAR/POD/day] 21.55 – 62.73
Service & administration charge [ZAR/POD/day] 18.62
Local authority’s urban tariffs [VAT incl.] (Business rate)
Energy charge [c/kWh] 108.84 – 292.88
Ancillary service charge [c/kWh] 0.41
Network demand charge [c/kWh] 15.08
Network capacity charge [ZAR/POD/day] 21.64 – 63.04
Service & administration charge [ZAR/POD/day] 18.53
RURAL TARIFFS
Eskom’s rural tariffs [VAT incl.] (Landrate)
Landrate 1 – Landrate 4
Energy charge [c/kWh] 105.78 – 228.47
Ancillary service charge [c/kWh] 0.41
Network demand charge [c/kWh] 26.43
Network capacity charge [ZAR/POD/day] 28.25 – 69.43
Service & administration charge [ZAR/POD/day] 23.46
Local authorities’ rural tariffs [VAT incl.] (Land rate)
Landrate 1 – Landrate 4
Energy charge [c/kWh] 108.30 – 233.91
Ancillary service charge [c/kWh] 0.41
Network demand charge [c/kWh] 26.70
Network capacity charge [ZAR/POD/day] 28.50 – 70.08
Service & administration charge [ZAR/POD/day] 23.35

[1] http://www.eskom.co.za/tariffs

 

 

Off-Grid Electrification

South Africa’s Integrated National Electrification Programme (INEP) intends to create universal access to electricity by 2025, with the objective to reach 90% of the population through grid connections and 10% through SHS or any other non-grid RE technology that is cost effective (e.g. mini-grid or hybrid systems). INEP intends to achieve this through subsidizing grid connections, off-grid systems as well as backbone grid network infrastructure such as substations and HV inter-connection, 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. 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 is appointed to a designated area within which it has the exclusive right to supply SHS services. They are furthermore responsible to provide maintenance on the installed systems in 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. 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. 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 packages and biogas Systems.