Energy sector moves up a gear – Bhavtik Vallabhjee, Head: Power and Renewables, Absa Securities UK

LONDON (Capital Markets in Africa) – While South Africans are understandably frustrated by the operational issues at Eskom and the impact it is having on business and quality of life, it is important to stop and appreciate that real progress is being made.

Let’s be clear: What South Africa has achieved over the past decade is nothing short of remarkable.

The transition from a primarily coal-based energy economy was never going to be easy and this task was made no easier with a global pandemic, constrained local financials, change in leadership at both Eskom and the top Presidency …. All in a critical 10-year period for the country.

In 2010 there were around 30 Independent Power Producers (IPPs) in Sub Saharan Africa and today, in SA alone, there are approximately 112 operational and there is increased impetus to deliver additional captive power projects with the National Energy Regulator of South Africa (NERSA) greenlighting an additional 16 projects in the last 30 days.

Over R200bn has been invested into the sector and, more recently, regulators are approving projects inside of 19 days for under 100 megawatts (MWs) and under 80 days for 100MW projects. Countries like Morocco and Egypt have made impressive strides in their own energy transition, but South Africa has been the clear standout from an Africa-wide perspective.

While the government-led utility scale power projects have been impressive, the private sector captive projects are going to be where the real magic lies in future. There are over 4000MWs of power projects planned by the mining sector – power that needs to be added as a matter of urgency to ensure energy self-sufficiency to curtail the impact of load-shedding.

There are several exciting projects in the pipeline where clients are integrating Environmental, Social and Governance (ESG) as well as Sustainable Development Goals into their planning – the recent transaction with Harmony Gold Mining is a perfect example of the innovative ways in which businesses are changing their thinking.

The transaction will contractually and commercially incentivise Harmony to operate in a manner that will reduce its overall carbon footprint. Contractual Key Performance Indicators (KPI) include setting targets for Greenhouse gas emission reduction, Renewable energy consumption increases and Water consumption reduction.

While there has much focus on the generation side in Africa, we are moving into an exciting new phase that will require investment in the transmission network and this is currently not receiving enough focus or investment activity yet.

Historically, if one looks at South Africa there was the development of a centralised power supply under a single operator: Eskom. This power grid was designed to link to the coal fields in Mpumalanga and Limpopo, generate power at stations like Medupi in Limpopo or Kusile in Witbank and then evacuate power over long distances down to the coastal regions. This centralised model led to significant losses during the transmission of power. With much of the infrastructure now more than 30 years old, this model is no longer fit-for-purpose.

Renewable Energy has been able to encourage the development of smaller power plants at load centres where power is required (i.e., decentralised generation).

Distributed generation is also starting to evolve to drive electrification, particularly in rural communities. These shifts into mini and micro-grids which will be a critical part of the electrification process in Africa where rural communities and access to electrical infrastructure is a sensitive issue – both socially and politically.

As one of the leading funders of renewable energy projects on the African continent, we are incredibly excited about the trajectory that the sector is on. Throughout the value chain – from generation to transmission and micro-grids – we are seeing an exciting number of game-changing projects being brought to us.

While we cannot ignore the very real impact of load shedding disruptions on the economy, we cannot ignore the progress that has been made. This is an exciting time for Sponsors, debt and equity funders across the spectrum and we look forward to partnering to bring these projects to fruition.

The future is Green and indeed very bright for the energy sector in Africa.