Over the past decade, electricity shortages have been intensified throughout South Africa, inconveniencing millions and depriving industries and enterprises with the necessary infrastructure to conduct business.
The country’s electricity utility Eskom was forced to manage these continual shortages, suspending electricity to regions of the country in a practice termed ‘load shedding’, or when the utility is experiencing too much electricity demand and too little supply.
In order to keep the entire electricity system from experiencing a blackout, the utility would suspend electricity to certain regions until an equilibrium between energy supply and demand could be reached.
Eskom’s power troubles have two root causes: an overreliance on coal, and poor infrastructure. Others would add a third: corruption and mismanagement within the energy utility itself.
South Africa has historically relied on coal-fired power plants, which accounted for 87% of its electricity generation. Having such a deep reliance on one power supply means that whenever there’s a disruption – either in shipments of coal, or maintenance issues in the coal plants – the entire electricity grid suffered.
South Africa’s Renewable Energy Masterplan (SAREM)
On March 27, the South African cabinet approved the South African Renewable Energy Masterplan (SAREM), put together by the departments of mineral resources and energy, trade, and science and innovation.
The plan outlines a pathway to become a major producer of renewable energy, producing 3 to 5 gigawatts of renewable energy capacity every year up to 2030. This creation of energy resources would be enough to attract manufacturing and industry, and reverse the industrial drain that the country has been experiencing due to power shortages.
SAREM has six aims: to foster the rollout of renewable energy and battery storage projects to grow the economy; expand the industrial capacity of renewables and battery storage; create and sustain employment across the renewable energy value chain; build the capabilities needed for the renewable energy industry; build a transformed industry throughout the value chain; and contribute to the ecological transition.
To stimulate growth in renewable energy generation, the plan calls for reactivating the 12i tax incentive – an incentive to encourage both greenfield and brownfield development – as well as extending Special Economic Zone benefits.
The plan also encourages the reimposition of import duties on renewable energy-related goods, to support local generation and manufacturing.
The South African government will also help new entrepreneurs in the renewable energy industry through a Transformation Fund, and an Original Equipment Manufacturer-led cluster.
Key Tools: Incentives, Finance, and Industrial Clusters
Updating and expanding electricity infrastructure is also critical. Eskom has a plan in place for the 2023-2032 period to build 14,218 kilometers of transmission lines, 170 transformers, 40 capacitators, and 52 reactors.
To ensure independent industrial consumers and industrial parks will have enough electricity to power their businesses, the South African government will also target its renewable capacity building to this sector. It will also provide these parks with access to concessional finance and other funding mechanisms.
To drive the industrial development of the renewables value chain, South Africa will need to build on its advantages, according to SAREM. These include African and global market access, competitive labor and utility costs, and a domestic supply base. South Africa is also a mineral-rich country, which contains many of the minerals required for renewable energy generation (manganese, vanadium, platinum, and several rare earth elements).
Separately from this plan, South Africa formulated its development plan to be a green hydrogen hub in October 2023. Building on the 2007 Hydrogen South Africa plan, the Green Hydrogen Commercialization Strategy was one reason why South Africa has embraced the push for substantially increasing its renewable energy sector.
Concerns and Challenges Facing SAREM
The plan to transform South Africa into a renewable energy powerhouse has been met with criticism in some sectors.
Critics point out that SAREM does not specifically address the power outages and loadshedding impacting local communities in the country. The beleaguered energy generator and utility Eskom is struggling to find funding for its much-needed expansion of the electricity transmission network, which is estimated to cost some US$21 billion.
This means that a lot of the electricity capacity required will not be online by a set date – which makes it harder for South Africa to attract industrial partners, which require these utilities to be available long before they agree to an investment.
Additionally, there were several communities who complained that they were not consulted before the initial draft was presented to the government.
Also, the South African labor force does not yet contain the required number of skilled workers in these renewable sectors. It will require an immense program to recruit and train enough workers to achieve the goals set out in SAREM’s objectives.
If South Africa can pull off the goals outlined in SAREM along the desired timelines, it would be quite the feat – and would be very encouraging for other economies in the region to step up their industrial policies to be powered by renewables.
