Pilot for private sector grid investment to be launched in July, says Treasury

A pilot project that will enable private investment in electricity grid infrastructure will be launched later this year as part of wide-ranging reforms by the government to increase private sector participation in the energy and logistics sectors.

In budget documents tabled in parliament on Wednesday, the National Treasury said the government has been working in partnership with the International Finance Corporation to agree on the short-term options for off-balance sheet financing to accelerate private sector investment in transmission without negatively affecting Eskom’s balance sheet and the fiscus.

“A pilot project will be implemented to test the market appetite for the proposed option, with a request for proposals expected to be issued by end-July,” according to the Budget Review.

Jeffrey Quvane, director of energy and telecom at Treasury, told Business Day the model for private sector investment has not yet been finalised.

“What is important is to bring in the private sector and for it to play a greater role [in financing grid expansion] given the restrictions placed on Eskom in terms of new borrowing as part of the debt relief conditions,” Quvane said.

“The finer details [of the model] are still being worked out.”

Expanding the transmission grid will significantly contribute to ending load-shedding by allowing more new generation capacity to be connected to the grid.

The lack of available grid connection capacity has already emerged as one of the biggest hurdles to addressing the 4,000MW-6,000MW generation capacity shortage (about equal to stages 4 and 6 of load-shedding) Eskom faces.

SA needs an estimated R390bn to fund Eskom’s current transmission development plan, which outlines the need for the installation of more than 14,000km of new high-voltage power lines by 2032.

Recovery plan

Given the utility’s weak balance sheet the government decided last year it would allow private sector investors to participate in funding grid infrastructure.

Other measures announced by the Treasury on Wednesday aimed at ending load-shedding include a new generation recovery plan for Eskom.

The state-owned power utility’s current generation recovery plan focuses on improving the performance of certain key power stations. The target set in the plan is for Eskom to improve the energy availability factor (EAF) — a measure of total generation output as a percentage of total installed capacity — of its generation fleet from below 55% now to an annual average of 60% by March and to 65% by next year. Power station performance over the past 11 months does not support Eskom’s target to reach an average EAF of 60% for the year.

According to the Treasury, Eskom’s generation recovery plan will include recommendations from German energy consultants VGBE’s independent assessment of coal-fired power stations.

The report was commissioned by the Treasury to inform the conditions it set for the R254bn debt relief package awarded to Eskom last year. It looked into Eskom’s operational matters, including delaying the decommissioning of some of its old coal-fired power stations.

“[Treasury] is engaging with the ministry of electricity, the minister of public enterprises and Eskom on how to include these recommendations in the operational conditions for 2024/25,” it said.

Treasury officials said on Wednesday they could not divulge the findings of the report but that it would be released to the public “shortly”.

Finance minister Enoch Godongwana said in the budget speech the report will be released “in the coming week”.

“The recommendations will feed into Eskom’s corporate plan to bolster accountability and oversight,” Godongwana said.

Load-shedding reduced

The DA and the Centre for Environmental Rights previously submitted a Promotion of Access to Information Act application to the Treasury to request a copy of the report.

Load-shedding, he said, would be reduced through a combination of private investment in new energy projects, rooftop solar installations and improvements in Eskom’s generations fleet.

The intensity of load-shedding doubled in 2023 to 16,500 gigawatt hour shed, compared with 8,100GWh shed in 2022. However, according to Treasury, load-shedding intensity showed a decreasing trend during 2023, dropping from 5,800GWh shed in the first quarter to just more than 2,000 GWh shed in the fourth quarter.

It expected the severity of load-shedding to continue to fall in 2024 “due to improved generation by Eskom and independent power producers”.

It is stated in the Budget Review that renewable energy capacity under construction through the Renewable Energy Independent Power Producer Procurement Programme Bid Window 5 stands at 1,160MW. In addition, 6,000MW of large-scale projects to the value of more than R100bn have been registered with the National Energy Regulator of SA. This power is expected to become operational in the medium term.

In response to the solar rooftop tax incentive announced in the 2023 budget that comes to an end this month, households and businesses installed about 5,200MW of solar panels.

To promote further investment in renewable energy, the Treasury also proposed increasing the limit for renewable energy projects that can qualify for the carbon offset regime (through which companies can reduce their carbon tax liability) from 15MW to 30MW.

erasmusd@businesslive.co.za