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Picture: 123RF
Picture: 123RF

The energy industry in Africa is arguably one of the most exciting, complex and challenging environments to work in. The continent has enormous energy potential, largely untapped, and will be one of the fastest growing regions for energy demand in the next decade. However, the fact remains that the entire region’s economic development is being hampered by both energy shortages and a chronic lack of skills.

Wits Business School (WBS) founded the African Energy Leadership Centre (AELC) in 2017, the first of its kind on the continent to address this need. Moving quickly off the starting blocks, the centre developed two cutting-edge new academic programmes, a postgraduate diploma and a master’s degree in the field of energy leadership, with the first classes starting in early 2019.

“In an industry that is pivotal to Africa’s economic sustainable growth, it is crucial that its stakeholders have a clear grasp of the dynamics and challenges, and likely future scenarios. This sector is also becoming increasingly interdependent and interconnected, and if we don’t start developing industry leaders who are skilled to take on these challenges, we are in for a bumpy ride,” says Professor Rod Crompton, an expert in energy policy and regulation and head of the AELC.

SA’s energy challenges are well documented. The crisis that Eskom is facing cannot be underestimated. The utility is experiencing a so-called death spiral, brought on by declining sales (about 1% per annum) and higher tariffs, which leads to further declines in sales. The problem has been compounded by the notorious Medupi and Kusile power station projects, which are, as Crompton points out, “probably the single largest disaster in SA’s economic history”. 

Added to this is the general confusion surrounding the awarding of contracts by the government for renewable power generation, through the Independent Power Producers (IPP) office. There have been calls for the public protector to probe the lawfulness of these contracts. Although Eskom had to sign agreements to buy the power from these IPPs, it is cash neutral as NERSA compensates Eskom for these purchases in the tariff. Some IPPs sell high-cost power because government picked costly technologies rather than opting for the cheapest. 

The net result is higher tariffs for electricity for the South African consumer.

Professor Rod Crompton. Picture: SUPPLIED/WBS
Professor Rod Crompton. Picture: SUPPLIED/WBS

Energy planning has been so deeply mired in political conflict that the government has been unable to produce an integrated resource plan (IRP) for electricity — a long-term planning tool essential for the economy and industry — since 2010. 

There are no easy answers, says Crompton. “Eskom somehow needs to simultaneously reduce operating costs, increase tariffs and shed a big chunk of debt. There is no painless way for South Africans to deal with their Eskom crisis.”

He also notes that the plan (outlined in President Cyril Ramaphosa’s state of the nation address in February 2019) to split the utility into three subsidiaries, has been government policy since 1998. 

“This is the second attempt to restructure the electricity industry, and there are some tough decisions to be made. Time will tell if our politicians are ready to make these tough decisions, in this climate. Conditions were tough in ‘round one’, but they are much tougher now, in my view. Something has to be done, urgently. We are really running out of time.” 

Meanwhile, as the controversial IRP continues to be debated at Nedlac, nothing seems to be happening to jolt the social partners out of their seeming paralysis. 

Crompton believes strongly that the way forward for SA’s electricity crisis is a sector that is more market-based. 

“We need to set up an independent transmission and market operator that can receive bids from all kinds of producers, big and small, into the power pool – and let market forces determine the outcome. The technologies are extremely complicated, so that trying to pick winners is a gamble. And as we’ve seen, government has picked rather poorly, and we have a higher electricity tariff as a consequence.”

As the government tries to navigate this massive problem, technology is evolving rapidly. 

“Major technology disruptions are imminent in the energy space, specifically in electricity storage.  With the development of new types of batteries, in particular silicone batteries, there will be quantum changes in the electricity industry,” says Crompton. 

“The energy sector is certainly a challenging and interesting space. All the more reason for this country, and continent, to start developing a pipeline of visionary leaders to take the industry into a new era.”

Visit the Wits Business School website for more information. 

This article was paid for by Wits Business School.