ED STUMPF: Transmission is key to solving SA’s power crisis

About R235bn-R372bn needs to be invested in SA’s electricity grid over the next decade to support connection of 4GW-5GW per year of renewable generation projects.

This enormous grid investment requires a concerted focus on investment in the transmission of electricity from solar and wind resource-rich regions of the country to areas of demand, while also necessitating new models for private sector participation in the financing of grid infrastructure in partnership with Eskom’s transmission company.

Renewable energy generation is well placed to play a big role in solving the electricity crisis now facing SA by improving both energy security and the carbon intensity of our energy generation. Market surveys have identified about 66GW of solar, wind and battery storage projects now in development in various parts of the country.

However, the areas favourable for renewable electricity generation are usually located far from offtake centres and industrial energy consumers, with grid feed in capacity constrained in many of the most resource rich areas. As examples, the Northern Cape and Western Cape have a total of 20GW of renewable generation projects in development while there is little if any grid connection capacity in each of these regions.   

Improvements in the process for allocation of scarce grid connection capacity to ensure that only shovel-ready projects are allocated capacity, such as those recently announced by Eskom, could be beneficial. However, there should be a focus on three further investment priorities, which are: 

• New funding models to help crowd-in private sector investment in transmission infrastructure to establishing better links to most resource rich regions of the country such as solar resources in the Northern Cape. 
• Increased focus on the development of large-scale battery energy storage systems in similar areas to better use semi-available grid capacity (arising from the intermittent nature of renewable generation). 
• Interim focus by developers on progressing generation projects in less resource-rich areas of the country including the Free State, Mpumalanga, Gauteng and KwaZulu-Natal to allow time for necessary transmission investment and funding models to be established. 

A step change in new transmission line and transformer capacity is needed. Eskom estimates that about 1,500km of transmission line is needed annually over the next 10 years (versus just over 4,300km added cumulatively over the past 10 years) while 122,600 MVA of transformer capacity is needed (versus 19,060 MVA added in the past 10 years).   

Over time focus should be given to investment in integrated regional transmission infrastructure to allow for better sharing of regional energy imbalances and abundant hydro resources of some neighbouring markets such as Zambia.   

By investing in transmission networks, countries can efficiently transmit electricity generated from renewable sources, enabling their integration into the grid. This helps diversify the energy mix, reduces reliance on fossil fuels, and contributes to global efforts to combat climate change. 

The rise of power ‘wheeling’

A critical option for increasing generation capacity on an accelerated basis is through energy wheeling, which unlocks a significant investment opportunity for the private sector. Energy wheeling, the act of transporting electricity from a generator to a remotely located end-user using an existing transmission and distribution system, has become prominent in SA as a way of providing power to high energy use commercial and industrial consumers. 

Since 2008 Eskom has approved third-party wheeling for the physical export of energy onto the national grid by an independent power producer (IPP). From 2021 the relaxation of regulation regarding thresholds for self-generation or distributed-generation power plants has successfully renewed focus on wheeling as a scalable solution for renewable energy to liberalise the electricity market. 

The energy wheeling frameworks and tariffs are unlocking the potential for significant private sector investment in renewable energy generation by removing some of the geographical location-based limitations of renewable energy solutions for commercial and industrial customers. Wheeling also allows for better management of insolvency risk for projects given the possibility of selling to multiple customers thereby reducing single customer exposure and allowing for the replacement of defaulting customers.

The key is collaboration

Energy generation can only be successfully delivered to consumers if there is sufficient transmission infrastructure, but grid investment within a silo cannot solve the energy crisis. Historically, a large part of the challenge has been that transmission and distribution networks in many countries have remained the responsibility of power utilities that are facing varying degrees of financial distress.

Apart from a few exceptions, private sector investors have therefore focused less on this area. While transmission and distribution networks are more complex (than power generation) for private sector participation due to the network nature of the assets, greater collaboration between private player and regional governments will be crucial to enable optimisation of renewable energy resources at scale. 

A number of markets have already unbundled their electricity sectors to allow for simpler collaboration between public- and private sector partners, facilitating a competitive market in the generation of electricity while allowing for simpler collaboration models for private sector partnership on transmission and distribution investment.

Such collaboration will be critical to support an acceleration in the scale of transmission system investment needed to remedy the bottlenecks for delivering the renewable energy potential which is needed to permanently alleviate load-shedding. 

• Stumpf is investment director at African Infrastructure Investment Managers, a division of Old Mutual Alternative Investments.