Finance Minister Tito Mboweni at a media briefing ahead of his Budget Policy Statement in Parliament. Date: February 26, 2020. Picture: ESA ALEXANDER/SUNDAY TIMES
Finance Minister Tito Mboweni at a media briefing ahead of his Budget Policy Statement in Parliament. Date: February 26, 2020. Picture: ESA ALEXANDER/SUNDAY TIMES

When finance minister Tito Mboweni informed President Cyril Ramaphosa last Friday that SA government debt would be junked by Moody’s Investors Service, the president is said to have urged Mboweni to accelerate structural reforms of the economy. Mboweni said that he responded: “Hallelujah!”

But unless the government takes more seriously the task to unblock the energy logjam, all hallelujahs will be premature.

Among Moody’s main reasons for the downgrade was limited progress made with structural reform over the past two years. Of these, Moody’s singled out constraints in electricity supply as a particular impediment to growth. While  Ramaphosa and Mboweni have a lot to deal with right now, easing the energy constraint should be top priority so that when SA emerges from the Covid-19 crisis the prospect of a more reliable energy supply will be on the horizon.

Unfortunately, events over the past few weeks have cast more doubt over the timeline for bringing additional energy onto the grid, and it now seems further away than ever. Three events stand out.

Last week, mineral resources & energy minister Gwede Mantashe gazetted a new schedule 2 to the Electricity Regulation Act, to do with the regulatory environment for self-generation. Self-generation, also called distributed generation, is where entities build their own energy-generation capacity; it is the quickest and cheapest way to add additional megawatts to the grid.

But instead of loosening regulations to allow more entities to do this quickly, Mantashe maintained the status quo, which requires that anyone who wishes to generate more than 1MW of energy to obtain a licence from the National Energy Regulator of SA (Nersa).

The industry was dismayed, having hoped that projects up to 10MW would be exempt from licensing and require only registration. Licensing processes through Nersa have been slow and painful, and few licences have been granted. Nersa maintains that this is because applicants did not complete the forms properly.

While the department of energy says licensing is essential to give it a line of sight over what is happening in the national grid, a simple registration process for small projects would do very much the same. It is a missed opportunity for transforming the energy market.

Gazetting of schedule 2 came soon after another spanner was lodged in the works, this time by Nersa. For the government to procure more energy capacity, the minister of mineral resources & energy must first publish determinations under the Electricity Regulation Act calling for proposals from power producers to provide capacity using specified technologies. This Mantashe eventually did in late February, making two determinations: one for renewable energy and another for emergency supply in which the technology is not specified.

Before bids can be made, though, Nersa must concur with the determinations. Now here comes the tricky bit. The regulator has said that the process required to reach concurrence will be at least three months. It has called for public submissions on the determinations, and on the first one will also hold public hearings.

The third event is that Nersa, despite regulating an essential service, has gone into lockdown. Decision-making on outstanding matters has been deferred until after the lockdown. Nersa says that if the public requests extensions on the concurrence process because of the lockdown these will be considered.

The time lag between concurrence and the energy actually coming on line is, optimistically, two to three years. After the bidding process and adjudication, it usually takes a company 12 months to reach financial close. Build times for renewable energy are one to three years. It will be 2022 or 2023 before any new energy comes on line.

In remarks after the downgrade, Mboweni said he would establish a unit to clear the way to move forward with structural reform. If he is serious, he will need to get to work on his colleague Mantashe and on speeding things up at Nersa. Otherwise his hallelujah will indeed ring hollow.

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