Duma Gqubule argues that the lifting of the licensing threshold for embedded generation projects to 100MW from a paltry 1MW is not such a big deal (Much more needed than Ramaphosa’s reform gimmicks”, June 14). This needs to be challenged.
The announcement, going much further than the 50MW cap the social partners, including private sector, Cosatu and even Eskom, asked for, has the potential to be one of the most economically impactful of Cyril Ramaphosa’s presidency to date.
The significance of facilitating greater own power generation goes way beyond the direct investment of potentially up to R100bn (adding an estimated 5,500MW of additional generation capacity to the grid) in private energy projects over the next number of years. There will be several multiplying effects.
If these investments, along with the projects associated with Bid Window 5 of the Independent Power Producer (IPP) programme, result in an effective ending of debilitating load-shedding by, say, late 2023, it will remove one of the key binding constraints holding back domestic real GDP growth.
Therefore, besides the direct investment in additional power generation, the billions worth of output now being lost due to power rationing must also be added back into GDP. This counterfactual is not insignificant.
The positive impact does not end here. Over time the removal of load-shedding should lower the hurdle rate for a range of non-energy investments. This applies across industries, as corporate animal spirits are likely to be unleashed. Put differently, the billions of fixed investment projects that are now non-starters because of a lack of reliable energy supply will become viable once more.
All of this is not to say the process to get to a point where load-shedding is a thing of the past will be without implementation hiccups. Even so, looking beyond the direct impact of the lifting of the embedded threshold, which on its own is not inconsequential, will show that last week’s announcement could indeed be a much-needed game-changer.
This is true for short- and medium-term confidence, fixed investment, GDP growth and, crucially, employment. Albeit belatedly, Ramaphosa has flicked the switch on real reform. Long may it last.
Chief economist, Bureau for Economic Research, Stellenbosch University
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