South Africa: New Electricity Procurement Plan 2037 Unveiled

• South Africa's Minister of Electricity and Energy announced a new electricity procurement program extending to 2037.
• The nation has shifted from an electricity deficit to a surplus, driven by accelerated IPP procurement and Eskom's generation recovery plan.
• Managing the surplus is challenging due to 'take-or-pay' contracts, leading to R2 billion in annual payments and coal stockpiles from curtailment.
• The new plan includes 4,600 megawatts of battery storage and a new procurement for 5,000 megawatts of gas-to-power to address these issues.
• These initiatives aim to ensure long-term energy availability and affordability, stimulating industrial growth and overall economic development.

The overarching goal of the South Africa electricity procurement plan 2037 is to create a robust and affordable energy system that serves as a fundamental catalyst for broader economic development, ensuring sufficient capacity to facilitate sustained growth across all sectors.

South Africa's Minister of Electricity and Energy, Dr. Kgosientsho Ramokgopa, recently announced a comprehensive new electricity procurement program designed to shape the nation's energy landscape through 2037. This long-term strategic initiative aims to optimize the country's energy mix, moving beyond immediate crisis management to proactive planning for future economic growth and stability.

The announcement comes at a pivotal time, as South Africa has transitioned from a period of significant electricity deficit, where demand consistently outstripped supply, to a new challenge: managing an emerging surplus. This shift is largely attributable to two key interventions. Firstly, the accelerated procurement of electricity from independent power producers (IPPs) has significantly boosted generation capacity. The initial bid window for IPPs, launched around 2011, began feeding power into the grid within two to three years, and currently, over 8,000 megawatts from these private generators are connected. Further capacity is anticipated to come online within the next 12 months as more projects reach their commercial operating dates.

Secondly, a robust generation-recovery plan implemented at Eskom has yielded substantial improvements. This plan has resulted in the Electricity Availability Factor (EAF) consistently hovering around 68%, occasionally surpassing 80%. The combined effect of these successful interventions means that supply now frequently exceeds demand, creating a new set of operational and financial complexities for the national grid.

While an electricity surplus might seem like a positive development, it introduces its own set of problems, particularly the need for curtailment – the practice of stopping generators from producing electricity. This is not an ideal solution due to existing contractual obligations. Many power purchase agreements, including those with IPPs, operate on a 'take-or-pay' basis. This means that even if the National Transmission Company South Africa (NTCSA) does not receive the electricity, it is still obligated to pay for the deemed supply, incurring costs estimated at approximately R2 billion over the financial year.

Similar 'take-or-pay' arrangements exist with coal suppliers. Even when coal-fired power stations reduce output or cease burning coal due to excess electricity, coal miners continue to deliver their contracted supply. This leads to an accumulation of coal stockpiles at power stations, representing another financial and logistical burden. Recognizing these inefficiencies, the government's new strategy prioritizes solutions beyond curtailment.

The core of the revised approach involves investing in advanced storage technologies and flexible energy sources. A significant component of this plan is the development of 4,600 megawatts of battery storage capacity. This will allow the grid to store excess generated electricity during periods of low demand and release it when needed, mitigating the financial penalties associated with curtailment and enhancing grid stability.

Beyond storage, the new procurement plan emphasizes the integration of dispatchable and flexible energy sources, with a strong focus on gas-to-power initiatives. The evaluation process for the first bid window of gas-to-power projects is nearing completion, and a new procurement round for an additional 5,000 megawatts of gas-to-power capacity has been launched. This strategic move aims to address the anticipated 'gas cliff' projected around 2030, ensuring a stable and reliable energy supply for the coming decades.

Furthermore, the expansion of gas-to-power infrastructure is intended to stimulate industrial growth. Currently, industries that rely on gas face suppressed demand due to limited availability. By increasing the supply of gas, the government seeks to meet this latent appetite and encourage industrial expansion. The overarching goal of the South Africa electricity procurement plan 2037 is to create a robust and affordable energy system that serves as a fundamental catalyst for broader economic development, ensuring sufficient capacity to facilitate sustained growth across all sectors.

Source: Original reporting via iono.fm