A state-owned power utility's failure forced South Africa to let its market work. For India, a lesson 

If you want a model of a power system breaking down under the weight of its own contradictions, forget European gas networks and Texan power grids. Look at South Africa.

The decline and fall of government-owned utility Eskom Holdings SOC Ltd is a sign of everything that can go wrong in an electricity grid. Eskom generated nearly three-quarters of Africa’s electricity south of the Sahara in the late 1990s, but years of corruption, mismanagement and meddling have reduced it to a husk. Last year, South Africans faced blackouts on more than 200 days. This year has been even worse, with just a single day when there wasn’t a managed power cut somewhere in the country.

Through most of this, the government has seemed hell-bent on perpetuating the conditions that led it to this situation. From China to Brazil and India to Vietnam, developing countries that have left an open door to renewable power have found no shortage of demand to top up declining fossil-fired electricity.

With some of the world’s best resources for wind and solar, South Africa should be a member of that club. Instead, it’s been left far behind, hobbled by Eskom’s near-monopoly and treacherous politics, where President Cyril Ramaphosa’s energy minister is a former mining union boss and coal advocate who’s also chairman of the ruling African National Congress.

Necessity, however, has always been the mother of invention. As the nation’s power system has descended deeper and deeper into crisis, some of the rules that had served to stymie renewables have been gradually abandoned as unaffordable luxuries. The result is the first evidence of a renaissance.

Take solar panels. In January, the government loosened local content requirements that had barred cheap imports from the market. Trade is exploding. In March alone, imports from China (the source of almost all of the world’s exported panels) came to $110 million, more than in the whole of 2018, according to data compiled by BloombergNEF.

It’s a similar story with lithium-ion batteries, used to back up grid and small-scale storage, as well as in electric vehicles. Imports in the fourth quarter of last year came to $365 million, more than in the three years through 2020 put together.

There’s also been a loosening of restrictions on building renewable power. A few years back, Eskom’s monopoly was imposing severe constraints on the ability of developers to get projects built. Businesses that wanted to produce their own electricity (rather than take their chances on the crumbling grid) needed to apply for generation licenses for any plants bigger than one megawatt, a cumbersome requirement that made it impossible to benefit from economies of scale.

Most new projects were also based on government capacity auctions where the main customer would always be Eskom. Corporate PPAs, the deals whereby power consumers contract directly with generators that have underpinned nearly 160 gigawatts of new renewables globally so far, were less used.

That’s reversed as the breakdown of the grid has encouraged businesses to bypass Eskom’s network altogether, or at least use it only as a transmission conduit from power plant to socket. Some 2.5 gigawatts of renewable projects were registered with the government regulator in the March quarter of this year alone, more than in the previous three years put together, according to Gaylor Montmasson-Clair, an economist at Trade & Industrial Policy Strategies, a local thinktank. About 60 percent of the 13 GW at pre-registration stage is for corporate PPAs, rather than the grid supply projects most dependent on Eskom.

South Africa’s power problems are far from over. The ANC last month backed plans from the electricity minister to address the chronic power cuts by extending the lives of the sclerotic coal-fired furnaces that have been at the root of the problems — a decision that threatens the $8.5 billion international effort to accelerate its transition to clean energy. In South Africa, as elsewhere, fossil fuels are deeply entrenched in networks of power and influence that will work hard to stop it being rooted out.

Even so, there’s a lesson in the recent renewables boom taking place in a country that’s been a byword for counterproductive regulation. The basic engineering and economic advantages of clean energy are substantial, even before you consider the climate and health benefits. Where countries use red tape on permitting and imports to hold it back (as we’re seeing in different ways in the US, European Union, India and other major markets), it’s possible for dirty incumbent power to hold on long beyond its natural lifespan. Where the free market is unleashed to invest, however, the advantages of the energy transition become more unmistakable with each passing year.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. Views are personal, and do not represent the stand of this publication. 

Credit: Bloomberg