Treasury welcomes deregulation of electricity

The National Treasury has backed efforts to deregulate the energy sector by allowing private players to enter the market and sell electricity directly to consumers.

This as it described continuous power cuts implemented by Eskom as a drag on growth.

“There is profound uncertainty about the durability of the economic recovery, mainly due to renewed volatility in global conditions and the risk of renewed Eskom power cuts,” the Treasury said in a review of the medium-term budget.

Eskom announced stage 4 load-shedding earlier this week, before downgrading it to stage three. On Thursday, the parastatal said the rotational power cuts would end at 5am Friday.

Generation capacity remains constrained as a result of a large number of unplanned outages and explosions at Medupi and Kendal power stations.

The licensing threshold for embedded generation projects is being raised from 1MW to 100MW, according to amendments to schedule 2 of the Electricity Regulation Act (ETA) published in August after President Cyril Ramaphosa intervened to stop the department of energy setting the threshold at 10MW.

The Treasury praised this move as crucial to economic recovery, but noted short-term pain to be endured until then.

“Raising the threshold for embedded generation will support higher investment, reduce pressure on the grid and lower the risk of load-shedding from late 2022. However, inadequate electricity supply will remain a binding constraint on economic recovery in the near term.”

Presenting the medium-term budget policy statement, finance minister Enoch Godongwana said all efforts in the past 13 years had been on fixing Eskom instead of addressing security of supply. He said correcting this by allowing private generators to sell directly to consumers would alleviate the risk of power cuts by allowing municipalities to procure directly from independent power producers.

Godongwana also noted the recent bid window of the Renewable Energy Independent Power Producer Programme (REIPPP), whose 25 projects will generate more than 2,500MW of electricity at 47.3 cents per kilowatt.

“This is the cheapest rate achieved in the history of the programme and is among the lowest rates achieved worldwide. Over the long term, creating a competitive energy market will help contain costs of generating electricity and support GDP growth,” Gongowana told the National Assembly.

Meanwhile, the Treasury noted with concern the threat by communications regulator Icasa to recall the temporary spectrum granted to telecommunications firms to accommodate high demand for broadband during the lockdown.

“Icasa’s possible recall of temporary spectrum at the end of November will affect the quality of digital services for those working from home and leave millions of households without free access to educational and health websites,” it said. 

Mobile operators were aggrieved by the decision, with Telkom approaching the courts to stop the regulator from recalling the spectrum, arguing that the country was still in a state of disaster.

Icasa has since opened a new process for temporary spectrum licences, giving companies five days to submit applications. It said the new arrangement would be in place for seven months until the end of June 2022. 

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