2016 Economic Outlook

2016 Economic Outlook from Treasury

Measures to address South Africa’s electricity supply constraint South Africa’s electricity supply constraint has worsened, largely owing to inadequate maintenance, leading to unplanned outages.

Government’s ministerial electricity “war room” is working to address the following:

  • Short-term funding, maintenance and diesel supply concerns.
  • Speeding up the completion of the Medupi and Kusile power stations.
  • Procuring additional co-generation capacity of about 800 MW over the next six months.
  • Increasing gas generation. Government has released a request for proposals for 3 126MW of power from natural gas, with initial power expected to be available by 2020. Steps are also under way to switch Eskom’s open-cycle gas turbines from diesel to natural gas.
  • Obtaining up to 2 500MW from independent power producers generating electricity from coal; this power should start being added to the grid by 2020.

Government is in talks with business and considering a wide range of options to improve energy efficiency and manage demand. Options under consideration include expanding the use of smart meters, “buying back” power from large industrial users and varying tariffs by time of use. Over time, progress towards tariffs that reflect Eskom’s costs of producing electricity will encourage businesses and households to use energy more efficiently.

Over the period ahead, South Africa will procure imported hydro power (2 609 MW) and 13 more renewable power projects totalling 1100 MW from the private sector. South Africa has already contracted a total of 4 100 MW of renewable energy from 66 different private-sector projects since 2011, of which 32 are supplying 1 522 MW to the grid. A framework for investment in gas infrastructure has been released for public comment.

Government has also initiated discussions with several potential partner countries to explore nuclear power production. Like any substantial long-term investments of this magnitude, proposals would be subject to rigorous feasibility, affordability and environmental impact assessments. Final contracting would be subject to fair, transparent and competitive procurement processes within the requisite legal framework.

Frequent unplanned outages and low plant availability are expected to persist for the next three years. Reforms under way, however, will over time lead to the development of a vibrant, diversified and competitive electricity sector, which will change the supply mix, expand private participation, and ensure robust and flexible supply.

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