Frost & Sullivan: Integrated Resource Plan to Provide Impetus to South African Electricity Industry

2010 was a significant year in the South African electricity industry. The direction providing Integrated Resource Plan (IRP) 2010 was released and significant time and effort was spent on fine-tuning the document to provide surety to market participants and energy end users. There was also a continued focus on green electrification.

Unfortunately, very little investment was made during this period by independent power producers (IPPs) and project developers. Hence, the continuation of the current low reserve margin in 2011. Promisingly, Eskom was successful in raising significant loans for power projects they are currently developing, including a World Bank loan with a clause compelling Eskom to invest in green projects.

, Overview of the South African Electricity Industry (20010 Update), finds that the South African reserve margin is slowly decreasing as demand is increasing and, hence, the urgent and immediate focus should be on new project development.

“Increasing electricity demand and a lack of timely investment into new generation capacity has led to an ambitious new build programme for South Africa,” notes Frost & Sullivan’s EPS Industry Analyst Vincent Maposa. “The long- term energy plan released by the Department of Energy (DoE) is a significant milestone in the development of this critical supportive industry to the South African economy and, if implemented as planned, offers the key to growth for electricity market participants in South Africa.”

Long-term underinvestment into the South African electricity industry has resulted in a significant project bottleneck. It will be critical for all energy role players to work together in 2011, and beyond, in an attempt to rectify the current supply risk. At the same time, end users need to be protected from large electricity price increases or else there will be electricity, but no industries to utilise it.

The key restraint to the industry is the rapidly increasing electricity price. South Africa has, for many years, provided investors with a very low energy tariff. Should this competitive advantage be eroded too much, it will result in job losses, rather than economic development.


“The DoE has a responsibility not only to electricity companies in South Africa to allow for a fair playing field - but must also help protect consumers from rapidly increasing energy prices,” advises Maposa.

Eskom is currently investing heavily into power projects in the region. It is critical that an independent market and systems operator be established as a matter of urgency to ensure more equitable participation of private power companies in South Africa.

“Government, through the DoE, has a responsibility to create a framework within which energy companies can compete with one another to deliver the best service at the lowest cost to energy end-users,” concludes Maposa.

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This article was originally posted on South Africa Business Communities

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