Electricity
Wednesday, 15 February 2012 14:06

Private sector participates more in South African energy sector

New opportunities for the private sector to invest in the South African energy industry are emerging from the growing demand for electricity, driven by the funding limitations and time constraints on Eskom.

 

The growing demand for electricity, the liberalisation of the electricity supply industry, as well as the funding limitations and time constraints on the public utility Eskom, are driving increased private sector participation in the South African power industry.

A new analysis from Frost & Sullivan called Private Power Generation Opportunities in South Africa finds that the electricity generation industry is worth R50-billion and presents lucrative opportunities for private sector participants.

“Market growth for private power producers in South Africa is being driven by a pressing need for new generation capacity and the associated cost of financing this new build,” notes Gareth Blanckenberg, Frost & Sullivan’s energy and power systems research analyst. “Renewable energy generation is set to become the largest area of participation for private power producers in South Africa. Several projects are already in the developmental phase,” Blanckenberg says.

According to the analysis, the demand/supply gap is extremely tight at the moment. Additional capacity needs have been forecast at 56,6 GW between now and 2030, while Eskom is facing significant time pressures and financial constraints in developing this additional capacity.

Recent efforts to liberalise the electricity supply industry have been reflected in the Department of Energy (DoE)’s mandate that independent power producers (IPPs) will contribute 30% of new generation capacity by 2030. Rising electricity prices, and the implementation of incentive schemes, have created a strong motivation for private power producers to enter the market.

Blanckenberg adds that tariff increases represent another encouraging trend for private power producers. Eskom’s new build programme is the primary driver behind rising electricity tariffs. “These tariffs are on an upward path that will soon make it feasible for private producers to enter the market. Private participation is likely to increase supply, ease the borrowing requirements for Eskom and reduce the funding burden on the government.”

He says that such trends are a far cry from earlier tendencies, which saw an unattractive policy environment, as well as historically low electricity tariffs. “All these factors served as deterrents to investment by private power producers.”

According to Blanckenberg, a key advantage for South Africa will be the country’s significant quantities of natural resources, both conventional and renewable, that are suitable for electricity generation. “Political stability, coupled with an established legal and financial system, will also make it an attractive investment destination for international project developers.”

Private Power Generation Opportunities in South Africa is part of the Energy & Power Growth Partnership Service Programme, which also includes research in the following markets: Overview of the South African Electricity Industry (2010 Update), The IRP2010: A Frost & Sullivan Impact Analysis and South African Solar PV Market. All research included in subscriptions provide detailed market opportunities and industry trends that have been evaluated, following extensive interviews with market participants.

For more information on this study, send an e-mail with your contact details to Samantha James, Corporate Communications at Frost & Sullivan, at This email address is being protected from spambots. You need JavaScript enabled to view it..

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private_sector_participatesGareth Blackenberg