While South Africans have enjoyed almost 6 months without loadshedding, the country’s energy challenge is far from over. To successfully overcome the energy crisis, the country will need to build 14,000 km of transmission infrastructure to enable the surge in renewable energy from wind and solar to power homes, schools, businesses, and hospitals. This could come at price tag of about $10 billion. In a recent Op Ed, Vice President of the International Finance Corporation, Sergio Permenta opined Investing in Energy Transmission in South Africa is a, quote, truly bright idea.
South Africa’s power revolution’s energy challenge is far from over. The country will need to build 14,000 km of transmission infrastructure to enable the surge in renewable energy from wind and solar to power homes, schools, businesses, and hospitals. This could come at price tag of about $10 billion. To successfully overcome the energy crisis, the country will need to build 14,000 km of transmission infrastructure to enable the surge in renewable energy from electricity has been increasing and that has provided access to energy for the populations across the country. Now, this being said, we have to look at the sector as a whole, and while generation has increased, I think on the transmission, which, as you know, is the important part in order to bring the generated electricity to the populations, when it comes to transmission, there will be some gaps in the next few years. So it is very important to invest ahead of them, invest ahead of these gaps happening, so that there are no more load sheddings in the future. And I mean, one of the individuals that you spoke to about that very point, sir, the Minister of Electricity, Minister Hossienzo Ramakoppa, as well. How did that conversation go down? Well, I believe the conversation went well, because the government is really trying to address this issue. This is not an easy issue to tackle. Everybody knows that. And when you see there's already been a lot of work done in order to improve generation, the government now is really tackling this issue of transmission. And we discussed about that. I mean, last year, at the end of last year, IFC signed an engagement with the government, with National Treasury, where we are helping or we helped determine several options on how to bring in private sector into transmission. Because the key issue here is that given the amounts that are needed, it is very clear that public funding will not be sufficient. So you do need to bring in private sources of capital, private sources of funding. And for that, you need to build successful private-public partnerships. This is very important in this sector. There's not that many public-private partnerships in transmission in Africa, but they are very good examples in other regions. And so IFC, largest financier of private sector as a development private sector, sorry, development financier of private sector across emerging markets, we have experience in those sectors. And I had the chance to exchange on that with the minister and tell him the type of solutions that we think are feasible. And as you know, the government is moving ahead with very interesting plans of opening up the sector to private sector. And we are really ready on the IFC side to support that movement, to finance private sector companies who will come into this sector so that we can help really the populations get a very stable and affordable access to energy. Do you have a capital allocation that you have in mind right now for South Africa's energy transmission infrastructure project? Well, as I mentioned in my op-ed, the amounts are significant. Talk about something north of 10 billion US dollars. So it's a very large amount. No financial institution will have the capacity to do that by itself. So we need really to partner. What IFC can do, and this is really one of the areas that we've really developed over the last couple of years in terms of increasing what we call our mobilization. So when IFC brings one dollar of financing, let's try and bring four, five, ten dollars of financing from other institutions that can come and support what we are doing. So when we look at the 10 billion envelope, we could very well, together with other partners, gather all the funding that is needed for that. But I think it is important to start with some good projects. And then once this is ongoing, it will create a momentum that will be replicated, and other sources of financing will also line up. We had quite a favorable announcement coming out of ratings agency Fitch on Friday, just making a comment on the government of national unity, some of the reforms that had been underway, and just how the GNU had gone quite a way to providing some political certainty in the words of the ratings agency. And I put that question back to you, Sir, whether you reckon that the GNU umbrella could make your job of mobilizing capital from different institutions a little easier, or whether it doesn't move the dial? Look, the magnitude of the problem of electricity in South Africa is something that any government will need to tackle. It's a priority for any government. And the GNU is indeed, as you said, trying to address this problem, trying to address how to find the right solutions for that. Now, as I said, it does require, it's not just one government who can do that. It requires private sector to come in. It requires a number of other financiers to come and support those investments. And for that, you need to build an atmosphere of investment trust, the sense that investors will be confident to come in and invest in South Africa. So a number of the actions that the government is taking are not just related to transmission or just related to electricity. They are related to business environment, to rule of law and so on. And the momentum there, seeing sort of where I sit, the momentum is very positive. And I think that this is creating the environment where investors will come and will continue to invest in South Africa, but this time at a bigger scale. Sure. So Joe, you did mention that the transmission challenge is not unique to South Africa. In fact, in your opinion piece, you do state that countries around the world will need to replace about 50 million miles of transmission lines by 2040 to meet their climate goals and achieve energy security. So I want to circle back to a comment that you made about the work that the IFC is doing in other jurisdictions to achieve a similar outcome. You mentioned the likes of Latin America and India. Perhaps you can just share the nuances of the work that you are doing there and how much is applicable to South Africa. So, you know, access to energy is really a basic fundamental aspect that every population across the world needs, right? And access to energy is particularly important not just for livelihoods, but also for economic activities, you know, for people to create their own businesses, to go to the hospital, to have access to information. They need electricity. So when then you look at the evolution of emerging markets over the last decades, you realize that actually Africa, the access to energy has actually gone up quite a bit, but the population has gone up much faster. So the gap of access remains significant. About 600 million people in Africa do not have access to electricity. So we have launched the World Bank Group together with the African Development Bank Group, have launched this year at our spring meetings a very large initiative to provide access to energy to 300 million people in Africa, 250 million from the World Bank Group and 50 million from the African Development Bank. So we have launched that initiative because we realize that this is really a priority and we want to push this forward. Now, when we look at that, coming back to your question about transmission, a lot of effort has happened to provide increased generation because that was definitely the real bottleneck in the issue, in the sector. But over time, as generation increases, we also realize that there are other bottlenecks and particularly transmission. You can produce electricity, but if you can't bring it to the homes and to the companies that need it, then you're not achieving your goal. So we have really increased our focus on transmission and we're also, of course, focusing on distribution, the last mile, so that people can have access to the electricity when it comes closer to their homes and their businesses. So we have developed a number of models. As you were mentioning, we have worked in India, we've worked in Latin America. In Africa, we are actually working on a number of countries, not just South Africa. South Africa is the country where this agenda is probably the most advanced and we're also, I believe the conditions for its success are also the most favorable. So this is why we are, of course, emphasizing a lot our work in South Africa. We want to continue and we believe that the successful rollout of private-public partnerships in the transmission sector in South Africa will create also an excellent example that other countries across sub-Saharan Africa will follow. So we are very keen on seeing the success of this operation. And so, obviously, the implementation of this operation lies largely in the hands of the National Transmission Company of South Africa, just unbundled as part of the overall process to put ISCOM on a better footing. And I want to circle back to a point that you made around trust, Sergio, because even though a transmission has been unbundled from ISCOM, ISCOM is still largely the dominant owner and I want to know what some of the private-sector players you've been engaging with say about this because some of the private-sector players I've been engaging with have said there is appetite to come on board and invest in transmission infrastructure. They do realize the value. I mean, it's a social good and it's a win-win-win for all. But there is trust challenges just as a result of the legacy issues or the recent history of the governance at the power utility ISCOM and the fact that the National Transmission Company of South Africa still has strong ties to it has put a bit of capital on the fence. What are your thoughts here and what have you heard? What I would say on this, Fifi, is that ISCOM has played and plays a very important role in this sector in South Africa both historically but even today when you look at the role that ISCOM plays in electricity provision in South Africa. Now, as we look towards the future it is important to mobilize more private-sector funding because neither ISCOM nor the government of South Africa like any government around the world has the funding to do this type of investments that are very, very large. So you need, as you said, to create the trust to create the momentum so that investors come in. To create the trust I think what is very important is to have clear rules. Is to know what is the role of different institutions. We can have many models and some might look better or look not as better but at the end several models can work. As long as you have clear rules they are applied and that's where the regulator plays a very important role. And these recent measures by the government of clarifying the roles of the different institutions of creating or strengthening the role of the regulator that allows several players to come in. Because when you want to have a different number of companies working in the same space it is very important to have a very clear business environment a very clear set of regulations and a very strong and knowledgeable regulator. Now look at what has happened over the last few years in South Africa. You did have a large number of investors coming in generation. Private sector investors coming in generation. So that you see that that can work and of course transmission is technically there's I mean there's a number of differences with generation. So if you can have a lot of players transmission there will be a more limited number of players and the more limited number of players requires an even stronger regulation. But I think that the momentum is there. I think the base is there. And this is something that I've heard when I was in South Africa I really heard that people are getting ready for that next step or next stage of electricity sector in South Africa. So we'll take your word for it and obviously we'll report on the sector by yourselves as well. Sergio Pimenta the Vice President for Africa
Theme: Investing in Energy Transmission Infrastructure in South Africa
South Africa has enjoyed nearly six months without load shedding, a significant relief for the population. However, the country still faces a major energy challenge that requires immediate attention. To successfully address the energy crisis, South Africa needs to build 14,000 km of transmission infrastructure to accommodate the increasing renewable energy from sources like wind and solar. This massive undertaking comes with an estimated price tag of about $10 billion. Sergio Pimenta, Vice President of the International Finance Corporation (IFC), emphasized the importance of investing in energy transmission infrastructure to prevent future power outages. Pimenta highlighted the need for private sector involvement due to the substantial funding required for such a project. He mentioned that public funding alone would not be sufficient, necessitating the formation of successful public-private partnerships. The IFC has engaged with the South African government to explore options for private sector participation in the transmission sector. Pimenta noted that the government is making progress in opening up the sector to private investment, and the IFC is prepared to support these initiatives. The potential capital allocation for South Africa's energy transmission infrastructure project is estimated to be over $10 billion. Pimenta explained that while this amount is significant, it can be achieved through collaboration with other financial institutions to mobilize additional funding. He emphasized the importance of initiating successful projects to create momentum for additional financing sources to participate. The recent endorsement of South Africa's government by ratings agency Fitch for implementing reforms and providing political certainty was seen as a positive development for attracting investments. Pimenta acknowledged the government's efforts to improve the business environment and rule of law to boost investor confidence. The Vice President highlighted the global need for upgrading transmission lines to meet climate goals and ensure energy security. He mentioned the IFC's focus on increasing access to energy in emerging markets and the initiative to provide electricity to 300 million people in Africa, emphasizing the importance of addressing transmission bottlenecks for effective energy delivery. Pimenta expressed optimism about South Africa's potential to serve as a model for successful public-private partnerships in the transmission sector that other African countries could emulate. He recognized the importance of trust and clear regulations in attracting private sector investments, citing the role of a strong regulator in creating a conducive business environment. Despite the challenges posed by legacy issues and governance concerns at power utility Eskom, Pimenta remained optimistic about the prospects of mobilizing private capital for South Africa's energy transmission infrastructure.
"To successfully overcome the energy crisis, the country will need to build 14,000 km of transmission infrastructure to enable the surge in renewable energy from wind and solar to power homes, schools, businesses, and hospitals. This could come at price tag of about $10 billion."
South Africa, Energy Transmission, Renewable Energy, Infrastructure Investment, International Finance Corporation, Private Sector, Public-Private Partnerships