Customer Logins

Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.

Customer Logins

My Logins

All Customer Logins
S&P Global Commodity Insights
  • S&P Global
  • S&P Dow Jones Indices
  • S&P Global Market Intelligence
  • S&P Global Mobility
  • S&P Global Commodity Insights
  • S&P Global Ratings
  • S&P Global Sustainable1
Close
Discover more about S&P Global’s offerings.
Investor Relations
  • Investor Relations Overview
  • Presentations
  • Investor Fact Book
  • News Releases
  • Quarterly Earnings
  • SEC Filings & Reports
  • Executive Committee
  • Merger Information
  • Governance
  • Stock & Dividends
  • Shareholder Services
  • Contact
English
  • Español
  • 中文网站
  • Português
  • 한국어
  • हिंदी
  • English (Australia)
  • 日本語
Support
  • Get Support
  • System Notifications
  • Delivery Platforms
  • Regulatory Engagement
Login
  • Commodity Insights Login
  • Access IHS Markit Products
login
Register
logo
  • Commodities
  • Products & Services
  • Methodology
  • Market Insights
  • Energy Transition
  • Events
  • S&P Global
  • S&P Dow Jones Indices
  • S&P Global Market Intelligence
  • S&P Global Mobility
  • S&P Global Commodity Insights
  • S&P Global Ratings
  • S&P Global Sustainable1
  • Oil Upstream LNG Natural Gas Electric Power Coal Shipping Petrochemicals Metals Agriculture
    Latest in Commodities
    Watch: Market Movers Americas, Sept. 25-29: Brazil adjusts to Russian refined products ban, Northeast gas market under pressure

    In this week’s Market Movers Americas, presented by Marieke Alsguth: • Cove Point maintenance...

    Transco expansion, weather to weigh on Mid-Atlantic gas prices this winter

    Seasonal forecasts published by the US National Weather Service are calling for milder temperatures...

    Honeywell makes $27.5 million investment in ESS Tech to advance iron flow batteries

    Honeywell and ESS Tech said Sept. 25 they are collaborating on developing iron flow battery energy...

  • Oil LNG Natural Gas Electric Power Coal Shipping Petrochemicals Metals Agriculture Energy Transition
    I Need
    Advisory Solutions/Consulting Market Insights and Analytics Commodity Prices and Essential Market Data Real-Time News, Prices and Analysis Maps and Geospatial Data Forward Curves and Risk Valuation Data
    Latest Release Notes
    Data and Distribution
  • Our Methodology Methodology & Specifications Price Assessments Subscriber Notes Price Symbols Symbol Search & Directories Corrections Complaints
    References
    Market On Close Index Sourced Data (Survey) Methodology Review & Change MOC Participation Guidelines Holiday SEE ALL REFERENCE TOOLS
  • Latest News Headlines All Topics Videos Podcasts Special Reports Infographics Insights Magazine Insight Blog    Research & Analysis Top 250 Rankings   
    Latest in Market Insights
  • PLATTS ANALYTICS PRODUCT PLATFORM
    ACCESS ANALYTICS HUB
  • All Events Webinars Conferences Methodology Education Training and eLearning Forums Global Energy Awards    Global Metals Awards   
    Featured Events
    Forums Market Briefing New York (Client Only)
    • 16 Oct 2023
    • Sheraton New York Times Square Hotel
    Forums Asia Hydrogen & LNG Markets Conference 2023
    • 16 Oct 2023
    • Sheraton New York Times Square Hotel
    Forums Nodal Trader Conference
    • 16 Oct 2023
    • Sheraton New York Times Square Hotel
BLOG Apr 03, 2019

South Africa at a crossroads: Options for the future power mix

Contributor Image
Anna Shpitsberg

Research and Analysis Director, IHS Markit

Contributor Image
Raul Timponi

The year 2018 proved to be a difficult year for South Africa's power sector, with the state-owned utility, Eskom, facing steep increases in debt and a dip in its credit rating. Simultaneously, consumers faced blackouts and scheduled load shedding, as coal supply and power plant utilization rates were strained. This situation prompted discussions of reform, as well as the future supply mix.

The recent draft to South Africa's Integrated Resource Plan (IRP) outlines a transition from coal and nuclear to gas and renewables. However, coal is a staple of the South African economy, complicating decisions to diversify. In identifying potential pathways, IHS Markit evaluated five key variables:

  1. Retirement schedule of existing power plants: The schedule at which Eskom retires its coal units is a source of uncertainty and will ultimately be dictated by the country's ability to meet demand requirements. It is reasonable to assume that some units may be refurbished to address future needs, including emission control. However, there is little justification for heavily investing in power plants halfway through their life and four of the nine six-unit plants, which, owing to scale are the most likely to be extended, are already more than 30 years old.
  2. Coal supply and investment constraints: Eskom is in the process of completing supercritical power plants Medupi and Kusile, planned to accommodate 4.8 GW of capacity each. However, given the significant cost overruns and delays faced during their implementation, the risks for financing future coal projects are significant. Furthermore, demand for low-calorific coal has increased while investment in mines has lagged. In most cases, mines are approaching the end of their reserve life, prompting the need to build new infrastructure. However, Eskom's financial situation will make it difficult to invest in mines with which it shares costs (cost-plus contracts).
  3. Clean energy and emission targets: The IRP continues to reflect the country's renewable energy targets, with current projections at 18 GW of additional utility-scale solar and wind capacity by 2030. Renewable deployment will be constrained by delays in transmission buildout, but supported by the recently passed Carbon Tax Bill and the country's IPP program. In addition to renewable targets, South Africa committed to reduce carbon, sulfur dioxide, nitrogen oxides, and particulate matter. To retrofit plants to meet current and potential future standards will not only be expensive but also reduce the coal fleet's already-diminishing availability factor.
  4. Natural gas availability: Prospects for increasing South Africa's gas use depend on the ability to secure access to greater supply. There are three potential sources of supply: indigenous gas, gas piped from East Africa, and LNG imports. Domestic production includes potential in long-time discovered offshore Ibhubesi gas field, a recent and significant gas and condensate discovery within the Southern Outeniqua Basin, and more uncertain but potentially large unconventional shale and coalbed methane resources in the Karoo Basin.
  5. Political and social pressures: Coal has a broad role in South Africa's economy, particularly in relation to exports, employment, and independence. To date, high-coal export sales have contributed to the country's foreign exchange earnings and account for almost 19% of mining royalties. The use of coal in the power sector has allowed the country to serve as a power exporter while maintaining energy independence. Moreover, though coal is contributing to a declining percentage of jobs, pressure from labor unions remains strong.

In evaluating South Africa's existing energy mix; technical, political, and social dynamics; and availability of generating resources, two power supply options to maintain the IHS Markit projected level of economic activity emerged:

  • Independent case: Life of the coal fleet is extended and gas enters the picture incrementally. Investment in coal continues into the late 2030s, allowing the fuel to maintain its majority share of generation over the next 30 years. Resulting system generation costs sit below 5 cents per kWh in the long term, but the risk of older coal units failing and the opportunity cost of investing in capital-intensive plants—while other technology costs decline—must be considered.
  • Interconnected case: Coal retires early and a swift and integrated shift to gas occurs. Natural gas generation is forecast to account for almost 45% of total generation by 2050, with costs ranging between 5.5 cents and 6 cents per kWh. Attaining fixed long-term contracts for gas supply is key to the success of this strategy.

Regardless of the determined supply trajectory, growing pains are expected. The rapidly changing dynamics around South Africa's power sector, renewable technology costs, coal supply, and gas markets will add a layer of complexity to achieving the IRP targets and will require an integrated and coordinated strategy.

Figure 1: South Africa: Evolution of generation mix under two cases

Learn more about our coverage of the global power market.

Anna Shpitsberg is a director within our global power and renewables group at IHS Markit.

Raul Timponi is an associate director within our global power markets group at IHS Markit.

Posted 3 April 2019



This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.

Previous Next
Recommended for you

Energy Solutions
Consulting
Upstream Oil & Gas
Subscribe to the Blog

Receive monthly energy insights from our blog right in your inbox.

Subscribe

CERAWeek 2023

March 6 – 10 in Houston, TX
LEARN MORE
Related Posts
VIEW ALL
Infographic Sep 25, 2023

Infographic: Guyana´s head-to-head with Brazilian pre-salt

Blog Sep 25, 2023

Which power markets are the most attractive for renewables investments?

Blog Sep 25, 2023

Could Niamou-1 help replace Congo’s maturing reserves?

VIEW ALL
{"items" : [ {"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"https://www.facebook.com/sharer.php?u=http%3a%2f%2fwww.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fsouth-africa-at-a-crossroads-options-for-the-future-power-mix.html","enabled":true},{"name":"twitter","url":"https://twitter.com/intent/tweet?url=http%3a%2f%2fwww.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fsouth-africa-at-a-crossroads-options-for-the-future-power-mix.html&text=South+Africa+at+a+crossroads%3a+Options+for+the+future+power+mix+%7c+S%26P+Global+","enabled":true},{"name":"linkedin","url":"https://www.linkedin.com/sharing/share-offsite/?url=http%3a%2f%2fwww.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fsouth-africa-at-a-crossroads-options-for-the-future-power-mix.html","enabled":true},{"name":"email","url":"?subject=South Africa at a crossroads: Options for the future power mix | S&P Global &body=http%3a%2f%2fwww.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fsouth-africa-at-a-crossroads-options-for-the-future-power-mix.html","enabled":true},{"name":"whatsapp","url":"https://api.whatsapp.com/send?text=South+Africa+at+a+crossroads%3a+Options+for+the+future+power+mix+%7c+S%26P+Global+ http%3a%2f%2fwww.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fsouth-africa-at-a-crossroads-options-for-the-future-power-mix.html","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"} ]}
Filter Sort
  • About S&P Global Commodity Insights
  • Media Center
  • Advertisers
  • Locations
  • Get Support
  • Contact Us
  • Careers
  • Corporate Responsibility
  • History
  • Investor Relations
  • Leadership
  • Glossary
  • © 2023 by S&P Global Inc. All rights reserved.
  • Terms of Use
  • Do Not Sell My Personal Information
  • Privacy Policy & Cookie Notice
  • Site Map