South Africa’s energy sector finds itself in a gridlock situation. The sector is controlled by the state-owned utility Eskom holding the monopoly on the generation and transmission of electricity, which is almost exclusively produced from domestically extracted coal. At the same time, the constitutional mandate enables municipalities to distribute and sell electricity generated by Eskom to local consumers, which constitutes a large part of the cities’ municipal income. This is a strong disincentive for city governments to promote reductions in energy consumption and substantially limits the scope for urban action on energy efficiency and renewable energies. In the present case study, we portray the current development in South Africa’s energy policy and trace how deadlocked legal, financial, and institutional barriers block the transition from a coal-based energy system toward a greener and more sustainable energy economy. We furthermore point to the efforts of major South African cities to introduce low-carbon strategies in their jurisdictions and highlight key challenges for the future development of the country’s energy sector. By engaging with this case study, readers will become familiar with a prime example of the wider phenomenon of national political–economic obstacles to the progress in sustainable urban development.
The Republic of South Africa is an emerging economy with a fast-growing population of presently about 56 million inhabitants. Like many other newly industrialized countries, South Africa is struggling to reorient its national economy toward a low-carbon growth trajectory in order to meet its target under the Paris Agreement. The energy sector causes the lion’s share of South Africa’s greenhouse gas (GHG) emissions with almost 80 percent of the country’s total emissions. This is due to an economy that relies on heavy industry, mining, and cheap energy generated from domestically produced coal [1, 2]. Accordingly, decoupling economic growth and GHG emission levels is one of the biggest challenges for the country’s current sustainable development strategy .
About 60 percent of South Africa’s population lives in urban areas with major development challenges, partially resulting from the neglect of townships during the apartheid regime. Moreover, the 18 largest cities are home to over half of the country’s population, while they occupy less than 5 percent of the overall territory. Nonetheless, they account for over one-third of the national energy consumption and nearly half of the national electricity usage . The population growth places exceptional pressures on city governments that need to respond to the increasing demands for energy . As South Africa continues to urbanize, cities will play a significant role in the development and implementation of long-term sustainable energy strategies in the next decades.
South Africa’s energy sector is dominated by the state-owned utility Eskom, which holds the monopoly on the generation and transmission of electricity. The current setup of the sector constrains the leeway of cities to design their own energy mix. Moreover, the on-selling of Eskom’s electricity to local consumers constitutes a large amount of the municipal income. This substantially limits the scope for urban action toward a green energy transformation and renders the sector vulnerable to elite-capture associated with coal mine exploitation [6, 7]. Beyond that, the energy system also proved to be highly inefficient, with an inadequate energy provision and local outages, leading to severe energy crises over the past decade.
After the end of apartheid rule in 1994, South Africa transitioned from a repressive system to a democracy based on majority rule. The election of 1994 resulted in a change in government and brought the African National Congress into power, which is still the ruling party today. The country’s social and political system still bears traces of its colonial history and the apartheid regime. South Africa suffers from a huge gap between the poor and the rich, although the national government has launched several ambitious programs to eliminate discrimination and to improve the livelihood of all societal groups . These problems become obvious in the energy sector. While wealthy people spend only a fraction of their income on energy, it is extremely expensive for the poor. Although more than 85 percent of South Africa’s households have nowadays access to electricity, 47 percent are considered to be energy poor . This underlines the fact that South Africa is at a crossroads between its traditional development rooted in a fossil-fuel economy and a path toward green growth that could potentially enable universal access to sustainable energy for the whole population.
South Africa’s Energy Sector
With regard to the energy sector, South Africa has largely counter-developed to global trends in developing countries in the 1980s and 1990s. During that time, the World Bank pushed for a structural adjustment program, also known as the ‘standard model’ of energy sector reform. It called for the opening of the energy market and a move away from state-owned, vertically integrated monopolies toward a system based on privatization and competition . The reform aimed at unbundling the generation, transmission, and distribution of electricity, so that these functions would be independently regulated in a free, decentralized market. During South Africa’s isolation under apartheid, the domestic energy market significantly lacked competition and was immune to external reform processes. In the aftermath of the regime change, Eskom maintained the monopoly structure, dominating not only the generation and transmission of electricity, but also the related planning and procurement processes. Whether or not the implementation of the World Bank’s ‘standard model’ would have had short- or long-term advantages for South Africa’s energy sector remains an open question as similar cases of failed structural adjustment programs in other developing and emerging countries demonstrate .
The monopoly situation has not changed significantly over the past few years. At present, South Africa’s electricity grid is still controlled by the state-owned company Eskom, the primary power provider in the country. In terms of the three-fold electricity production process, Eskom controls the generation and transmission of electricity, and shares the distribution with municipalities. With regard to electricity generation, the utility provides approximately 95 percent of the electricity consumed in South Africa . While initiatives in the early 2000s attempted to open the country’s electricity market for private actors, the national government reinforced Eskom’s monopoly position in 2005 by granting the company the right to extend its generation capacity. This led to the construction of two additional coal-fired power plants, two large open cycle gas turbine plants, and a pumped storage scheme.
Next to electricity generation, Eskom is responsible for all transmission of electricity within different electricity production phases as the utility owns and operates the national grid . Eskom generates 58 percent of its revenues through the direct distribution to end users (in various sectors, such as industry, mining, commerce, agriculture, and others), with municipalities purchasing bulk supplies of electricity accounting for the remaining 42 percent of its sales. Of Eskom’s total nominal production capacity (44 GW), over 80 percent (36.4 GW) originate from coal-fired stations, around 8 percent (3.3 GW) from hydro and pumped storage stations, approximately 5 percent (2.4 GW) from gas-fired stations, 4 percent (1.8 GW) from nuclear power plants, and about 0.2 percent (100 MW) from wind farms .
The numbers indicate that over 90 percent of the total installed capacity derives from unsustainable sources. Besides being already more expensive than renewable energy generation, coal burning, the largest source for South Africa’s current electricity mix, has severe consequences for public health, water and air pollution, external costs which are not included in current accounts . Moreover, Eskom has struggled to meet the daily peak demand due to the inactive state of a large number of generating units . This has, among other factors, led to load shedding and several energy crises in the past decade, especially in 2008 and 2015 [15, 16]. Such capacity shortfalls induced some institutional shifts within South Africa’s energy sector, with local actors, especially governments of major cities, becoming more active in developing own energy resources.
At the national level, South Africa’s government has taken first tentative steps to act on the reoccurring energy shortages, even though Eskom’s monopoly within the energy sector still remains unchallenged. For example, in order to expand electricity capacity and foster the development of energy from the private sector for renewable and non-renewable energy sources, the Independent Power Producer Procurement (IPPP) Office was established in 2010. Most notably, in accordance with the target of further investment into energy infrastructures (a key long-term objective formulated in the 2012 National Development Plan), the IPPP Office initiated the Renewable Energy Independent Power Producer Procurement Programme (REIPPP) in 2011. It basically aims to both encourage private and foreign investment and promote the development of the country’s renewable energy sector. The program involves a bidding process for successful funding of projects that are evaluated by the criteria of competitive pricing, job creation, local content, and black economic empowerment . Projects covered by the program involve onshore wind, photovoltaic, concentrated solar power, and others such as biomass, landfill gas, or small hydropower. Thus far, five bidding rounds for the construction and supply of 3.6 GW large-scale (>5 MW) renewable energy capacity have been completed .
Although initiatives, such as REIPPP, indicate that a rethinking process toward more decentralized and potentially more sustainable energy solutions has begun, the total supply capacity of alternative energy producers remains rather limited. Due to the energy surplus that has been generated by Eskom since 2015, the REIPPP program was temporarily suspended, with the last bidding round set to terminate in 2016. As of early 2018, Eskom had refused to sign Independent Power Producer (IPP) deals of past bids .1 This discontinuation coincided with the signing of a controversial nuclear power deal that the national administration of former President Jacob Zuma (in power from 2009 to 2018) negotiated with Russia in 2014, allowing for an additional 9.6 GW of power . The process was shut down after civil society organizations brought the case to the High Court of South Africa’s Western Cape, which in 2017 judged that the deal violates the Constitution .
The Role of Cities in South Africa’s Energy Policy
Although South Africa’s electricity sector is highly centralized, city governments have certain constitutional functions in the energy sector. In South Africa’s “quasi-federal system”, municipalities are largely self-financing, but still subject to strong central controls . They generate their revenue from property taxes, transfers from the national government, and charges for municipal services such as water and electricity provision. Increasingly, municipalities have become reliant on the surplus generated from the selling of services to cross-subsidize other municipal activities.
Municipalities have the executive authority over the “reticulation of electricity and gas” within the energy policy domain . This has allowed cities to create and develop their own administrative structures for establishing energy projects and policies over the past decade. However, a main obstacle to decentralized electricity generation lies in the legal ambiguity of their constitutional mandates. The distribution of electricity is by constitutional mandate undoubtedly a core municipal function . This mandate can be fulfilled either by municipal distributors or directly by Eskom, both of whom distribute electricity to private households, businesses, and government. In cases where municipal authorities commission Eskom for this distribution function, they directly reimburse the utility for its service [12, 25].2 The mandate on electricity generation in turn is considered to be a grey area . It is common practice that cities purchase their electricity from the state-owned electricity provider Eskom and national regulators have restrained cities from exploring options for decentralized electricity generation. Any new generation capacity above 1 MW, for instance, needs approval from the national Department of Energy and to be licensed by the National Energy Regulator . Despite this difficult policy environment and in response to Eskom’s inefficient and unreliable energy provision,some municipalities have attempted to circumvent the barriers for action over the past decade.
First and foremost, cities have become actively engaged in energy policymaking to enhance energy efficiency in urban infrastructures . At present, most of the larger cities have their own energy strategies and policies in place. Cape Town, for example, has adopted the City of Cape Town Energy and Climate Change Strategy in 2006 that includes an array of short- and long-term measures, such as the target of a 10 percent share of renewable energy by 2020 . Durban produced its first State of Energy report the same year, setting a target for renewable energy uptake of 8.3 percent by 2020. Johannesburg followed in 2012 by setting a long-term mitigation target [30, 31].
Moreover, city governments have pushed toward more autonomy with regard to electricity generation. Although large-scale municipal electricity generation is still strongly opposed by most national actors, the National Energy Regulator responded in 2011 to the growing demand of municipalities. The published standards authorize municipalities to register small-scale electricity generation within municipal boundaries, connect generators to municipal grids, and compensate their owners for the electricity they feed back into the grid without the interference from national agencies . Cities have explored their leeway to generate electricity in two ways: first, they took up the embedded generation of electricity for their own usage and consumption; second, they began to purchase electricity from Small Scale Embedded Generation (SSEG) and IPPs.
In this context, a number of municipalities have installed solar photovoltaic systems on municipal buildings and capture landfill gas from municipal landfill sites. Durban, for example, has equipped its municipal stadium with solar photovoltaic systems. The direct purchase of electricity from IPPs has experienced a slow uptake, mostly due to impeding regulations on municipal financial management. Johannesburg has launched a municipal landfill gas to electricity project in collaboration with an IPP, which could potentially feed up to 11 MW into the municipal grid . The purchase of electricity from SSEG, in turn, is gaining increasing popularity. Under the mechanism, power generation projects below 1 MW can be compensated, such as photovoltaic systems or small wind turbines.Cape Town was a frontrunner in implementing an SSEG system in 2014, when it obtained the right from the national Department of Energy to establish a feed-in tariff structure .
More recently, in collaboration with the Western Cape regional government, Cape Town initiated the Energy Security Game Changer initiative in early 2016. Encouraging electricity consumers to invest in energy efficiency measures, including solar water heaters and rooftop photovoltaic systems, the city seeks to ensure sufficient power to sustain households and grow businesses . Several similar initiatives and measures to promote the use of renewable energies have been launched in other South African metropolitan areas.
The Gridlock Situation
Beyond the examples discussed above, South Africa’s national government has largely blocked attempts of city governments to involve the private sector and failed to establish an institutional framework for private investment or access to the grid. For instance, the Municipal Financial Management Act of 2003 limits the extent to which municipalities can uptake new sustainable energy generation capacity by restricting the duration of municipal contracts with private actors to a maximum period of three years, which in most cases is not sufficient to refinance long-term renewable energy projects . However, the greatest barrier for decentralized renewable energy generation lies in the fact that the on-selling of electricity generated by Eskom to consumers makes up a significant part of municipal revenues, particularly for larger cities. Cape Town’s revenues from electricity, for instance, account for almost 35 percent of the total municipal budget of the fiscal year 2017/2018, which constitutes the single largest source of income for the city .
A couple of parallel trends in South Africa’s electricity sector indicates that municipalities run the risk of losing large parts of their income: increasing electricity prices go hand in hand with decreasing costs for small photovoltaic systems and growing consumer energy efficiency. As a result, the interest of consumers in small-scale renewable energy systems has grown in recent years . Given that mostly richer households have the financial capacity to invest in renewable energies, the fine-tuned system of cross-subsidization in South Africa’s municipalities is under threat. National regulation stipulates municipalities to provide low-income households with free basic energy or reduced tariffs, a subsidy that is partially funded by selling energy at higher prices to richer households and private users.
This delicate situation compromises the cities’ ability to act. Electricity pricing has to stay within a manageable range for low-income customers, which, in turn, may risk pushing the price burden on high-end users. Consequently, (renewable) off-grid alternatives become attractive that may incentivize high-end users to withdraw from the system . This constellation can lead to a malfunction of the system as a whole and reduces the incentive for cities to promote the installation of small-scale renewable energy systems in private households [16, 39]. Under the current system of cross-subsidies, the promotion of renewable energy would automatically deprive municipalities of their own source of income to finance cross-subsidies to low-income households.3
As a result, with the current regulatory and licensing system in place, the “off-line” generation of electricity is constrained for municipalities, as do options for bilateral contracts and wheeling of energy . Despite rising costs of electricity and supply shortages, this situation has created a perverse incentive for cities to prevent strong reductions in electricity consumption and causes a gridlock for the implementation of energy efficiency and renewable energy measures . In practice, cities will have to find a way to redesign the existing tariff structures for a socially just and sustainable transition process. Furthermore, the attempts of some municipalities to gain influence on electricity generation and to introduce measures in support of renewable energies are slowed down by the reluctance and lack of support from the central government [42–44]. In addition, while initiatives, such as REIPPP and SSEG, have laid some groundwork, the national energy policy environment in South Africa has to undergo significant changes. This underlines that only a coordinated approach across levels of government that also involves private and civil society actors may lead to a long-term solution of the gridlock situation in South Africa’s energy sector.
To deal with the challenges posed by an increasing population and growing energy needs, governments of major cities have increasingly become active players in the energy sector and in the field of sustainability policy in general. In their endeavor to enhance energy efficiency and the use of renewable energies, South African cities are, however, facing significant legal, financial, and institutional barriers. The biggest obstacle is the monopoly of the state-owned utility Eskom on the generation and transmission, and the majority of the distribution of electricity. Without a supporting national policy framework, a significant increase in funding for the development and usage of alternative energy resources, and state action to allow for substantial private investment into the energy industry, cities will continue to rely on the revenues gained from the on-selling of Eskom’s energy, which derives from rather unsustainable resources.
The Paris Agreement adopted in 2015 stresses the crucial role of local governments and their policies in the global response to climate change. In recent years, South African cities have increasingly received support from different bilateral donors and transnational city networks, such as ICLEI Local Governments for Sustainability and the C40 Cities Climate Leadership Group. These actors have enhanced the knowledge and capacities of city governments regarding sustainable transformation processes, generated political backup for climate action from higher governmental levels, and opened access to external funding from private investors and multilateral as well as bilateral donors . This external support to South African cities will presumably not fully resolve South Africa’s gridlock situation in the energy policy domain, but can contribute to the country’s transition to sustainable development.
Nonetheless, recent steps taken by Eskom and the national government suggest a further investment in coal-based and nuclear energy, as this seems to be the most profitable answer to rising energy demands and energy shortages in the short term . Although some building blocks for long-term solutions exist, such as REIPPP and SSEG, these initiatives are still in their infancy and renewable energy production and access to the grid remain limited. This situation is further complicated by the fact that vested interests and lobbyism, especially at the national level, apparently delay progress. Thus, for cities to move forward with their sustainability and clean energy agenda, a profound reform of South Africa’s energy system seems to be necessary in the long run.
CASE STUDY QUESTIONS
What do you think are explaining factors for the strong position of Eskom in South Africa’s energy sector?
What factors constrain or facilitate climate action at the local-city-municipal level in South Africa?
To what extent are the interests of the national government diverging from those of city governments in the energy policy domain?
Which role can transnational city networks and other external actors, such as international funding agencies, play in this case?
Which actors could potentially gain from the introduction of decentralized energy structures in South Africa?
Do you think city governments could break the gridlock in South Africa’s energy sector?
What are the main lessons learned that can be translated from this case study to other environmental policy domains within and beyond South Africa where similar gridlock situations exist?
Joshua P. Elsässer: Support on conceptualization, compilation of original draft, analysis, review, and editing. Thomas Hickmann: Lead on conceptualization, original draft, data collection, analysis, review, and editing. Fee Stehle: Main responsibility for empirical analysis, interviews, and data collection, review, and editing
We thank two anonymous reviewers for their very insightful and constructive feedback to this article and we are indebted to a number of interviewees including public officials at different governmental levels as well as representatives of different non-governmental organizations operating in South Africa.
This case study is part of the third-party funded project “Carbon Governance Arrangements and the Nation-State: The Reconfiguration of Public Authority in Developing Countries” which is supported by the German Research Foundation (DFG) under reference number FU 274/11-1 and project number 270088441.
The authors declare that they have no competing interests.
According to the South African Independent Power Producers Association, an IPP “is an entity, which is not a public electric utility, but which owns and or operates facilities to generate electric power for sale to a utility, central government buyer and end users. IPPs may also be privately-held facilities, such as rural solar or wind energy producers, and non-energy industrial concerns generating electric power for on-site use and who may also be capable of feeding excess energy into the distribution or transmission grid system” .