Book chapter in Energy Futures at a Crossroads: AI, Justice, Financing and the Global Transition

Nova Economics team members, Kay Walsh and Jessica Kiln, recently published a book chapter on how renewables are reshaping South Africa’s electricity supply industry, in Energy Futures at a Crossroads: AI, Justice, Financing and the Global Transition.

The book examines where energy systems are headed globally and how they will be shaped by concerns about climate and social justice, the availability of financing, and new technologies. The chapter uses South Africa as a case study, showing how the scale and pace of renewable deployment, alongside sustained periods of load shedding, exposed the limitations of existing market and institutional arrangements and have created momentum for reform.

We describe how this transition is playing out from three perspectives:

• Technical: higher penetration of variable renewables increases the value of flexibility, dispatchable capacity, and ancillary services, while reinforcing the need for major transmission investment.
• Institutional and regulatory: The restructuring of Eskom (South Africa’s vertically integrated national utility) and the plan to introduce a competitive wholesale electricity market will reshape the electricity supply industry. This is a complex process with a range of new regulatory rules, codes, methodologies and governance arrangements required to support the establishment of a wholesale market and facilitate the phased introduction of retail competition.  There is significant planning and coordination required to facilitate a smooth transition and to manage risk, maintain stability, and sustain investor confidence.
• Economic and social: the increasing adoption of decentralised generation is putting financial pressure on utilities that are still using legacy, highly volumetric tariff structures, raising questions about affordability, equity, and cross subsidisation.

The chapter argues that South Africa’s shift to a sustainable and competitive electricity supply industry and transition is about more than adding renewables and introducing a competitive market. Success will be contingent on carefully designing the wholesale market and enabling regulatory framework in a way that i) attracts investment in low-carbon and renewable energy generation ii) is technically robust, economically efficient, and socially responsible.