South Africa's energy policy : prioritizing competition and climate change for decarbonisation

Abstract

An affordable, reliable, and renewable power supply is essential for economic recovery and to ensure the economy reaches its potential output over the long term. The policy framework needs to catch up to the market's need for (i) competition to address increasing tariffs and the widening capacity shortfall and (ii) the increased role of renewable energy to facilitate the country's energy transition. This study examines how competition and climate change have influenced policy reform and implementation in the South African energy sector, by reviewing its historical context and regulatory framework. Furthermore, the study estimates the cost of neglecting these objectives in policy formation by assessing the impact on the energy system, the economy and the environment. The lifting of the embedded generation threshold policy reform, which will support climate and competition objectives, albeit after the fact, is expected to yield economic, social and environmental benefits. This study empirically demonstrates this by utilising the E3ME model developed by Cambridge Econometrics to support the case for the ex-ante prioritising of climate and competition considerations in energy policy. While energy security should remain the primary objective, energy policy can be leveraged to promote other government objectives, such as increased market participation and decarbonisation.