Incentivizing private sector participation and fast-tracking energy growth
South Africa has been highly successful in enhancing private sector participation in the energy sector, and African Energy Week in Cape Town will emphasize how the market can serve as a trend for other countries targeting accelerated energy growth
JOHANNESBURG, South Africa: Like many other developing countries, South Africa has recognized that the state alone cannot adequately develop the country’s energy sector, but rather, collaboration between the public and private sectors proves more effective in accelerating growth. While the state’s role is to create an enabling environment for business and ensure that associated developments translate into tangible benefits for local communities, the private sector has a notable investment role to play, and will be a key driver in the country’s energy sector development.
With a fast-growing population calling for increased energy and employment opportunities, Africa requires heavy infrastructure investment if it is to realize its economic goals and make energy poverty history by 2030. Therefore, the roles of the state and of the private sector are clearly defined: the state needs to create the conditions for investment while the private sector should seize opportunities and invest. Enabling regulation, multi-sector opportunities, and a cooperative public sector are just some of the factors incentivizing private sector participation in South Africa, and African Energy Week (AEW) 2021 in Cape Town (9-12 November) aims to showcase the country’s success story to the world.
In pursuit of accelerated private sector participation, South Africa has emerged as a front runner, providing an enabling environment for investment that has seen a significant increase in independent energy projects. Most notably, with crippling electricity shortages impacting economic development, the government moved to open up the power market for independent producers. Rather than simply providing a business-friendly landscape through clear processes, attractive fiscal policies, and established transparency, the South African government has gone one step further, implementing private sector focused regulation that draws out potential industry participants and accelerates power sector growth.
The most notable of these regulations has been the Renewable Energy Independent Power Producer Procurement (REIPPP) program, aimed at increasing the country’s domestic installed capacity through enhanced private sector investment in wind, solar, biomass and hydropower. Through a series of Bid Windows – a competitive bidding round where licenses where participants can be granted licenses -, the REIPPP provides attainable opportunities for independent power producers, increasing investment in renewable power generation. In response, South Africa’s renewable energy sector has seen explosive growth in recent years, seeing over $200 billion in investment. The REIPPP has positioned the country as the ninth-leading destination for clean energy investment worldwide, and other emerging African markets can learn from South Africa’s supportive policy environment and secure investment framework.
Meanwhile, notwithstanding power sector enhancements, the private sector has played a significant role in driving oil and gas exploration and development in South Africa. Companies such as TotalEnergies – which discovered the 1 billion barrel of gas condensate Brulpadda deposit in 2019 -, Shell and Sasol have all been key players in South Africa’s oil and gas industry. The value of the private sector, particularly regarding hydrocarbon exploitation, is that they are able to fill the funding gap for capital intensive projects; they create a more competitive environment; and they can provide technological and managerial expertise, ensuring project success. By bringing in experience and expertise from other countries, independent companies are better equipped to develop the energy industry – either independently or in partnership with state owned enterprises. Therefore, AEW 2021 in Cape Town will emphasize the role of the private sector, pushing for free markets, competitive business, and enhanced investment in Africa’s energy sector, using South Africa as a successful case study.
Finally, with an enabling environment for investment and the increasing participation by private sector companies, South Africa has resorting to the utilization of public-private partnerships (PPP), recognizing the value of integration and collaboration over industry separation. The country has made notable progress in this area, and to date, is the leading sub-Saharan African country regarding PPPs. With PPPs enabling faster project completions with the amalgamation of investment and timely provision of public services, more streamlined processes, and unified industry expertise at multiple levels, the model has been particularly effective in driving energy growth in South Africa.
South Africa has been highly successful in creating conditions for enhanced private sector investment, establishing a regulatory environment that has not only ensured increased private sector involvement in the country’s energy sector, but that independent companies drive developmental progress. The private sector has a fundamental role to play in advancing Africa’s energy future and AEW 2021 will emphasize it. Using South Africa as a successful case study, AEW 2021 will promote PPPs, progressive regulation, and investment incentives in Africa’s energy sector, pushing other African countries to prioritize integration within their own energy industries.
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