Transforming our energy system to ensure reliable and affordable electricity for all

Dear Fellow South African, 

A reliable electricity supply is the backbone of our economy. It is essential for development and growth. 

Not long ago, South Africans planned their lives around load shedding. Businesses and households that could afford to had to buy generators and diesel to keep operating. Factories lost production. Small businesses struggled to survive. Hospitals, schools and households had to cope with hours without power.

The electricity crisis, with severe load shedding almost every day, undermined investment and disrupted daily life. As we saw, an unreliable electricity supply has a devastating impact across society. So too does the high cost of electricity.

As a result of the Energy Action Plan and the steps we took to improve Eskom’s performance, we have made significant progress in restoring a reliable supply of electricity. 

This is an important achievement which we should recognise and acknowledge. But overcoming load shedding was never the end of our work.

We must now confront another challenge that affects millions of South Africans: the rising cost of electricity. The cost of electricity has gone up significantly over the past two decades. For families trying to make ends meet, having to contend with the cost of food, transport and other necessities, high electricity costs cause real hardship.

For businesses, high electricity costs make it more expensive to produce goods and provide services. They make South African companies less competitive and discourage investment in industries that can create jobs.

Our task, therefore, is not simply to produce enough electricity. We need electricity that is reliable, affordable and increasingly clean.

For more than a century, Eskom has been at the centre of South Africa's electricity system, responsible for generating, transmitting and supplying most of the country's electricity. This model served South Africa for many decades. But the electricity crisis demonstrated the danger of relying overwhelmingly on a single company to meet the energy needs of an entire economy. This model is no longer sustainable if we want reliable and cheap electricity.

When Eskom's performance deteriorated, the country had few alternatives.

That is why we are focused on modernising and transforming our energy system to ensure energy security, provide cheap, clean power for all South Africans and reduce the high cost of living.

The enormous cost overruns associated with projects such as the Medupi and Kusile power stations also contributed to Eskom's financial difficulties and ultimately to higher costs for consumers and taxpayers. We have learned from this experience.

Today, thanks to the hard work of Eskom’s management and workers, its performance has turned around. Eskom’s latest results show important signs of stabilisation and improvement. But we cannot become complacent. Now is the time to complete the reform process that we began in response to load shedding to ensure that we never experience the same crisis again.

We need an electricity system in which Eskom is strong, but in which it does not have to carry the entire burden of investing in and supplying the country's electricity while it continues to carry a huge debt.

That is why we are fundamentally transforming the structure of our electricity sector.
Over the past few weeks, we have made important progress. 

A new Electricity Pricing Policy has been published to ensure transparent electricity tariffs, prevent inefficiencies from being passed on to consumers, expand access to electricity for the poor, and enable competition in electricity generation. 

The energy regulator, NERSA, is finalising a range of new regulations that will form the architecture for a competitive wholesale electricity market. This will enable multiple generators – both public and private – to compete to supply electricity.

This competition can drive greater efficiency, encourage investment and put downward pressure on the cost of electricity. 

It will also enable South Africa to take advantage of some of our greatest natural resources. We have some of the best solar and wind resources in the world. With the right infrastructure, regulation and investment, we have the potential to become one of the world's most competitive producers of clean electricity.

Over time, cheaper, greener and more reliable electricity will lift our economy’s competitiveness and help industries to grow and create jobs.

Cheap and abundant electricity could become a source of competitive advantage for South Africa. It could support the expansion of industry, enable new industries such as green hydrogen and electric vehicle production, support small businesses and create hundreds of thousands of jobs.

But for competition to work, every electricity producer must be able to access the national grid on fair and equal terms. That is why one of the most important parts of our electricity reform is the establishment of an independent, state-owned Transmission System Operator.

The Transmission System Operator (TSO) will manage the national electricity grid and electricity market independently and impartially. The TSO will ensure that Eskom and other electricity producers compete on a level playing field. It will act as a referee amongst all producers. It will also help mobilise the enormous investment required to expand our transmission network so that new generation projects can be connected to the grid.

We have seen how the restructuring of the electricity architecture in other countries has ensured energy security and has in some countries brought prices down. 

The Eskom Restructuring Task Team that I appointed at the beginning of the year is focused on implementing this important reform. The task team includes the Presidency, National Treasury, Department of Electricity and Energy, Eskom and the National Transmission Company South Africa.

There are several principles that will guide this process. 

First, Eskom will remain state-owned and must get into the renewable energy market to compete effectively with new power generators. 

Second, the Transmission System Operator will be state-owned. The national transmission grid is a strategic national asset and will continue to be held in the public interest. 

Third, the Transmission System Operator must be genuinely independent. It must be able to operate the grid and electricity market impartially, without favouring one electricity producer over another.

Fourth, the reform must strengthen rather than weaken Eskom. The transfer of transmission assets will therefore be undertaken in a way that protects Eskom's financial position, ensures the financial sustainability of the new operator and respects the legitimate interests of Eskom's lenders.

Fifth, workers will not carry the cost of reform. Government is committed to ensuring that no jobs are lost as a direct result of establishing the Transmission System Operator and that organised labour is properly consulted throughout the process.

This is why I have recently engaged both the Chairperson of the Eskom Board and the National Office Bearers of the National Union of Mineworkers, one of the unions that represents workers at Eskom.

In my engagement with the Chairperson representing the Eskom Board, I reaffirmed government's commitment to the electricity reform programme and emphasised that it will be implemented carefully and responsibly. The Eskom Board confirmed its support for the policy direction determined by government and its commitment to working with the shareholder to implement these reforms.

In my discussions with the National Union of Mineworkers, I emphasised that Eskom and the Transmission System Operator will remain state-owned and that the interests of workers will be protected throughout the restructuring process.

These engagements are important because a transformation of this scale can only succeed if it is undertaken transparently and in consultation with those who will be affected by it. Government will hold engagements with key stakeholders who are part of the Eskom ecosystem.

We have seen before in South Africa how opening a sector to competition and investment can transform an entire industry and make a significant contribution to the development and growth of the economy.

There was a time when telecommunications in South Africa was dominated by a single fixed-line operator. A telephone connection was expensive, access was limited and millions of South Africans, particularly in poorer and rural communities, were effectively excluded.

The opening of the telecommunications sector to new operators fundamentally changed this picture. Competition brought massive new investment. New technologies were introduced. Mobile networks expanded across the country. The cost of communicating fell dramatically and services that were once available only to a relatively small number of people became accessible to millions.

Today, South Africans can choose between different networks and service providers. These companies compete on price, coverage, technology and quality of service. At the same time, government continues to regulate the sector and the infrastructure on which our communications depend remains subject to strong public oversight.

There is an important lesson in this experience for the transformation of our electricity sector. Electricity is not the same as telecommunications. It is an essential public service with its own particular requirements, and the national electricity grid is a strategic national asset that must remain firmly under public control.
But the principle is similar.

We do not need to choose between a strong Eskom and other competitors. We can have both. We can have a strong, state-owned Eskom producing electricity alongside independent producers. We intend to have a state-owned transmission system that provides fair access to the grid, while different generators compete to supply electricity at the lowest possible cost.

Just as the transformation of telecommunications unleashed investment and expanded access to services, reform of the electricity sector can unlock billions of rands of investment in new generation and transmission infrastructure. The transformation in the telecommunications sector gave ordinary consumers choice. They continue to choose the operator who offers the best service at the lowest price. And quite often a number of people use more than one operator.

The purpose of the electricity reform is therefore not to privatise Eskom. It is to build a better electricity system. It is to move from a system in which one company has to carry almost the entire responsibility for generating electricity to one in which many producers can invest, innovate and compete – while the state continues to safeguard the public interest through regulation and full ownership of transmission.

The ultimate beneficiary must be the South African consumer. A household should benefit from more affordable electricity. A small business should be able to operate without the burden of excessive energy costs. A factory should be able to expand production knowing that it has access to reliable and competitively priced power.

That is the transformation we are seeking.

There will inevitably be different views about how our electricity system should be structured. But there should be no disagreement about what South Africans need.

They need electricity when they switch on the lights. They need electricity they can afford. Businesses need electricity that enables them to invest, expand and employ more people. And our country needs an electricity system capable of powering economic growth for generations to come.

We have already shown what determined reform can achieve. A few years ago, many believed that load shedding would be with us indefinitely. Through decisive action, investment and the hard work of thousands of people across the electricity sector, we have changed that trajectory. We must now complete the work we started.

The next phase of our energy transformation must ensure that South Africa never again faces an electricity crisis of the scale we experienced, while progressively reducing the cost of power and ensuring that every household has access to electricity.

Our objective is straightforward. We want an electricity system that provides abundant, affordable and reliable power to every South African. We want an electricity system that supports industrialisation, attracts investment and creates jobs. And we want an electricity system that uses the abundant sun and wind with which our country is blessed to build a cleaner and more prosperous economy.

That is the energy future we are building. And we will not slow down until it is achieved.

With best regards,

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