In the wake of COP27, the 11th and final South Africa Economic Outlook report of 2022 from PwC focuses on opportunities and actions to improve power supply and energy sustainability in the country.
Earlier this month, some PwC Africa leaders attended COP27 in Egypt and, based on their interactions, observed that providing clear evidence of decarbonisation is a powerful differentiator for organisations in an environment where having such targets is merely a licence to operate. Furthermore, climate resilience, which cannot be achieved without decarbonisation efforts, is a powerful source of protection against disruption and value loss.
South Africa’s local governments have an important role to play in decarbonisation efforts alongside helping reduce the electricity supply deficit. There are several options that could address both issues, including self generation via microgrids and the enabling of more private small-scale embedded generation (SSEG). In turn, private sector entities need to think differently about their impact on society and the environment, alongside actions taken to achieve net zero carbon emissions.
From a public sector perspective, South African cities’ energy strategies will play a key role in achieving sustainability and energy stability in the long term. The ideal scenario would be for municipalities to purchase electricity from different suppliers in a competitive market at competitive prices, allowing resale at a surplus and transmission to households and businesses at lower cost to consumers. Efforts are underway to achieve this through the unbundling of Eskom and opening up of the energy market to competition from the private sector.
Lullu Krugel, PwC Africa Environmental, Social and Governance (ESG) leader, says: “City authorities have an important role to play in supporting the installation of private SSEG. This would allow for increased energy security, especially during planned power outages on the national grid. For example, our research shows that commercial and industrial properties located in Midrand could reduce national electricity load-shedding by one stage if solar power systems were installed on their aggregate roof area of 638,000m2. This electricity could be fed into the grid at local substations.”
South Africa reduced its carbon density (grams of CO2 equivalent emitted per kilowatt-hour of electricity generated) by 4,6% during 2021. However, this was largely due to a decline in coal usage associated with loadshedding, and not necessarily due to the country actively trying to use less of this resource. We believe decarbonisation needs to be front-of-mind for local businesses.
Prior to COP27, PwC highlighted four net zero priorities that private sector businesses should pursue. These are:
1. Decarbonisation of operations and the supply chain;
2. Understanding climate risk and building resilience;
3. Mobilisation of sustainable capital; and
4. Robust audit and ESG reporting.
Christie Viljoen, PwC South Africa senior economist, says: “Companies’ supply chain emissions often dwarf the carbon impact of direct operations. For most companies, supply chain emissions account for 65% to 95% of their carbon impact. Many organisations recognise the need to tackle these emissions in principle, but are put off doing it in practice by a fear that it is too complex or too costly to do so. However, modern societal expectations are that companies should be committed to contributing towards important societal goals like decarbonisation. In South Africa, it is undeniable that the private sector must play a bigger role in helping address environmental and socio-economic challenges — specifically at the community level.”
Before supply chains can be decarbonised, it is critical to have the necessary data to understand a company’s environmental impact. This requires a baselining process that includes benchmarking against peers against ESG metrics. PwC’s new ESG Benchmark and Performance Analysis Tool offers a solution that provides industry-level analytics of publicly available ESG data across South African companies.
Krugel says that the reality of load-shedding has led private organisations to explore alternative energy solutions. Given the publication of the Draft Electricity Regulation Amendment Bill in February 2022, numerous new opportunities and challenges will manifest themselves in the energy sector over the next few years. These include new business models based on peer-to-peer electricity trading, innovative small-scale community-owned renewable energy projects, increased participation of municipalities in the procurement of energy, as well as increased demand for green skills and expertise to navigate low-carbon energy markets, amongst others.