The Future Energy Landscape: South Africa’s Critical Need for Wind Power Post-2030

As South Africa heads toward a major transformation of its energy landscape, the decommissioning of coal-fired power stations such as Hendrina, Grootvlei, Arnot, Camden, and Kriel by 2030 presents a looming challenge that could significantly impact our energy supply, particularly during the night. These coal plants contribute roughly 5GW of energy to the grid, and their closure without an adequate replacement for nighttime energy generation could have far-reaching implications, including soaring energy prices during off-peak hours, writes Jenna Harris, CEO of Apollo Africa. 

The Future Energy Landscape

A fundamental shift has begun to take shape in South Africa’s energy market. Over the past few years, the country has witnessed a remarkable surge in solar installations, with businesses and consumers increasingly relying on solar power during the midday hours. This has dramatically suppressed grid demand during peak sunlight, reducing reliance on the national power grid during those periods. As large energy users—such as industrial facilities and businesses—invest in self-generation through solar, the grid has seen a noticeable reduction in midday demand. 

This solar boom is undoubtedly a step forward in our quest for a cleaner, more sustainable energy future. However, it has also led to a significant shift in the balance of supply and demand. At the close of last year, it became evident that the midday grid demand was beginning to mirror the demand at night, signalling a monumental change in our energy consumption patterns.  Grid users are increasingly relying on their own solar generation, leaving Eskom with surplus energy during these times. 

But this shift presents a unique challenge and nighttime supply will soon become a critical issue. This is where the decommissioning of coal-fired power stations exacerbates the problem. With fewer power plants available to supply energy during the night, the cost of nighttime power will rise. Currently, nighttime power is relatively cheap, but the closure of coal plants by 2030 without sufficient replacement for nighttime generation will leave South Africa scrambling to fill the void, inevitably driving prices up. 

In response to these challenges, Eskom has proposed a fundamental restructuring of its tariff system. Traditionally, South African energy pricing is based on three time-of-use categories: standard, which applies to daytime hours; peak, which covers the morning and evening hours when the country is waking up or preparing for bed; and off-peak, which covers the quieter hours of the night and weekends. Eskom has indicated its intention to overhaul this structure. 

Eskom’s proposal includes a reduction in the pricing for standard and peak times during the high season, while increasing the pricing for off-peak hours. In the low season, Eskom intends to further increase off-peak and peak rates while decreasing peak pricing. This is a clear sign that Eskom anticipates significant increases in nighttime power costs due to the scarcity of supply. The restructuring is a response to the unavoidable reality that without sufficient replacement for the ageing coal plants, nighttime energy will become far more expensive and harder to come by.  

These changes will likely have a cascading effect on distributors, who are integral players in the market. In South Africa, customers typically purchase electricity from either a municipality or Eskom Distribution, both of which act as distributors. These distributors, however, will be significantly impacted by the introduction of the new day-ahead market. 

The day-ahead market, expected to be fully operational by 2027, will change how electricity prices are determined in South Africa. Under the new market code, Eskom will sell electricity to distributors on an hourly, day-to-day basis, allowing prices to fluctuate based on supply and demand. This marks a dramatic shift from the current system, where Eskom sets a fixed price for its electricity sales. 

For distributors, the introduction of the day-ahead market will create new complexities. Currently, distributors can only adjust their prices once a year, which is a considerable mismatch given the daily fluctuations in the cost of electricity they will face. This discrepancy presents a big challenge for distributors, as they will need to purchase electricity at market prices that vary by the hour, while being limited to only adjusting their prices annually for customers. To manage this risk, distributors will need to secure hedging instruments, such as contracts for difference (CfDs), to stabilise their electricity prices. These financial products, which are used to lock in future prices and mitigate volatility, are essential but costly. 

The expense of these hedging instruments will, inevitably, be passed on to customers. While consumers themselves will not see daily fluctuations in their electricity bills, distributors will feel the pressure of these price variations and the cost of hedging. This presents a complex situation where distributors are forced to navigate the volatility of the day-ahead market, all while maintaining stable prices for their customers. 

But the problem is that many distributors are not fully prepared for the challenges of managing price fluctuations in the day-ahead market. They are still working to understand how best to hedge their supply prices and manage the complexities of the new market structure. If distributors fail to adequately plan for these variations, it could result in greater financial instability and ultimately higher costs for consumers. 

This is where wind power comes into play as a key part of South Africa’s energy future. While solar has made great strides in reducing daytime grid demand, wind power offers a solution for addressing the upcoming nighttime energy gap. Wind energy provides a reliable, consistent source of power that operates day and night, making it an ideal complement to solar energy. Unlike solar, which is limited to daylight hours, wind turbines can generate power during the night, helping to stabilise the grid and provide a steady supply of nighttime energy. 

The challenge, however, is that South Africa has not yet secured enough wind power to meet future needs. While the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) has successfully procured solar capacity, wind power has been largely sidelined. With coal plants being phased out, the need for wind energy is becoming more urgent. Wind power is not only cheaper than solar-plus-battery storage solutions but also offers other advantages. Wind turbines are able to provide ancillary services that can stabilise the grid in real-time, offering immediate support when Eskom or other grid operators need to balance supply and demand. 

For businesses, securing long-term power purchase agreements (PPAs) for wind power is a prudent strategy. By locking in a portion of their energy supply through wind PPAs, businesses can mitigate the risks posed by price fluctuations in the day-ahead market and the volatility of Eskom’s pricing adjustments. Wind power offers a cost-effective, reliable solution for nighttime energy needs and provides businesses with the stability they need to navigate the future energy market. 

At Apollo Africa, we’ve chosen to prioritise wind over solar in our procurement strategy. Wind energy offers the long-term security and cost-effectiveness that businesses will need as South Africa transitions to a more volatile, market-driven energy system. While solar and battery storage play important roles in the overall energy mix, wind power is the key to ensuring that South Africa has a reliable and affordable energy supply post-2030.