The growth of renewable power in South Africa’s energy mix, and infrastructure development programmes, such as State-owned Eskom’s Transmission Development Plan (TDP) 2024 to 2034, will help to provide demand for steel components from the country’s industries, several steel industry experts say.

In a study titled ‘Price Benchmarking on Steel Towers in South Africa’, published in September, local industrial ecosystem development organisation the Localisation Support Fund (LSF) showed that locally produced steel can be competitive with imports from China and Türkiye, but requires stable and predictable demand, says LSF CEO Irshaad Kathrada.

“South Africa can offer the quality and reliability needed to compete, but minimum production volumes are critical to offset high fixed costs and enable South African manufacturers to remain competitive.”

However, low production volumes are a critical factor in the higher costs of local towers. South Africa does not have the demand consistency to achieve economies of scale similar to those achieved in China, highlights transmission and distribution engineering company Rhythm Power technical consultant Nick van der Mescht in the LSF sudy.

South Africa must unlock competitive industrial capacity to gain the maximum economic benefit from the R940-billion investment over three years that government will make – as mentioned by President Cyril Ramaphosa in his State of the Nation Address (SoNA) on February 7 – and from the development of the transmission grid to support the energy transition, emphasises Kathrada.

Countrywide Distribution

Renewable-energy projects are distributed across the country, while the Eskom generation fleet is concentrated in Mpumalanga, says electro-mechanical company ACTOM Group CEO and industry organisation Manufacturing Circle chairperson Mervyn Naidoo.

This distributed generation creates opportunities for local steel-sector companies because it pools demand from transmission capacity extension.

“We have to build transmission lines and the associated substations across the major parts of the country, which is a significant opportunity. However, spending on transmission development has been only nominal over the past five years,” he says.

The significant opportunity for industry in South Africa is across the value chain, from iron-ore mining to steel production, as well as downstream products, such as electricity panels, transmission and high-voltage equipment, structures and overhead lines.

“The challenges in terms of industrial capacity is that nothing much has been happening and, in some areas, capacity has been rationalised. This is where we need to build up in the country,” Naidoo adds.

Factories are capital- and personnel- intensive, and industrial companies need to see demand manifest before they will invest in further capacity expansion.

The Manufacturing Circle is starting “to see a bit of a shift”, with increased loading on some factories, but this is still not where it should be across industry, he emphasises.

Grid Development Scope

The TDP has estimated that South Africa needs to develop about 14 500 km of transmission infrastructure to 2034. This includes building new and refurbishing existing transmission infrastructure, and about 6 000 km of distribution infrastructure; and installing about 210 large transformers to provide sufficient grid capacity for all the new generation coming on to the grid.

The bulk of additional generation capacity will be derived from renewable-energy plants, and Ramaphosa, during the SoNA, spoke about mobilising private-sector investment in the transmission network to connect renewable-energy generation to the grid, Kathrada adds.

Additionally, the TDP has a capital expenditure framework of about R112-billion, of which about R80-billion will be used to connect new capacity to the grid.

“This is a huge amount of spending, and many countries have developed not only their infrastructure with such spend but also their manufacturing capacity. We must try to leverage spending, albeit in a smart way, to unlock industrial capacity, opportunities and growth,” says Kathrada.

Renewable energy has become a necessity for South Africa’s economy to provide sustainable power and end loadshedding, says industry organisation Consulting Engineers South Africa CEO Chris Campbell.

“It is only a matter of time before renewable energy is deployed to address the inherent unreliability of some of the older power stations and to add new generation.”

While the planned grid development is necessary to connect new generation capacity, it should also serve as a catalyst for skills development, and to boost industry and stimulate industrialisation, he adds.

Further, while funding from the fiscus is constrained, South Africa could potentially leverage some climate-related funding to increase the resources allocated to transmission and distribution infrastructure projects, highlights Campbell.

Fast-tracking the liberalisation of the energy market, which is already under way, is urgently needed. This will increase energy supply and competition, which, in turn, will help to drive down energy prices, says industry employer organisation Steel and Engineering Industries Federation of Southern Africa COO Tafadzwa Chibanguza.

The TDP plan works under the assumption that South Africa will move from using about 20% renewable energy in its national energy mix to about 50% renewables by 2034.

The liberalisation of generation, as reflected in the Electricity Regulation Amendment Bill, is important so that South Africa has electricity to plug into the grid, he adds.

“But this can also lead to a greater degree of liberalisation for the last-mile distribution infrastructure that companies can participate in. We are seeing some of this happening already, particularly in industrial areas where users agree to collaborate to maintain, for example, a substation and the distribution infrastructure that they use.

“This is, in essence, a degree of liberalisation of the grid at that level.”

To successfully execute its infrastructure projects, including the TDP, and leverage them to boost its economy, South Africa must further leverage its private-sector capacity, Chibanguza emphasises.

“The electricity reforms over the past years, including the Renewable Energy Independent Power Producer Procurement Programme and the removal of the cap on own generation, have made space for the private sector to develop renewable generation plants,” says Kathrada.

Bringing the private sector into infrastructure projects is not only about adding private-sector funding but also its capacity and expertise in project management.

“Private-sector capacity, and dynamism, can help to support the National Transmission Company South Africa (NTCSA) and the country to provide the necessary grid capacity for all the additional generation that has to come on line,” he adds.

Steel Structures

South Africa imports about 32% of the steel used locally, but imports only about 5% of the long steel products that it uses, which are the main components of transmission pylon towers, says Chibanguza.

This makes the decision by steel producer ArcelorMittal South Africa to shut down its long steel business and close its plants in Newcastle, in KwaZulu-Natal, and Vereeniging, in Gauteng, more concerning.

The reduction of local steel production limits the full extent of benefits to the local economy, he highlights. There is significant demand for steel in transmission grid development.

The lattice pylons that serve as the support for transmission lines are material-intensive to make, and necessarily so because they have to balance loads in many directions and over long distances, explains Campbell.

Any infrastructure or industrial development plan must carefully balance and weigh what can be done to boost local manufacturing sustainably, Kathrada adds.

South Africa can develop its infrastructure using imported materials, but will miss the potential industrial impact that spending those funds can have on providing sustained demand for local producers, he emphasises.

“The involvement of the private sector will be critical to resolving the current issues facing the economy and to then pursue the expansion of economic activities,” says Chibanguza.

Assurance of execution of infrastructure projects is necessary to enable up- and downstream manufacturers in the steel sector to invest in equipment and people to supply such projects.

Public-Private Potential

On February 13, the National Treasury issued the amendments made to the National Treasury Regulation 16. The amendments provide a framework for public-private partnerships (PPPs) and managing unsolicited bids from companies to provide solutions to challenges.

“PPPs can make a significant difference to South Africa’s infrastructure development. It is happening on renewables projects, where developers build the grid substations to Eskom standards, and then transfer these to Eskom on completion of the build,” says Naidoo.

He adds that this model unlocks generation capacity expansion opportunities. Such a PPP model can also easily be extended to transmission line development, which could result in companies developing transmission lines with the substations that can then be transferred to the NTCSA.

“A PPP model unlocks more capital for this type of infrastructure and more energy generation opportunities, as the independent power producers can connect their projects to the grid,” Naidoo concludes.