On 22 February 2023, with the national elections only a year away, Minister of Finance Enoch Godongwana delivered a Budget Speech  demonstrating a strong will from the government to improve the fiscal conditions of the national utility Eskom and facilitate the country's energy transition through the private sector's involvement.

 "…we are bringing the fiscal deficit down without resorting to tax increases or further cuts in the social wage and infrastructure".  This is positive, but will these measures yield a positive economic impact, which is sustainable in the long run?

Debt relief measures for Eskom and municipalities

Debt relief for Eskom could have positive and negative economic implications, depending on the appropriate implementation of the plan and the use of fiscal relief by the state-owned enterprise. Such replacement is planned to allow Eskom to focus and invest in infrastructure maintenance and new energy projects to improve the country's electricity security and economic growth.

But none of these will be achieved without measures to address the root of the problem of Eskom's financial difficulties through the years. By financing the debt, the government attributes the challenging conditions exclusively to the financial status of the utility, thus undermining historic structural factors of the crisis, such as underpricing, mismanagement and corruption.

Debt relief is a step that needs to be accompanied by other long-term structural reforms to avoid worsening the financial instability instead of improving it. This, however, is one of the first times that the government directly acknowledges the municipalities' role in the energy crisis. Offering relief to accountable municipalities can act as a catalyst to initiate a positive cycle in the transactions between Eskom and the municipalities. Implementation will be critical.

Incentives for rooftop solar and other renewables

The Minister acknowledges the urgent need to address climate change and its economic impact. Extreme weather events such as floods, heatwaves, and droughts are becoming more frequent, posing significant risks to sustainable economic growth. The proposed Just Energy Transition plan sets out to significantly lower emissions of greenhouse gases, harness investments in new energy technologies, electric vehicles, and energy-efficient appliances, and ensures that communities tied to high-emitting energy industries are not left behind. The plan also makes provision for new skills and economic opportunities for affected communities, which can help alleviate poverty and inequality in the long run.

There is a clear focus on incentivising renewable energy and rooftop solar, as well as addressing energy-related constraints faced by small and medium-sized enterprises (SMEs). This is important as SMEs are a key driver of economic growth. Providing them access to affordable and reliable renewable energy can make them more competitive and sustainable over the long term. The Energy Bounce Back Scheme launched by the National Treasury in April 2023 is an example of a policy that can help SMEs transition towards renewable energy. However, such tax incentives have their own risks in deepening the South African economy’s inequalities. Better-off households and businesses will be able to take advantage of the “offer” for essentially co-funding the investments. Struggling low-income ones cannot afford to pay the remaining amounts (post incentive) and, therefore, will not choose to invest likewise.

Isn’t this a direct risk on the overall principle of the Just Energy Transition, especially against the most affected by the energy crisis and load shedding? Programmes to assist poorer households and businesses with soft loans and grants may need to be considered. Overall, the Minister highlights that the sustainable solutions to the country's energy challenges and the long-term stability of energy security pass through the national utility's financial stability in combination with promoting options for self-generation by households and SMMEs. The need to stimulate economic growth is repeated everywhere, but for long-term, sustainable economic prosperity, more needs to be done to strengthen our institutions by restoring their quality and integrity.

The economic incentives are there now (or seem to be); the question, though, remains the same. Can good intentions and incentivisation for change become active action and implementation?

Prof Roula Inglesi- Lotz, Prof Margaret Chitiga-Mabugu,  Prof Heinrich Bohlmann and Dr Jessika Bohlmann are researchers in the Energy Economics Unit of the Department of Economics at the University of Pretoria.