At the start of South Africa’s democratic era, the availability of cheap coal-fired electricity emerged as the country’s main instrument for attracting investors. It seems almost unbelievable now, but when loadshedding first started, government still viewed the disruption as temporary and continued to market South Africa as an investment destination for electricity guzzling facilities.

That mindset eventually made way to reality, and close observers habitually questioned why Eskom did not simply move to cut supply to the smelters, particularly ones with secret deals of questionable commercial value.

Such arguments strengthened during the extreme loadshedding years, and those enterprises with shorter-horizon deals with Eskom started to shut production as tariffs surged. As of January, for instance, only four of South Africa’s 48 ferrochrome smelters were still operating, alongside only four of the 19 smelters in the other ferroalloy sectors.

Over the recent past, however, several developments have unfolded simultaneously to place the spotlight back on the intersection between energy and industrial policy.

Firstly, Eskom has done a good job in stabilising the performance of its coal fleet, the energy availability factor of which recovered to over 65% last year. More controversially, it also received a dispensation to delay the decommissioning of several aged coal stations until 2030.

Secondly, households and businesses with the means took greater control of their electricity fortunes and installed solar and battery systems with an estimated combined peak capacity of 7 GW. A remarkable development, as it took over a decade for utility-scale projects to reach such levels.

Thirdly, small changes to the regulations have resulted in an acceleration of large wind and solar projects that are not dependent on Eskom as the single buyer, and are being facilitated instead by bilateral power purchase agreements or trader-facilitated deals. The National Transmission Company South Africa reports that there is 31.7 GW of generation customer connections currently in progress, of which 26 GW is in the form of utility-scale PV and wind.

Lastly, demand has come under pressure, partly owing to the introduction of behind-the-meter generation, but largely because of the country’s poor economic growth. The problem has been amplified for Eskom by the loss of demand from large industrial customers that have not been able to absorb its tariff surge.

The net effect is that Eskom currently has a demand problem and is unable to find paying customers for the electricity its plants are now at last delivering. Together with an industrial policy that emphasises local value addition, this has catalysed backing for discounted tariffs aimed at sustaining local minerals processing and jobs.

The first outward sign of this change is the 62c/KWh tariff offer to two ferrochrome firms, now serving before the regulator. But Eskom has indicated it is looking for yet more.

These deals tick boxes for industrial policy and for Eskom. But the implications for energy policy are far from clear, with a genuine risk that they could further entrench incumbency rather than stimulate much-needed competition.