Cape Town Goes Private to Boost Electricity and Water Supply

Cape Town is taking a new approach to improve its electricity and water supply by engaging the private sector. The city, South Africa's second-largest and a key tourist destination, has launched tenders for major projects that will leverage private capital and expertise. The initiative aims to cut electricity costs and address long-standing water shortages.

Electricity costs in South Africa have surged over 600% in the last two decades, prompting the city to explore alternative power sources. Recent legislative changes now allow for private construction of large power plants, many of which will use the country's abundant solar and wind resources. Cape Town is the first to attempt breaking the monopoly held by state utility Eskom.

Water security is another focus area. The city will tender for a desalination plant and a re-usage facility, each expected to produce 130 million liters of water per day. These projects will be structured as public-private partnerships. Developers will fund the upfront costs in exchange for 20-year water purchase agreements.

Why the Move Happened

Cape Town's water crisis has become a pressing issue. The city uses over 1 billion liters of water daily, and its dams are currently at 60% capacity after below-average winter rainfall. Water levels have been dropping by about 2% per week, and while there is no immediate risk of shortage, the city is urging residents to reduce usage to prepare for future droughts.

The decision to involve the private sector reflects a broader strategy to attract businesses and support a growing population. Cape Town, governed by the Democratic Alliance, is also seeking to privatize commuter rail services and is the first to directly procure power from a trading company rather than negotiate with individual providers.

How Markets Responded

Cape Town's move aligns with a global shift toward renewable energy and public-private infrastructure partnerships. The city has already agreed to purchase 300 megawatts of power through a trading platform, and it plans to build 60 megawatts of generation capacity itself. The private projects are expected to offer cheaper energy compared to Eskom's coal-fired plants.

In the broader energy sector, the push for 24/7 baseload renewables is increasing the value of geothermal energy. Geothermal plants offer high capacity factors and can provide stable power to complement variable solar and wind. The global geothermal energy market is expected to surpass $75.92 billion in 2026, with growing investment driven by energy security concerns and the need for reliable power.

Meanwhile, utilities and investors are also focusing on green diesel and other alternative fuels. The global green diesel market is projected to grow at a 10.50% CAGR from 2025 to 2033, reaching $94.96 billion by 2033. The expansion is supported by government incentives and a shift toward waste-based feedstocks, which reduce greenhouse gas emissions and diversify supply chains.

What Analysts Are Watching

The success of Cape Town's initiatives will depend on execution and market dynamics. Private developers must deliver the projects on time and within budget, while the city must ensure transparency and regulatory support. Cape Town's approach could serve as a model for other cities facing similar challenges.

In the U.S., companies like CMS Energy are also advancing renewable energy plans and expanding their customer investment programs. CMS Energy has raised its 2026 earnings per share guidance to $3.83–$3.90 and is investing $24 billion over five years to support its renewable energy goals .

As global demand for clean energy and reliable infrastructure grows, the role of private capital in shaping energy and water policy is likely to expand. Cape Town's experiment will be closely watched by investors and policymakers alike.