Extra electricity capacity won’t drive economic recovery

October 5th, 2017, Published in Articles: EE Publishers, Articles: Energize

Although the South African economy is not in as bad a state as many believe, and although growth is sluggish it won’t improve by simply increasing electricity generating capacity. This was the view of two experts who spoke at the Association of Municipal Electrical Utilities’ (AMEU’s) affiliates CEO breakfast at the Johannesburg Country Club, Woodmead, recently.

Prof. Roelof Botha, an adjunct faculty member of the Gordon Institute of Business Science (GIBS), said that the South African economy is in a better state than many people believe.

Prof. Roelof Both

The rand is about 10% stronger now than it was at the beginning of 2017, and 20% stronger than it was at the beginning of 2016. These facts, Botha said, show that despite the political intrigue the country observes on an almost daily basis, the fundamentals are in place and the country will survive its current downturn.

Botha said that people who are concerned about the levels of imports vs. exports should understand that because South Africa does not have a strong manufacturing base in fast-moving consumer goods, the growing importation of these devices demonstrates a growing demand, which points to a growing economy.

He said that the South African Reserve Bank tends to over-react to short-term financial data and is too hasty in increasing the bank’s repurchase (“repo”) rate. The rate should be decreased, Botha said, to stimulate the local economy and create jobs even at the cost of inflation increasing slightly.

The country’s biggest employer, Botha said, is the building industry. He said that the government’s RDP housing programme should be accelerated because it creates both skilled and semi-skilled employment opportunities. This programme, which guarantees >95% of local content would be good for the companies which serve the building industry.

The economy can be revived, he said, but there are a number of things which need to be addressed. Government, both central and local government, needs to restore efficient functionality in the country’s municipalities. Criminal charges must be instituted against corrupt officials, and money which the government is “sitting on” must be released into the economy to kick-start it, Botha said.

Chris Yelland, an energy analyst and managing director of EE Publishers, said that increasing electricity generating capacity in South Africa will not stimulate the local economy. Supply has to be generated to satisfy demand, and demand is not growing, he said.

Chris Yelland

According to Yelland, the reasons for the fall-off of demand include sharp and frequent increases in electricity tariffs; unreliable supply of electricity; a change in the local economy from heavy manufacturing and ore processing to a more service-related industry; and the results of energy efficiency drives by Eskom and industry.

He said that future new-build projects must be done progressively to support continuous growth in demand as the economy recovers. Demand is uncertain so the generation mix should contain technologies which allow for rapid ramp-ups as and when needed. This flexible generation mix should be focused on “least cost”, low water demand technologies which do not emit CO2.

There are three options, Yelland said: coal, nuclear, or renewable energy with storage supplemented by flexible generation.

The cost of coal-fired and nuclear-powered generation may appear to be cheap, he said, but both have hidden costs to the environment which must be taken into account. Both are also very capital-intensive, which adds cost in terms of interest, especially during the multi-year construction period during which no electricity is being generated for sale.

Yelland said that South Africa should buy as much renewable energy as it can because, not only do renewables offer the lowest cost of electricity generation, but they are also quick to build but have minimal environmental impact during both the construction and operation phases.

Old coal-fired power stations need to be retired and the site used to house modern fossil-free power generators. There is no need for new coal-fired power stations in South Africa, he said.

A gas infrastructure is necessary for gas-powered quick-start power generators to be utilised efficiently. The gas has to be sourced, stored and distributed to gas turbines which should be located close to load centres to reduce transmission losses.

South Africa, according to Yelland, should embrace the new world of multiple clean, flexible, and low-cost power generation. The bulk of which may well appear in industrial, commercial and domestic settings, he said. These installations would require smart-grids, mini- and micro-grids, and updated distribution networks to control the bidirectional electricity flows typically found in applications where consumers are also producers of electricity.

The advent of millions of electric vehicles connected to the grid overnight will also introduce new challenges which electrical engineering companies – many of which are affiliates of the AMEU – will have to address and solve.

Send your comments to energize@ee.co.za

 

 

 

 

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