Planning South Africa’s energy future

May 11, 2017

In the often emotionally charged debate around South Africa’s energy future, we need to ensure that decisions are made according to a predictable, rational, and informed energy planning process. This is critical if we are to give effect to a range of policies destined to shape our developmental economy and at the same time ensure we are an attractive destination for investment and manufacturing. Creating confidence in the planning processes and ensuring Government policy is consistent are key.

The recent High Court rulings on the procurement of nuclear power have brought these principles into sharp focus. These rulings show that the Department of Energy must adhere to the planning process and decisions as outlined in the Integrated Resource Plan (IRP) and Integrated Energy Plan (IEP). For this reason, it is encouraging that the new minister, Mmamoloko Kubayi, has promised that the nuclear procurement process will be transparent and subject to a public participation process.

Thus, the decision by the Western Cape High Court to set aside the ministerial determination signed by former energy minister Tina Joemat-Pettersson has been declared a victory by the anti-nuclear lobby, but the decision is far more than that.

In an environment where ongoing policy uncertainty has made many in the energy sector question the role that the private sector will play in the future, this ruling sends a clear message that the courts will uphold the rule of law and ensure that due process is followed. Most importantly the ruling is positive because it sends a clear message that the Department of Energy is bound to following a rational energy planning process. It also sends a positive message out to investors and analysts who are looking to invest in South Africa’s energy sector.

In her ruling Judge Lee Bozalek also found that the request for information issued by Eskom as well as cooperation agreements with the US‚ Russia and Korea were unconstitutional and unlawful‚ and set them aside. This is important because although the draft 2016 IRP says South Africa will not need new nuclear power plants before 2037‚ previous decisions were made on the basis of the 2010 IRP‚ which proposes the construction of 9600 MW in nuclear plants.

We cannot pretend that South Africa’s present and future economic situation is not precarious. Rating agencies S&P and Fitch downgraded South Africa’s sovereign credit rating earlier this year and Moody’s is set to review it again shortly. This has already pushed up the country’s borrowing costs and reduced its desirability as an investment destination, making it even more difficult to achieve the levels of growth the country needs to achieve its developmental goals.

With this in mind, two of the key issues when planning South Africa’s energy future must be affordability and economic development. Firstly, Government needs to choose technologies that won’t burden the balance sheet and will provide both industry and the public with reliable and affordable power. Secondly, they need to ensure that the DoE remains committed to much-needed economic growth and transformation in both the energy sector and the wider economy.

In a country with 51% youth unemployment and 27% general unemployment we need to choose an energy mix that will create sustainable employment and encourage economic inclusivity. For this we need technologies that can be decentralised, attract investment, and deliver benefits to far-flung corners of the country where development and economic stimulation – as well as economic participation – is needed. Renewable energy, and solar in particular, is able to do that more effectively as it lends itself to high levels of localisation, skills transfer, job creation and localised industrialisation.

To date, the renewable industry has attracted more than $14-billion in direct foreign investment, created more than 20 000 jobs in construction, and 35 000 operational jobs. It is clear from these figures that these projects represent a significant investment in the South African economy and are a vital stimulus for job creation, local content, and local economic development.

They also enable us to transition away from a (coal and) carbon-intensive power sector to a clean and sustainable future, but more importantly provide opportunities for an inclusive transition and transformation process that creates new opportunities for upskilling the workforce and providing a much more certain, longer term future for South Africans.

In terms of affordability, recent modeling done by the Centre for Scientific and Industrial Research (CSIR) shows that a mix of solar PV and wind energy, coupled with flexible gas-powered generation, provide the cheapest source of baseload capacity. The dramatic drop in renewable energy tariffs over the past five years means that new-build renewable energy is now significantly cheaper than new-build coal or nuclear power.

As a result, a combination of gas and renewables is flexible, modular, quicker to build, with the added bonus of being private-sector driven. This means that they won’t stress the country’s balance sheet and are driving much-needed foreign investment into SA. Another often forgotten bonus is that with wind and solar, the fuel is free – there are no input costs and this hedges South Africa against the fossil fuel price volatility.