Energy system reform hurdles

The challenges facing new Energy Minister Jeff Radebe were thrown into stark relief this week by the World Economic Forum’s (WEF) report on Fostering Effective Energy Transitions.

The report highlighted a global need to reach a billion people currently without access to energy, to keep costs affordable, to reduce carbon emissions, and to accommodate and exploit new technologies.

The Forum’s Energy Transition Index (ETI) measures how well national energy systems promote inclusive economic growth, secure reliable access to energy, and advance environmental sustainability.

It also assesses “transition readiness” — the ability of a country to secure the capital, skills, effective regulatory mechanisms, stable institutions, and supportive infrastructure required to facilitate a transition to a low-carbon economy.

Like many such composite indices, ETI rests on questionable methodological foundations, but it can, nevertheless, help governments understand how they are performing relative to peers and learn lessons from others.

It is worth reflecting on why SA placed second to last out of 114 countries in WEF’s league table.

SA’s energy challenges encompass coal production and the governance of the liquid fuels sector. But the most pressing problems lie in electricity. These problems were worsened by, but did not originate in, Jacob Zuma’s two dismal terms as president.

 

These market-friendly proposals reflected international trends, and were driven by environmental considerations, new technologies that reduce capital intensity in generation, and advances in computer-based control systems that undercut conventional “natural monopoly” justifications for energy dinosaurs such as Eskom.

An unholy alliance in SA blocked desirable reforms. Unions bewailed “privatisation”. Energy-intensive businesses protected their opaque — and often apparently corrupt — long-term contracts with Eskom. ANC elites had already begun to use parastatals such as Eskom as a source of patronage and rents.

In this way, a sadly predictable ANC alliance of leftists, crooks, and big business empowerment partners insisted that Eskom must be left in control of generation and the grid. Private investment was effectively blocked.

The key consequences, in short, have been an absurdly inefficient parastatal, a tripling of electricity prices that has hit economic growth and the poor, load shedding, cash flow crises, debt junking, and systemic risks to the entire economy.

The one bright light has been some investment in renewables by private power generators.

The Electricity Regulation Act of 2006, and associated regulations promulgated in 2009, empowered the energy minister, in 2011, to formulate an Integrated Resource Plan (IRP) that set out a proposed generation mix in the light of demand and cost projections.

In consequence, the government invited R150bn of private investment in wind, photo-voltaic, and concentrated solar power in the years that followed. This represented just 3% of energy supplied to the grid — but it set out a potential future path to a sustainable economy.

Eskom adopted its usual blocking strategy, generating dubious statistics, menacing private generators, and eventually, in 2016, threatening to exclude private generators from the transmission grid.

The IRP became a political football. Zuma’s five morally challenged energy ministers, shadowy energy officials, and wily Eskom senior managers, together defended apparent abuses of procurement powers and perpetuated Zuma’s personal project of nuclear power procurement from the Russian Federation.

While Zuma’s ministerial underlings were undermining SA’s prospects of sustainable and affordable energy, the rest of the world had woken up. Renewable prices fell globally as a result of technological breakthroughs in solar and wind generation, and falls in the cost of storing electricity.

While some South African “expert” consultants promoted coal and nuclear generation, and disparaged renewable “utopias”, international orthodoxy was radically changing. As Bloomberg’s New Energy Finance observed last year, renewables will probably account for 72% of global power-generation investment by 2040.

Renewables are already cheaper than coal and nuclear by any sane measures. Renewable generation costs are likely to drop by two thirds for both solar and wind power over the next two decades.

It is little wonder that even in nuclear-friendly China, wind-power investments have outstripped nuclear since 2012.

The real motivations for nuclear power generation have disappeared with Zuma’s resignation. It will, however, take time for propagandist and compromised officials to be removed, and for the disinformation campaign that government officials and industry consultants have engaged in for more than a decade to be neutralised.

Reason and evidence will hopefully now play a more decisive role in decisions about SA’s future energy mix.

• Butler teaches public policy at the University of Cape Town.

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