[JET]The political economy of South Africa’s energy transition for outsiders

The political economy of South Africa’s energy transition for outsiders In South Africa, the political drift is towards favouring ‘low-carbon options’ and engineering a distracting skirmish between coal and renewables technologies to keep the renewables camp busy. And quietly, gas, nuclear and coal is being pushed. Saliem Fakir Follow Save More
Saliem Fakir is Executive Director of the African Climate Change Foundation

*“A man who is used to acting in one way never changes, he must come to ruin when the times, in changing no longer is in harmony with his ways.’’ (Machiavelli, The Prince)*
As the head of a new foundation, called the African Climate Foundation, I get recurrent questions asked by experts, development finance institutions and others from outside South Africa, as to what is going on with South Africa’s energy transition and the once very laudable Renewables Independent Power Producers Programme (REIPPP).
The very short answer is, whether they believe it or not, that it is not the only transition on the go and the low-carbon transition includes for now: clean coal, gas and nuclear. Well, they may all have their green-house gas merits, but it is to be seen if they will be cheap, quick and lead to deep decarbonisation of South Africa’s electricity sector.
Renewables is a nascent industry – with great promise – not only as low-cost energy solutions, but in the longer run would undoubtedly have laid the foundation for new industrial and manufacturing capability.
As with every energy carrier, coal, gas, nuclear and renewables, local content provisions and industrial capability grow with time – they take decades, but require a structured and sustained policy enabling an environment of consistent installed capacity for this to be realised.
The policy hostility towards renewables, which goes against the government’s own Integrated Resource Plan (IRP), seems to be garnished with a combination of outlandish conspiracy theories that the greenies are trying to capture the energy policy of government and all sorts of “alternative facts” about renewables are being shouted out from the bully pulpit.
This is not to deny that there are legitimate concerns about the potential for renewables to displace coal jobs and the perceptions that IPPs are not delivering the development dividend (there is also a bit of fact and fiction around this too). Jibes on costs and job numbers against renewables are usually co-delivered with xenophobic and racial aspersions about ownership patterns, and that South Africans are mere “consumers’’ of other peoples’ green technologies.
Well, one wonders whether the same jibes share equal footing for other pieces of technology that we consume and are happy to import (without local industrial benefits), for everyday life like cellphones, 5G technology, washing machines and fridges.
Manufacturing and industrial capability do not grow on a mango tree. They come with effort: strong state coordination, long-term policy visibility and they are undergirded by strong export orientation that leverages South Africa’s market that is Africa-wide, and where this manufacturing is also part of a global value chain.
None of this will happen if you stop the REIPPP in the middle of the process. But, as I explain to outsiders, this is not about spitting facts at ministers nor about doing endless scenarios or models of the cost of renewables and economic spinoffs, but whether the proponents of renewables incentivise capital accumulation among the elite and those most proximate to power.
It is naïve to assume that the right or wrong policy is the doing of a single lone-wolf minister. And, yes ministers do have power, but they are also part of a Cabinet and subject to Treasury rules – after-all, Jacob Zuma did not always get his way and he was president.
Every energy carrier has a political economy of incentives and rents. If the level of effort in capturing these incentives and rents is far too dispersed, and requires numerous strategies of negotiations with holders of capital, technology and implementation capability, the incentives are too fragmented and thinly spread to be of interest and worth the effort. Effectively, this is what auction models of IPPs do – they foster much wider competition between sponsors and do not provide a single point of entry for large “turnkey” incentives and rents to be secured. So, there is a natural disincentive for too much extraction.
As it is, you cannot throw bread crumbs at a gluttonous wolf; you need to give it real meat.
One can easily see why large power infrastructure projects – with few players and less competition – are preferred all over the world despite the evidence that shows they suck capital over many years, tend to have cost overruns and never beat the original strike price that these deals are meant to deliver.
They become even more intriguing if they involve state-to-state negotiations because these tend to be couched as issues of national security, geo-economic alignment with one or other great power and hence all done under the cover of secrecy. This is pretty much what happened in South Africa’s arms deal that concluded just after 1994.
If one offers this hypothesis, the penny starts to drop around why seemingly irrational policy comes up against common sense.
It is naïve to assume that the right or wrong policy is the doing of a single lone-wolf minister. And, yes ministers do have power, but they are also part of a Cabinet and subject to Treasury rules – after-all, Jacob Zuma did not always get his way and he was president.
Do renewables have a future in South Africa? Yes, but perhaps in a less commonsensical and rational scaled manner envisaged by the IRP or the vision and scale of the Just Transition Transaction that is being evaluated by Eskom’s CEO and his team. Private firms and homes are already pushing the ante on this one anyway, but they are also subject to a regime of state rules and regulations.
On the flip side, for that matter, sitting on various kinds of state or presidential advisory bodies does not give experts the power to influence every decision – they may or may not. It’s entirely a gamble. In any case, experts on expert bodies are not elected officials and are not accountable as sitting politicians are to their constituencies – which is where the asymmetry lives. All this sitting in high places and evidenced-based deliberations can do is advise, and hope the powers that be will listen to the wise words of those with knowledge.
Renewables has its own political economy in that these projects are driven by private capital and entrepreneurs – who themselves (at least most) are not doing it for the public good, but because the returns are lucrative in emerging economies.
At least renewables can be more democratic (I use the word cautiously here), in that it fosters competition and has the flexibility to have multiple models of ownership. If the natural resources and transmission infrastructure allows it, they can also have better geographic and local ownership spread than clunky power projects. Through a well-run bidding process, the state has the power to control the avarice of private players if it organises and coordinates bids well. Which is what the IPP office was able to do in later rounds.
Renewables IPPs also allow the entrepreneurial state (to use the words of Mariana Mazzucato), the ability to leverage the balance sheets of private firms to its advantage. This is more so given the post-Covid-19 scenario – the state deficit will be around 14% (according to the Finance Minister Tito Mboweni). The state will not have the resources to capitalise on large power projects. So, who knows how these projects will be financed?
There is another burden of truth to this whole saga: The renewables camp is loud and energetic, but it is not well-coalesced as a coalition and the industry bodies (and labour unions are lukewarm towards the renewables camp), do not have the political weight to hold unimpeachable sway on political ears. In some respects, individual IPPs remind one of the behaviour of pre-revolutionary *Bazaari *– if they get their slice of their cake, they mind their own business – and only become politically potent if they are given a political mission in life.
Where there is no coalition of the like-minded to speak of, individuals by default carry the burden of being lone warriors on behalf of the renewables cause – spending hours on Twitter and dishing out advice to whoever will listen, to spread the gospel.
This noise-making though is a double-edged sword: The more you go at the issue, the more it is perceived as either propaganda or the renewables camp is being dogmatic and lobbyist. The dogged pursuit of unproductive political tactics can lead to functional stupidity. Often the failure to reflect on the diminishing returns of a particular method excludes other creative tactical options that may yield better results and so diversify the space for renewables.
Do renewables have a future in South Africa? Yes, but perhaps in a less commonsensical and rational scaled manner envisaged by the IRP or the vision and scale of the Just Transition Transaction that is being evaluated by Eskom’s CEO and his team. Private firms and homes are already pushing the ante on this one anyway, but they are also subject to a regime of state rules and regulations.
Some concessions will prevail – perhaps a compromise between filling much-needed supply, in the interim, to meet constrained demand and to appease the renewables industry. It seems the kernel of the strategy playing out is to keep utility-scale renewables, as a segment of the energy generation equation, small and not the main show.
A more likely scenario for utility-scale programmes, in the short-term, is that we will see the completion of round 4 of IPP projects and round 5 of the REIPPP bid will go ahead (the way things change here daily, you cannot take my word for it).
It is likely that concessions will be granted to municipalities to procure their own power (a draft set of regulations have been gazetted and have to be finalised), and a lot more can be done to open the embedded generation market and for autonomous producers, and IPPs to directly enter into off-take agreements with larger consumers eager to hedge their energy security bets against a wobbling and troubled Eskom.
Some concessions will prevail – perhaps a compromise between filling much-needed supply, in the interim, to meet constrained demand and to appease the renewables industry. It seems the kernel of the strategy playing out is to keep utility-scale renewables, as a segment of the energy generation equation, small and not the main show.
We can be sure to be entering what one may call a period of planned uncertainty given the parlous state of Eskom. All the current propositions for new build power generation have long lead times and uncertain future costs because large infrastructure projects invite all kinds of menace during execution. What is clear is that the political drift is towards favouring these other “low-carbon options” and engineering a distracting skirmish between coal and renewables technologies to keep the renewables camp busy. And, quietly gas, nuclear and coal is being pushed.
One does not need to paint the worst-case scenario here, we are already in it and perhaps the total death spiral of Eskom – heaven forbid – is what will push modular low-cost solutions like renewables and distributed storage technologies to be fast-tracked once again. The inevitable may only arrive, as a new dawn, after a costly crisis. DM

More news