South Africa: growth or stagnation?



 

The choice between growth and stagnation depends on the energy mix selected and the policy choices that are made. These issues will determine the economic path of South Africa for the next decade.

Rob Jeffrey

There was an important statement by the Minister of Public Enterprises recently which gave cause for some hope. The Minister said that South Africa is not about to turn its back on coal. However, the debate rages on and the question remains: how quickly will South Africa move towards renewables?

It is important to look at some of this controversy as it has emerged in the media recently. The first aspect has been the criticism of Eskom and its executives for refusing to sign Power Purchase Agreements (PPAs) with 37 independent power producers selected under government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

However, this criticism is unjustified and unfair. Eskom was merely carrying out the terms of its mandate which states: “Our mandate, which is aligned to the Strategic Intent Statement issued by Department of Public Enterprises (DPE) in August 2015, is to provide electricity in an efficient and sustainable manner; this includes the generation, transmission, distribution and sale thereof. Eskom is a critical and strategic contributor to Government’s goal of ensuring security of electricity supply to the country, and enabling economic growth and prosperity.”

To execute this mandate, Eskom states that its strategy aims to deliver an electricity price path that supports economic growth and improves South Africa’s financial and business sustainability. This comes down to the next important issue and debate: are renewables, primarily wind and solar, efficient and sustainable, and can they can ensure “security of electricity supply” at a competitive economic price that can enable government to achieve its goal of enabling economic growth and prosperity? The theory and the facts of real life strongly suggest not.

There is a perpetual debate in the literature surrounding the levelised costs of electricity (LCOE) and the fact that wind and solar have the lowest LCOE at approximately 62c/kWh compared to coal’s LCOE of R1,05/kWh and nuclear at R1,30/kWh. However, these figures do not consider that these renewables deliver electricity less than 34% of the time, are unpredictable, and are subject to the vagaries of the weather. Their generating lives are very different as well – 20 years as compared to nuclear’s 60 years. The fact is you cannot easily compare dispatchable electricity (coal and nuclear) with non-dispatchable electricity (wind and solar).

A research report by D. Weißbach, et al (2013), on energy returned from energy invested (EROI) has shown that in Germany, all renewables, except commercial solar installed in the Sahara Desert, are currently uneconomic. This means that renewables must be subsidised indefinitely, unless a major technical breakthrough in energy storage appears. In the report it is stated that because modern society requires so much energy, when the overall EROI drops below 7:1 the economy contracts and we are at risk of recession.

“Buffered” wind and solar have orders of magnitude less than 4:1 whilst nuclear and coal have magnitudes several times higher than that. These figures were all arrived at in the research study conducted in Germany – the figure of 7:1 may drop slightly in less developed economies. But even poor people like to be able to turn on their lights and use electricity at night. In summary, the economic effectiveness of wind and solar PV are in economically stagnated areas whilst coal and nuclear are in territory that fosters growth. No wonder America and Europe have had 150 years and more of high growth and India, China and Japan have also enjoyed great prosperity in more recent years.

Doubtless there will be countless people who will be able to prove that EROI is not a justifiable measure to use. They will have more difficulty in proving the facts that support that it is valid. In 2016, it is interesting to note that the prices paid by industry in Germany were 52% higher than France (nuclear) and 86% higher than Poland (coal). In Ireland, often given as an example of the success of wind power, the equivalent comparisons were 34% compared to France and 64% compared to Poland.

In addition, Ireland is a tiny country with a grid of only 4,7 GW. America would appear now to be about half the price of equivalent German prices. On average, Germany’s price of electricity appears to be 44% higher than other average other electricity price in Europe. No wonder this has cost Germany jobs and businesses. The Wall Street Journal estimates that Germany’s electricity costs have risen 60% due to their subsidies of renewable energy. This has lowered their GDP, standard of living, and competitiveness. As a result, several companies including BASF, SGL Carbon and Siemens have moved or are considering moving operations from Germany.

A further fact that those holding renewables up as a bright future for South Africa is the area of land that is involved with renewables. As an example, onshore wind farms in Germany produce less than 2 W/m2 of land. A modern oil field, on average, produces 90 W/m2 of land. Nuclear involves absolutely minimal land area, whilst coal obviously is larger but compared to wind and solar it remains negligible. An idea of the magnitude of this problem is that the IRP contains scenarios which will involve more than 10 000 square kilometres of land in South Africa.

This is equivalent to 1500 km of coastal land 3 km deep with wind turbines and similar length of mountain ranges behind plus numerous other windfarm areas. Those defending wind farms will find it difficult to defend the fact that landowners in surrounding areas bordering on windfarms, probably an area twice or even three time the areas of windfarms, have found their land devalued by up to R3000/ha. Only a few wealthy or unscrupulous owners are benefitting from the largesse of equally unscrupulous windfarm interests.

Apart from that, environmentalists are really concerned about the devastation caused to habitats for large birds, birds, bats, migrating birds, insects and other forms of life even including animal and human health. This is the history of windfarms around the world which are not being given sufficient consideration and weight at present.

The pro-renewable faction will also find it difficult to argue with the plans for increasing the use of coal and fossil fuels in many countries. This applies to countries such as Poland, the United States under the new administration, India, China and the Asian countries. Japan is set to build 45 modern high efficient low emissions (HELE) coal plants totalling approximately 45 GW. The International Energy Agency (IEA) has forecast that 730 GW of these highly efficient plants will be built by 2040. South Africa, despite being one of the most richly endowed coal countries in the world, is planning to increase its coal output by less than 15 GW.

According to the current planning, South Africa is happy to increase exports to countries who will thereby use one of the most efficient electricity generating sources in the world to increase their manufacturing and industrial sectors more efficiently and effectively and thereby export lower priced goods to South Africa. This will ensure South Africa’s structural deficit continues and ensures lower economic growth for many years into the future.

Finally, the renewable lobby will find it difficult to argue with the fact that South Africa will pay an extraordinarily high economic price if South Africa’s coal industry declines. Any decline of the coal industry and industries associated with it will have a profound negative impact on the economy. It is estimated that, if Eskom’s demand were to decline by 37% because of closing coal plants, the coal sector would shrink by 17%.

This will reduce the GDP of South Africa by over 0,9% (R27,8-billion) and reduce employment by more than 60 000 people affecting almost 250 000 dependents. In addition, it is likely that export sales of coal could be reduced by more than R10-billion per annum. In practice, the overall economic impact will be far greater than these figures imply and probably more than 300 000 people will lose their jobs. The current IRP 2016 base case and unconstrained scenario are more than likely going to be the final nail in the coffin for the mining industry. South Africa is facing economic stagnation with major economic, political and social implications.

Unfortunately, there are many vested domestic and foreign financial and idealistic interests in the decision mix. Not least are financial institution who have entire departments geared towards pushing the renewable energy agenda. This is not surprising. After all, they are interested in the rich prize of investing their own and clients’ money in long term high return index linked government guaranteed investments.

The fact is that they are joining forces with foreign vested financial interests that have only one aim – to increase their overseas renewable technology sales in a new market. Meanwhile their own domestic market is at best losing steam, if not declining, because of a failure of the technology. Followers should look closely at the failure of “energiewende” in Germany and wind in South Australia.

The future energy potential of the country lies in those efficient proven technologies of nuclear and coal that give South Africa a competitive edge and comparative advantage, reinforced by major solar for domestic and general business use. These in turn must be supported by a significant expansion of gas but only if South Africa can find it in sufficient economic quantities. The way forward involves building new modern coal plants and refurbishing old power stations where it is economically possible to do – not to close them.

Yet the current IRP 2016 plan, supported by many vested financial and idealistic interests and their enthusiastic but often ill-informed public followers, are about to over-invest in a technology that has proven to be one of the worlds’ least economically efficient and effective technologies. It is not surprising that sailing ships and clippers, although beautiful, finally became obsolete and died out in the second half of the 1800s. Eskom officials were doing their job of looking after the interests of the country and the public.

Renewables, particularly wind, increases energy poverty and effectively become a tax on the poor. In those countries that have moved in a major way towards renewables, an old joke is returning to haunt us: “What did man use before they had candles? Electricity”.

Send your comments to energize@ee.co.za

The post South Africa: growth or stagnation? appeared first on EE Publishers.

Source: EE plublishers

More news