Renewables needed for low-carbon economy
• Financial crisis at Eskom and interests that are vested in coal compound challenges in reeling electricity sector
These are challenging times for SA’s entire energy system, with the electricity sector reeling from rapid changes in the economics of generation technologies and storage and from innovations in system management options and objectives.
This is compounded by a financial crisis at Eskom, where runaway capital expenditure has been exacerbated by a new layer of profiteering from primary energy supply, highlighting the ongoing role of coal in the capture and concentration of wealth.
How one frames questions about the future of SA’s electricity supply system and how it is financed will affect what answers are considered. While there is opportunity in crisis, it is essential that the full scope of such opportunity is explored before opting for any solution or way forward.
PRIMARY CONCERN
For those of the view that many of the problems confronting SA’s “public” utility are greatly a result of, or facilitated by, the corporatisation of Eskom that was completed in 2001: starting with a discussion of who “the shareholder entity” should be precludes discussion of whether there should be a shareholder or a corporate entity in the first place.
If the primary concern is that “the wires” do not fall into private hands, the key opportunity may be for protecting transmission and distribution from the malaise afflicting Eskom generation, regardless of whether the latter remains as a corporate entity, or several.
However, a longer-term perspective, informed by the local and social effects of coal mining and combustion, as well as the risks of climate change, requires opposing any overhaul of the ailing electricity system involving arrangements that would further inhibit the phasing out of the dependence on coal.
Part of the problem is that SA’s energy development is being shaped by what “the market” or the financial community considers realistic, with an aversion to change that is more than incremental. The incumbent energy system is not just all the infrastructure, but all those who invest in a primary energy mix that is up to three-quarters coal and one-fifth oil.
The vested interests in fossil fuel use, swollen with new operators in coal supply, are not keen for the response to Eskom’s financial crisis (its debt was reported to be R365bn) to advance decisive transformation of the energy system.
Change is unavoidable and overdue. Resisting change is not the best way to develop a national energy system fit for the economy, whether framed as the Fourth Industrial Revolution or the end days of the growth paradigm.
Managing SA’s transition to a low-carbon economy with any degree of justice for workers and communities dependent on the coal industry requires concerted development of local industries in renewable energy, grid and storage technologies. This requires strategic deployment of available capital.
If or when “assets” or investments in fossil resources become stranded is an issue that must not be avoided, or allowed to be hidden behind notions of realism advanced by those holding such investments, the financial component of the incumbent energy system.
Within SA’s electricity supply system generation is not the most valuable or indispensable element of what is, in theory, owned by the public. Its shortcomings include the centralised megaproject generation infrastructure of coal dependence.
Corrupt procurement practices are not the root of Eskom’s problem, but do serve to expose the operation of money and power. The political economy of energy in SA has never been more publicly exposed. The financial crisis facing Eskom and thus the national fiscus is no less critical for coinciding with a water crisis and fears for the economy of Cape Town.
It is quite possible that measures to keep the electricity supply corporation solvent will have a more profound effect on the primary energy mix and affordability of electricity into the future than the contents of the Integrated Resource Plan (IRP) for electricity, which is due in Parliament within weeks. Exploring the scope of opportunity that opens up as the true condition of the generation of Eskom is exposed and the need for transparency and democratic accountability should be a subject of forward-looking public debate.
STEEP DECLINE
The ballooning costs of Eskom building Medupi and Kusile, setting a world record for coal-plant costs, are the main foundation of the potential for bankruptcy and defaulting on loans or bonds, including more than R100bn from private banks, that the state has underwritten. Eskom spending five times more on coal than it was a decade ago, while selling less electricity, is also a problem.
So too are all the social, externalised costs arising from mining and combustion.
However, generating electricity has never been cheaper in SA. The steep decline in the costs of renewables technology has already transformed the economics of electricity.
Solar photovoltaic makes universal access to electricity affordable. Wind power is a valuable opportunity for cooperatives and to support land reform. That this undermines “Eskom-as-is” should not obstruct taking advantage of the real-world developments that are overtaking SA’s monolithic electricity system.
Decentralised development of electricity infrastructure must be embraced, not held hostage by a vertically integrated utility with a corporate agenda.
The system should not be bound by financial viability of Eskom generation.
Local government will have to be empowered and capacitated to ensure the utility of distribution. The case for reforming the financing of electrification is laid out in government research: Sustainability of Decentralised Renewable Energy Systems, published in 2015 by the Department of Environmental Affairs.
The level of inequality in SA is not necessary or acceptable. Requiring capital to keep the state-owned corporation afloat should not prevent it from providing basic energy services as a right to all, while Eskom laments having excess electricity.
Providing electricity for basic needs is a direct opportunity to reduce inequality that no one should begrudge their fellow humans and requires urgent, scaled-up implementation. This is the political economy of energy that must be confronted as arrangements that may be struck to secure tens of billions over coming months are considered, including whether completing all six units of Kusile is a sound investment decision.
Questions such as whether pensions should be tied to coal assets must be subject to informed public debate and stakeholder contestation, not follow pathways of patronage or “market forces”.
IF OR WHEN ‘ASSETS’ OR INVESTMENTS IN FOSSIL RESOURCES BECOME STRANDED IS AN ISSUE THAT MUST NOT BE AVOIDED LOCAL GOVERNMENT WILL HAVE TO BE EMPOWERED AND CAPACITATED TO ENSURE THE UTILITY OF DISTRIBUTION
The government should lead energy development planning with a holistic understanding of SA’s national energy system and its interaction with food and water security, as well as of the improving prospects for a just transition to sustainability.
The mandate of the stateowned utility should be reviewed and the system oper- ator and transmission and distribution infrastructure must be protected from the malaise afflicting Eskom generation and remain publicly owned. There is an ongoing process to produce an Integrated Energy Plan (IEP), a draft of which was published in 2016, that should lay out what is required of SA’s national electricity system over coming decades, including providing a growing share of total energy use to displace imported fossil fuels. This should be the departure point for development of grid-connected electricity plans, covered by the IRP, as well as a parallel programme of electrification with renewable energy technologies and local stakeholder participation.
The IEP should mandate an electricity growth path to 2050, within a national and regional energy system designed to meet all of society’s energy needs in ways that bring the greatest social value, when all costs and benefits are assessed.
Just as the energy system has primarily served the concentration of wealth through extractive industries, so transition to a flexible system should now be directed to reducing inequality through energy democracy, decentralisation and ending dependence on fossil fuels. In seeking to secure finance for Eskom, while also having been asked to approve a long-delayed electricity system development plan (the IRP), the government should exercise long-term pragmatism and be wary of shortterm compromise or deferring contentious decisions. Eskom cannot sustain all its new build and refurbishment commitments and the economy cannot continue to rely on the “bankability” or combustion of coal.
EMISSION REDUCTION
Achieving a just transition for workers, communities and energy users will require dedicated programmes and institutional arrangements. It would be well-served by growing the share of electricity in meeting energy service needs.
Stakeholders should agree on conditions for any new capital allocations or underwriting, including a clear desired emission reduction outcome for electricity supply, to ensure SA takes full and equitable advantage of its opportunities in this time of accelerating change.
Worthington is a researcher at the Alternative Information and Development Centre.