Imagine a situation where all trucking and delivery transport in South Africa belonged to the government. The government would control it all: the quantity of freight transport supplied, the operation costs and the final price to the consumer. In doing so, the government would have a direct impact on our cost of living, our productivity and our potential to grow as an economy.
Private investors, recognising the surplus demand, would beg the government to let them into the market to fill the void. Their return would lie in their ability to provide more innovative services at lower costs. But the government - in charge of legislature, the road network and the transport services - would control the level of competition. At best, the government might allow small entrants for specialised services but these would be highly controlled by quotas and strict regulation.
As the quality of the government’s transport services deteriorates and the supply deficit grows, it would continue to shut out local transport companies and instead propose large and expensive alternatives that would be funded by the tax payer and be provided by foreign companies.
Imagine that this were true - that tomorrow the government would change the law to bring about this system and that you had no say in it. It might sound far-fetched, but it is the same system that is being applied to South Africa’s energy generation with the same devastating results.
This week the International Energy Agency announced that renewable energy had overtaken coal as the world’s largest source of power capacity. On average, 500 000 solar panels were installed every day last year. In China, two wind turbines were installed every hour.
Coal still leads the world in terms of energy generation; generation is the amount of energy actually produced by the plant where capacity is the maximum production potential. But with the explosion in renewable energy installations it is only a matter of time before it becomes the status quo of power generation.
Overpriced
Despite low oil prices, renewable energy installations grew faster last year than any other year and it is predicted to remain the fastest growing source of electricity for at least the next five years. By continuing to pursue nuclear and coal electricity generation, South Africa will lock itself into overpriced technology that will soon be outdated. The costs of solar panels are projected to drop 25 percent by 2021.
In the latest bidding round in South Africa’s Independent Power Producer Procurement Programme (IPPPP), the lifetime costs of wind and solar (including build and operation) have dropped to 62c per kilowatt-hour. Eskom’s current average cost of supply is 84c/kWh. The lifetime cost of new coal plants built by Eskom is more than R1.10/kWh - nearly double that of wind and solar.
The common counter-argument to the use of renewables is that they cannot supply base load. A model published by the CSIR Energy Centre earlier this year showed that with sufficient capacity, South Africa could provide up to 83 percent of its base load using renewable energy sources. Yet, once Medupi and Kusile are complete, South Africa will cover 65 percent of its base load with coal generation.
Eskom’s claims that further coal and nuclear capacity is needed are completely unfounded and are based in the company's self-interest rather than the national interest. Its efforts to hamper progress of renewable generation under the IPPPP are in direct contradiction to global trends and our own government policy.
The computer model informing the new Integrated Resource Plan being updated by the Department of Energy recommends that nuclear energy is used only if renewable energy capacity is constrained. With reliable wind and sun, vast tracts of unused land and a barrage of private investors wanting to build renewable energy plants, the only constraint is legislation.
The government and Eskom are not one and the same but the government has a responsibility to open the gateways for investment and energy generation.
Just like the road network: the government and Eskom should retain control over the transmission infrastructure and private investors should provide the traffic that flows over it.
Pierre Heistein is the instructor of UCT’s Applied Economics for Smart Decision Making course. Follow him on Twitter @PierreHeistein.
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