JOHANNESBURG – The assessment of the recent Draft Integrated Resource Plan (IRP) 2018 by various commentators has generally been positive leaving one with a view that the task has been done and it has given South Africa and its electricity planners a well mapped outline of what is required and possible.
Most commentaries say it is a realistic compromise and a sound balance of the realities facing South Africa and future trends and possibilities.
Nothing could be further from the truth the IRP does not serve the best interests of South Africa and its citizens.
It certainly makes the renewable lobby relatively happy but it gives cold comfort to the poor and unemployed. It does not in any way satisfy or give future hope for the majority of the population. Importantly it has no overall economic objective nor plan or criteria to help put South Africa on an economic growth path to achieve an objective. It does not in any way present a plan to foster and encourage investment, domestic or foreign, in revitalising South Africa’s goods producing industries particularly general reindustrialization, manufacturing and mining.
It is noteworthy that the IRP report states the assumptions used were updated, considering comments from the public consultation process. The comments were mostly advocating for a least-cost plan, mainly based on renewable energy (RE) and gas in accordance with the scenario presented by the Council for Scientific and Industrial Research (CSIR) at the time.
This leads to the first major criticism of the IRP. Many people consider that the CSIR Energy Centre to be totally biased towards and in favour of renewable energy sources, primarily wind and solar supported by gas as a back-up. They are also known in the past to have been strongly influenced by the German “Energiewende” programme, or the planned transition by Germany to a low carbon, apparently environmentally sound, reliable, and affordable energy. This programme is under increasing criticism by German and global energy experts and is widely considered to be a failure.
The second major criticism is that the IRP has made use of the Plexos model and used assumptions that lead to a biased outcome in favour of renewables. This model determines the so-called least cost model favoured by the IRP and the CSIR.
The problem is the output of such models is determined by the input. It therefore very easy to programme the model to a least cost output favouring renewables, by manipulating the input and the assumptions used. This is indeed what has happened in this case and as a result the output of the model favours wind solar and gas and has effectively gutted the country of any plan of using High efficiency Low Emissions (HELE)or clean coal and any use of nuclear.
The fact of the matter is that almost all countries do have substantial renewable growth programmes. However, the high growth developing economies of the world, namely China, India and the ASEAN countries, have substantial programmes to build HELE coal electricity generating facilities. Other countries outside Western Europe also favour nuclear and gas. It should also be noted that there is no example in the world where high penetration renewables have enhanced economic growth, employment and/or brought electricity prices down on a sustained basis.
The world is replete with massive failures of such policies including S Australia, Ontario, Minnesota and Germany itself. Examples of higher prices is far more widespread and include Germany, Denmark, Ireland, S Australia, Ontario, Minnesota, California to name a few. In Australia the renewable policy has effectively brought down the government.
The third major criticism is of the greatest concern to the country. The outcome of the IRP clearly considers the substantially lower GDP growth from 2010 to 2016, which in turn lowers growth going forward. The compound average growth rate for the years 2010 to 2016 was only 2,05%. This, not surprisingly, resulted in a substantial decline in electricity demand which declined at a compound rate of -0.6% per annum.
All this is not surprising given the countries poor economic performance. Indeed, the country is now in a technical economic recession. It is the reasons given for this poor economic performance that are of the greatest concern as they result in a flawed analysis of future economic performance. The reasons as set out in the IRP include, among others:
- Lower economic growth. This hardly surprising given the scale of state capture and corruption;
- Improved energy efficiency by large consumers to cushion against rising tariffs. However, this is not generally true on a major scale, in many cases this was not due to increased efficiency. The reductions in demand were forced by necessity and resulted in increased inefficiencies and higher costs elsewhere;
- Fuel switching to liquefied petroleum gas (LPG) for cooking and heating. However, again this merely raised costs and inefficiencies elsewhere. This includes fuel switching for hot water heating by households. Often this is done at great cost. The capital cost is high, LPG is expensive whilst solar is limited to periods when the sun is shining; and
- The closing down or relocation to other countries of some of the energy intensive smelters and general manufacturing industry. Goods that used to be manufactured in SA are now manufactured elsewhere
Whilst the facts may be true there is often flawed reasoning behind these issues. Taking the last issue on its own it is extremely important and serious. It results in lower domestic and foreign investment in South Africa and this leads to ongoing lower GDP growth in both the short and long term. All these factors are extremely serious economic issues. There are many reasons contributing to the situation but a major cause of them all is poor supply of electricity. They are in fact ongoing contributions to the demise of growth in the country but they are swotted aside as if they were unimportant ongoing matters and had to be factored into a scenario of future lower growth rather than being analysed to see how to overcome the problems.
The fourth major criticism of this IRP is the bland statement that the historic electricity intensity trend has continued to decline over the past years. The statement is true but there is no analysis of the reasons for this situation. Many other commentators and even some economists have made the same comment and then blandly assume it is the ongoing reality. A more detailed breakdown shows that the result is not surprising.
South Africa has been deindustrialising rapidly and its manufacturing and mining industry have been static or in decline for more than a decade. Far from reflecting a realistic trend, and the required future trend to be used for planning purposes, it reflects failed political and economic policy on a massive scale and not surprisingly of insufficient electricity supply.
It is generally agreed that South Africa needs to reindustrialize and massively increase its industrial, mining and mineral beneficiation processes. There are no statements in the IRP suggesting that that these are necessary and should be made a goal of the IRP. There is nothing in the IRP giving encouragement to achieving such important and essential economic developments.
The fifth major criticism of the IRP is that it offers no plans to encourage investment and development of the nation’s mineral resources and develop the nations God given assets for its people. The Mineral Resources Minister only the other day said that South Africa has a treasure chest of minerals worth over R30 trillion.
It has coal assets amounting to more than R6.5 trillion. The coal alone using clean coal technologies would give power to South Africa for over 100 years offering employment and security of supply of electricity at competitive prices. Yet the IRP clearly supported by the Renewable industry wants to bury them forever. The IRP actually states that no new coal power plants will be built in the future unless affordable cleaner forms of coal-to-power can be found. This is a flawed statement.
The technology is available and it is being used or put in currently on a global basis. The technology is called High efficiency Low Emission (HELE) coal or clean coal. Many high growth developing economies India, China and the ASEAN countries have policies of developing fully their coal fired potential. The reason is that these countries have identified coal generated power as being the cheapest secure sustainable power available for driving a developing industrialising economy.
This has not been taken into account in the IRP only that South Africa envisages increasing exports of its coal resources to other countries. The futility of this is that these other developing economies are increasingly using South African coal to reduce their electricity input costs. The outcome is that they reduce their manufacturing costs and are then capable of having lower cost for goods manufactured.
Many of these manufactured goods are similar to those manufactured in South Africa. As a result of the IRP, in practice SA will not be able to compete with these costs and will need to import these goods. The overall result is a further slowdown in South African manufacturing development and a widening in its deficit on the current account. More than that it reduces domestic and foreign investment in South Africa’s mining and manufacturing sector further slowing economic growth in South Africa.
The forecast for future demand states that the following matters are likely to affect future demand:
- An increasing number of commercial and industrial facilities that are installing PV installations to supplement electricity from the grid.
- High electricity prices, as well as technology advancements (improved equipment efficiency), are also resulting in increased energy efficiency among consumers.
- There is increasing use of LPG for cooking and space heating that will impact on both energy (kWh) and peak demand (kW).
- In line with municipal bylaws on building, new developments are installing solar water heaters instead of full electric geysers.
- Voluntarily, consumers are also increasingly replacing electric geysers with solar water geysers to reduce their electricity bills.
Naturally these are all true but the IRP does not acknowledge the role of energy supply efficiency and prices that are driving these moves. The IRP and the current trends are driving these changes. An examination of the facts would make it clear that increasing the supply of secure competitively priced electricity would reverse many of these trends.
In practice they all reflect moves which are more expensive for users but will ensure that the key suppliers are detrimentally affected and will drive users away from Eskom and have negative impacts on Eskom itself. The IRP offers no solution to resolving the key problem of insufficient secure of electricity at a competitive price. In fact, the IRP comes out with plans to make the already seriously bad situation even worse.
No wonder the poor and unemployed are concerned and find the revised IRP unacceptable. In fact, it can be more or less safely be said that rather than having a clear objective with a clear-cut plan for action to achieve the objective the IRP is a summary of the failures in SA energy and general policy with no plan of action to remedy the situation. It lacks analysis of the real reasons for these failures and offers absolutely no solutions how to overcome these failures on a sustainable basis. In practice it digs South Africa even deeper into the hole that it is falling into.
It is the planning to use renewables on a major scale as envisaged by the renewable industry and reflected in the IRP that is helping to dig the hole deeper and ensuring that the country goes into a death spiral and with it some key industries and national assets such as Eskom which will be left holding stranded assets. There are strong feelings that this is the IPP renewable plan led by overseas suppliers and financial advisers who will then be able to pick up these assets at bargain basement prices. The hole is being deliberately dug by the IRP under a plan basically put forward by renewable advisers consisting of their foreign advisers and suppliers and a team of idealistic financial advisers and lobbyists.
Finally, there is a sixth major criticism and a specific weakness of the IRP. It is acknowledged that growth up to 2025 will be slow due to all the factors that have been identified. They will slow economic development for a decade. Furthermore, the country does have excess electricity supplies as a result of the current slow growth.
These supplies should be sufficient to give the country the necessary electricity supply to cater for demand from economic growth up until about 2025. However, beyond that date South Africa must aim to lift its GDP growth rate to between 4% and 5% per annum. If this is not done unemployment, which currently runs at 27% will rise to over 30% with the consequences set out elsewhere.
The IRP has no plans for achieving the higher electricity supply required by higher economic growth targets. There appear to be no plans to ensure that secure base load competitively priced electricity can be increased to meet the demand that should be the goal of the country. In practice these goals are set out clearly in the National Development Plan (NDP). The IRP and the NDP are two separate documents and they are not working together. In fact, it can be said that the IRP is undermining the NDP.
It is vital that the IRP have plans to build, by 2025, a solid base of secure baseload electricity. This can only come from HELE coal and nuclear power. It is well known that such projects take five to seven years to complete and bring the necessary power to the grid. In other words, the IRP should have plans to start such projects within the next year. These are long term megaprojects and will bring back much needed confidence needed in the country.
Megaproject appears to be a dirty word in certain circles today. Yet South Africa used to be very good at them. They are also an essential part of economic development. It can be said they are popular with the renewable lobby only because they use it to pursue their own rather suspect agendas.
It becomes even more difficult to believe that the IRP then states in its decommissioning schedule that about 12600MW of electricity from coal generation by Eskom will be decommissioned cumulatively by 2030. That will increase to 34400MW by 2050. It is also expected that 1800MW of nuclear power generation (Koeberg) will reach end-of-life between 2045 and 2047.
Yet there are no plans to replace this with decent secure baseload electricity supply either coal based or nuclear. This has to be the height of folly. The impact on livelihood, lives and jobs in coal fired power station and the countless towns where businesses have been built up to supply the mining and power stations associated with this power generation is so horrendous that it hardly bears thinking about.
Yet the IRP does not even discuss this subject or indicate that it is important. The ardent journalists and those writing on the IRP do not seem to care very much either because very few have spared a passing remark for the subject.
South Africa is now in a recession, the fact is that South Africa does not have the financial resources to revitalise itself. The country suffers from a low savings rate and the government has no money to undertake the task of renewal and development itself. The only means to forge ahead is to make the country attractive to both domestic and foreign investment. Yet there are wild calls for expropriation without compensation, nationalisation of various industries, including one of the most damaging of the lot nationalising the SA reserve bank or using it as a pot of gold. These calls if they are implemented or gather in strength will drive South Africa into an economic death spiral similar to Zimbabwe and Venezuela.
The IRP is a vital component in resurrecting economic life and optimism in this country and hence encouraging the domestic and foreign investment so necessary to revitalise the economy. The current IRP does not achieve that. It needs clear-cut objectives and a clear plan of action to ensure that the economy is backed by secure, low cost electricity supply. The current IRP does not do this unless it is radically changed South Africa will go into an economic death spiral of its own creation and you can kiss South Africa goodbye.
Rob Jeffrey is an independent economic risk consultant. He is the former MD of Econometrix and continues to consult for them.
The views expressed here are not necessarily those of Independent Media.
– BUSINESS REPORT