Photo: Sam Clark

CAPE TOWN - The National Union of Metal Workers of South Africa ("NUMSA") recently went to the high court in Pretoria to stop Eskom signing the 27 remaining Independent Power Producer (IPP) agreements.

Last week the court ruled against NUMSA and the parties are awaiting written judgement. It wouldappear that the legal issues surrounding these agreements have now been settled. 

It is a great pity that presumably the economic issues and economic arguments were not considered. NUMSA has oneconomic grounds an extremely strong case. On an economic and cost basis these IPP agreements should not be signed. They will become a costly burden for the country. It is the weary consumer, the poor and the economy that will be the major losers.

Image: Rob Jeffrey, an independent economic risk consultant
Image: Rob Jeffrey, an independent economic risk consultant

The key questions that must be asked and answered are:

 Does South Africa need this electricity in the near future i.e. over the next three to five years.

Given South Africa’s surplus supply of electricity and current low economic growth rate the answer must be an unequivocal “no”. Economically and financially it is a costly and damaging decision.

 Will the decision lead to a permanent and ongoing increase in employment in the economy?

Once again, the answer is an unequivocal “no”. The jobs are created during the construction phase only. There will be few ongoing jobs created unless new construction rates are maintained.

 Will this lead to a reduction in permanent ongoing jobs elsewhere in the economy. The answer to this is an unambiguous “yes”.

It is only possible to summarise the likely sometimes unforeseen consequences, mistruths and blatantly ignored inconvenient truths that will emerge if the current plans contained in the current IRP 2016 are followed through. 

Large-scale high penetration use of renewables will:

 Lead to a significant decline in the mining sector generally and the coal sector in particular. The coal sector could shrink by 46% given the direct, indirect and induced impact reduce the Gross

Domestic Product (GDP) of South Africa by over 2.5%. This will result in a loss of at least 29000 jobs in the coal mining industry, and almost 162000 jobs in the economy. This will detrimentally affect more than 600000 dependents.

The countries balance of payments would be seriously detrimentally affected. Coal is the country’s largest export earning commodity earning approximately R55 billion per annum. 

This would decline significantly as the sector becomes less efficient and South Africa becomes a less favoured mining destination.

Wind only produces 35% of the time and solar only 26%. Because it is variable, unpredictable and unreliable, renewables require 100% back up at all times. South Africa would become an energy importer unless significant quantities of gas are found domestically, as the back-up would be gas. Stats SA reports, Eskom reports.

The country must give priority to raising the economic growth rate. All other issues are secondary. The National Development Plan (NDP), an excellent guiding economic plan, has set a

GDP growth target of over 5% per annum for the country to be able to meet its economic, social and political objectives.

 The country must re-industrialise. The mining and the industrial sectors have been static and shown little growth for many years. Since 1986, the mining sector’s share of Gross Domestic Product (GDP) has fallen from about 13% to just 7% at present.

 The industrial secondary sector’s share of GDP has fallen from 30% to only 19%. These sectors also supply over 60% of the country’s exports.

Wind and solar are nature’s least efficient, most unpredictable and most variable energy sources. It is necessary to have 100% backup power for such renewables. South Africa is well endowed with the world’s most efficient energy sources namely nuclear and coal.

The inefficiency of these forms of electricity are notorious in countries ranging from Europe to South Australia. The failure of energiewende in Germany and the disastrous consequences in South Australia are well document.

There is nothing like the test of global reality. In 2016, it the prices paid by industry in Germany were 52% higher than France (nuclear) and 86% higher than Poland (coal). 

There is no country in the world with high penetration renewables, where electricity prices are cheaper than coal or nuclear-powered electricity are available. This includes countries such as Denmark, Germany, Ireland, China, and states like South Australia and California. 

Many countries with high penetration wind are experiencing energy poverty and deindustrialisation. They are not environmentally friendly with high avian and bat mortalities and other environmental damage.

An examination of Eskom’s Annual results 2017 reveals that, Eskom Revenue were R177bn.

 24% of the raw energy budget of R83bn was paid to Independent Power Producers (IPPs). A substantial amount of that electricity was not required.

This earned less than 8% of Eskom’s revenue. Approximately R20 billion was paid for electricity from IPPs. This in effect amounts to a direct subsidy for renewable energy.

The capital cost given for various technologies is misleading. Wind has a load factor of only 35%, solar is 26%. Coal has a load factor of 80% and nuclear 90%. The important component of life of the generating assets must also be included in the calculation.

 Renewables have a short life of 20 years, coal approximately 30 – 40 years and nuclear greater than 50-60 years. 

Final capital costs work out at 0.31/kWh for renewables, R0.19/kWh for coal and R0.17/kWh for nuclear.

The capital cost given for various technologies is misleading. Wind has a load factor of only 35%, solar is 26%. Coal has a load factor of 80% and nuclear 90%. The important component of life of the generating assets must also be included in the calculation. Renewables have a short life of20 years, coal approximately 30 – 40 years and nuclear greater than 50-60 years. 

Final capital costs work out at 0.31/kWh for renewables, R0.19/kWh for coal and R0.17/kWh for nuclear. The outcome of COP21 was an excellent agreement. South Africa has no legal commitments in terms of the

COP21 agreement. It must do what it perceives to be best in its own best economic and social interests.

Some commentators believe that purchasing nuclear will lead to South Africa losing its sovereignty to overseas vested interests. Yes, there are long term commitments. However, nowhere is this truer than in the high stakes renewable industry.

It has been estimated that approximately 60% of expenditure will go to foreign interests.

It has also been estimated that renewables over the next twenty years will cost over R1.4 trillion that means over RR800 billion will be spent on imported components and foreign payments. That is a sizeable import bill.

It is a moot point if not a legal point whether Eskom should be allowed to sign these agreements.

 In terms of its mandate set up many years ago, Eskom has a legal and moral obligation in terms of its “mandate” to “supply secure electricity at the lowest possible cost” to business to foster economic development and naturally to the public.

 IT is quite clear that the large-scale wind and renewables do not meet these requirements. They do not offer security of supply. When all back up costs and other additional costs are included they are far more expensive than other electricity generating alternatives available to South Africa offering security of supply in this case both coal and nuclear.

Before signing any final agreements, the government needs to reconsider these issues very carefully.

If South Africa goes ahead on its current path it will slow economic growth, insidiously increase poverty and inequity and ultimately lead South Africa to political and social instability. Indeed, South

African and its citizens will be facing a dark future.

** 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 ONLINE