GROVÉ STEYN: The path to clean energy opens — and it comes at no extra expense
Strategy can trigger large-scale green industrialisation programme without adverse electricity cost or tariff effect
What if accelerating a country’s transition to clean energy came for free? More specifically, what if reducing carbon emissions and rapidly restoring power-sector reliability came at no additional cost to consumers? What if we can address SA’s national electricity crisis, the need for post-pandemic economic recovery and its rapidly growing climate risk problem with one intervention?
This may sound too good to be true, but in fact these are the core findings of a recent technical study undertaken by Meridian Economics and the Council for Scientific and Industrial Research (CSIR).
In general, reducing carbon emissions requires the replacement of fossil fuel energy generation with low-carbon alternatives. These include renewable energy technologies such as solar photovoltaic and wind generation, supplemented by storage and peaking capacity that ensure system reliability. A key accelerated renewable energy pathway that has been investigated will by 2030 crowd in about R500bn of direct investment, plus localised manufacturing of renewable energy components, and create about 50,000 jobs (Eskom employs 43,000). But how much would this cost SA, a country still heavily dominated by coal-fired power?
To answer this question, the team modelled a range of cost-optimal energy system pathways for the period 2020-2050, with CO2 emission reductions greater than that achieved by the current 2019 Integrated Resource plan (IRP). Importantly, all technologies (including coal, nuclear, gas, solar PV, wind, battery storage, pumped storage, hydropower and biofuels) were made available for the model to choose from. Every scenario had to produce equally reliable power systems — load shedding is not part of the deal.
The results show that accelerated transition pathways, saving up to a third of IRP 2019 CO2 emissions, involve a substantial and immediate renewable energy build programme (at least double the IRP 2019 rate) which comes at no additional cost for consumers. When our conservative input assumptions are relaxed and avoidable legacy power station refurbishment costs are included, these scenarios will almost certainly be lower cost than the current IRP policy trajectory.
The effects of continued cost reductions in renewable energy and storage technologies have reached the point where it makes sense to invest heavily in these projects to rapidly reduce load shedding and avoid higher power costs. The additional CO2 savings will be enough to make the country’s power sector “Paris-aligned” and significantly reduce SA’s climate risks. This strategy will also trigger a large-scale green industrialisation programme that will provide a substantial and sustained economic stimulus without any adverse electricity cost or tariff effect.
Surprised? The team was too. Instead of asking how much this will cost, the findings point us towards asking: “How do we accelerate the construction of renewable energy to harness this large opportunity for SA?”
A parallel study by Meridian Economics suggests the renewables industry will be able to ramp up to sustainable construction rates of well above 5,000MW a year. The sound economic fundamentals of this opportunity will make it attractive for myriad investors to fund both large and small-scale renewable projects, completely avoiding reliance on our overstretched fiscus.
An accelerated transition creates the basis for a new sustainable business model for Eskom, which will be required for it to chart a course out of its severe financial and operational challenges. Power generation is rapidly becoming a highly competitive, commoditised industry that requires a new industry model. Eskom Transmission (which will become an independent state-owned company in time), like other regulated electricity and piped gas traders in SA, should be allowed to make a modest margin from buying and selling low cost renewable energy, and focus on rapidly expanding the grid to connect new generation across the country.
Eskom Generation will be able to avoid life-extension spending on old power stations and can focus on improving the reliability of its newer plants. An accelerated transition cannot avoid the need to set cost reflective tariffs, but it will avoid the greater increases that will otherwise be required. Tariff structures also need to accurately reflect the value of the network and reliability services Eskom provides.
Most importantly, by committing to an accelerated transition path SA could leverage the additional carbon savings with international climate funders and development finance institutions to negotiate a large climate finance transaction. This could contribute to resolving Eskom’s financing crisis, provide support for a just transition for affected communities, and buy us enormous goodwill and support from international partners and investors as we navigate through our economic challenges.
All initial work suggests the socioeconomic benefits of a well-managed accelerated renewables programme are immense. This includes local air quality and health improvements, large-scale green industrialisation and job creation, reduced carbon intensity of our exports, and opportunities to export renewable energy capital goods and services to the rest of Africa. Conservative estimates, based on published data, suggest a more ambitious renewables programme will create about 10,000 direct jobs in construction and operations rapidly, within a year or two, growing up to 50,000 sustainable jobs by 2030. Many thousands more jobs can be created by localising most of the value chain in that period.
A strategically managed, ambitious renewables rollout will provide substantial new opportunities for broader economic participation and inclusive ownership, especially for South Africans from previously disadvantaged groups. This extends to providing a just energy transition through localising energy projects and associated industries, and repurposing old Eskom power stations in the declining Mpumalanga coalfields and Free-State gold mining areas.
While bad news abounds with SA’s economic and Covid crises, we should not let it blind us to the precious opportunities we have to lift our economy out of the doldrums and our people out of poverty. The numbers are in. Our study confirms the trend playing out across the world has arrived in our power sector — a truth now clear to many. This opportunity is real and immediate. The only question that remains is why our policymakers have not yet enabled South Africans to grasp this opportunity?
The human cost of inaction is immense. Endless excuses to delay the critical policy and regulatory reforms required to trigger this large green (re) industrialisation programme only serve a small group, while poor and unemployed South Africans are expected to wait patiently as their future withers away. Opportunities such as this are hard to come by. Let’s learn from our early common purpose in responding to the pandemic and build a broad-based coalition that demands prompt government action to realise this exceptional economic opportunity.
• Steyn, a member of the Presidential Economic Advisory Council, is MD and founder of energy and infrastructure economics advisory group and think-tank Meridian Economics. The full technical study can be found here.
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