GRANT PATTISON: Electricity economics is not intuitive to nonexperts

Maybe it is because I recently hit the 50-year mark and simultaneously dropped my daughters off at university and my son off in grade 0, that I stopped, paused and reflected on the role we all play in the ever-increasing demand on our energy resources and environment. That raises the question: which source of power generation is best?

Not all energy is created equal

You don’t have to scroll long on your social media timelines to come across the debate about coal, gas, nuclear and renewables. And even with my half-century cynicism it’s become clear that the world of energy debating is all industry lobby groups — and anti-lobby groups — trying to convince the government, and us as the public, that certain types of power are the best, or worst.

It’s become about money, with a healthy dose of corruption (not unlike defence procurement). The reasoning is almost entirely ideological, and motives are at best purely selfish, and at worst immoral — a purely political process, with facts and scientific proof ignored, discarded and often manipulated.

At the centre of the general misunderstanding of electricity economics it that it has peculiarities that are not intuitive to nonexperts. This revolves around the fact that electricity cannot be stored. Sure, electricity can be converted to something else and then stored (think batteries and hydro, usually with great wastage), but actual electricity cannot be stored.

This means electricity must be created the very moment it is needed, so electricity can be drawn by the devices that use it. It is pulled and not pushed. These two fundamental properties make electrical systems unique and tricky. You need an entire and vast infrastructure up and running ready to deliver electricity the moment it is needed. There are very few, if not no, parallel industries to draw comparisons with.

To help simplify this intellectual challenge, and to try put this complexity into terms we can probably all understand, think of electricity as a product having both an “instantaneous cost”, that varies over time, and a “quality”.

The instantaneous cost is difficult to predict or even calculate after it has been used. Is the sun shining? Wind blowing? What spare capacity must we be running just in case? What is the cost of oil, gas, coal today? Remember, you can’t tell specifically where the electrons you are using came from.

Quality refers to dimensions such as what level of outages can be tolerated. And what variability of supply is needed. What are the voltage tolerances that are acceptable to the equipment I am running? How ”noisy” is the supply? Quality comes at a cost, and is even more difficult to calculate than instantaneous cost.

So, your electricity used to boil water at 11am, and the electricity used to cook dinner at 6pm, compared with the electricity used to manufacture steel all day, are very different products.

Sharing and subsidies

These products need to be recovered from the users of the electricity: us. How should this be done, and who should subsidise whom?

Most of the time only a simplified cost measurement called the levelised cost of electricity is used, at least in the public domain. This divides the total amount of electricity produced by a plant over its life, divided by the total costs of building and running that plant. While not incorrect, this is not very useful in comparing one source of power to another, when considering the “instantaneous cost” and “quality” dynamics.

This oversimplification is worsened by the fact that most of us are paying a single rate all day, all year round, regardless of cost or quality, so none of us have an intuitive feel for the problem or the solutions.

What is now clear is that our energy market is not working properly. It is inefficient. And this inefficiency means supply does not match demand. The result? Load-shedding.

It's a false narrative to suggest we can simply choose between one type of power generation versus another. We cannot. What we need to be doing is studying the resources available to us, such as coal, gas, sun, wind, bio, nuclear materials, land, water, waste disposal assets; and figuring out what is the lowest-cost to provide sufficient amounts and quality of electricity needed to run our country efficiently. 

For too long the process has been political

There are no simple answers, with the decision timetable being decades long and many of the input costs changing daily. The answers for SA will be different to other countries as our electricity demand is as unique as our energy resources. 

We can’t leave these decisions to the politicians, nor public opinion, and definitely not the lobbyists; but rather to scientific processes run by economists, finance experts, engineers, planners, project managers and environmental scientists — all informed by public policy.

What we, the public, must demand from our politicians is to depoliticise the process, assemble the experts, let them do their job, and guarantee us, the public, that the process is transparent and corruption free. All our future birthdays depend on it.

• Pattison, a former CEO of Edcon and Massmart, is an electrical engineer with specific interest in renewable energy. He is a regular guest lecturer in strategy at GIBS.