Poor Energy Policy Undermines Energy Diversity in South Africa

By Glenn Ashton · 15 Jun 2011

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Picture credit: Chuck
Picture credit: Chuck 'Caveman' Coker

In 2010 Anton Bredell, Western Cape Environment Minister, reported that his department had received applications for installation of over 11 000 Megawatts (MW) of wind energy generation capacity. This is more than double the capacity of the controversial Medupi coal fired power station. This could make the Western Cape a net exporter of clean energy.

However a number of bureaucratic stumbling blocks have delayed and may halt these mainly privately funded, market-driven initiatives. Instead of being a simple matter of getting planning permission and connecting the grid, government structures remain more of a hindrance than help. 

Our national energy policy remains contested ground. Despite years of discussion about opening up and diversifying our energy market, the reality has been unnecessary delays simply through a failure to put concrete policies and supportive energy regimes in place. This vacillation was directly responsible for the scheduled rolling blackouts, euphemistically referred to as load shedding, in late 2007. 

Despite these massive economic costs, the political jockeying and intransigence continues. Instead of opening up the market Eskom did some navel gazing, belatedly focused on energy efficiency and more than doubled its prices. 

Instead of promoting generating diversity and a competitive environment Eskom retreated to the energy laager, fast-tracking one of the word’s biggest coal fired power plants. Eskom continues to ignore concerns around the impacts of human triggered climate change. Its massive CO2 footprint and political influence combine to directly undermine sustainable development in South Africa.

Persistent delays in finalising Integrated Resource Plans (IRPs) lie at the heart of our problems. If we had harnessed all of the hot air generated by debating various iterations of IRPs since 2002 we wouldn’t need new generating capacity! The most recent version, IRP 2010, was promulgated nearly a year behind schedule and has generated huge controversy around its focus on coal and nuclear generation. 

Along with IRP delays, the finalisation and clarification of the Renewable Energy Feed-In Tariff programme (REFIT) continues to compromise investment in renewables. The first iteration, published in 2009, is under revision and is tangled in red tape. It is remarkable how government fast tracks political priorities like secrecy bills, media tribunals and disbanding the Scorpions yet cannot finalise economically critical matters like energy policy.

The continued delays and non-consultative nature of IRP 2010 are directly related to this political intransigence and interference. The now infamous exposé of the ANC’s Chancellor House investment arm and its deals with the Japanese Hitachi consortium, contracted to supply boilers to the Medupi and Kusile power stations, hints at the extent of the problem.

The revolving door between political players and empowerment schemes is well established. For instance the Public Protector, Lawrence Mushwana found ex-politician Valli Moosa to have acted improperly. As Chair of Eskom he should not have been involved in awarding the Medupi boiler tender to Hitachi because of his ties to the ANC and hence Chancellor House. 

According to a report by Shawn Hattingh of the International Labour Research and Information Group, Moosa also purchased shares in the services company Drake and Scull (which purchased Tsebo Outsourcing, previously Fedics) shortly before granting them a contract at Eskom. This sort of manoevering and influence peddling raises red flags about the structuring of IRP 2010 and related energy programmes. 

During the late 1990s, the government’s market driven policies encouraged independent power producers (IPPs) to take up any slack in generation capacity. These Pubic Private Partnerships (PPPs) were stymied by Eskom’s excess capacity, lack of buy-in by Eskom and artificially low energy prices. 

>â€A few small IPPs showed interest but their fingers have been seriously burned by the lack of clear policy. IPSA’s Cogen plant was contracted by Eskom to supply power over the World Cup period but remains marginalised. This uncertainty deters IPPs from entering the market. New policies are promised but not yet promulgated.

The IPPs dealing in renewable energy remain deeply affected by this uncertainty. They are further deterred by the proposed state tender system where the state will be the final arbiter of who delivers how much power to the grid. This is just one reason we have little chance of meeting promises for Carbon Emissions Targets set by the Department of Environment, by 2013.

The IPP regulatory system also introduces significant opportunities for economic and political interference. This is because well-connected individuals can align themselves with various energy start ups, either to improve BEE scoring or through providing access to tender committees, prime examples of rent-seeking and political patronage. 

Given our power generation squeeze it is short sighted to impede the entry of new sustainable energy generation companies. If they are able to get planning permission, to install windmills, solar plants and provide power to the grid they should be encouraged, not kept waiting, dependent on arcane systems. Instead of facilitating entry, artificial barriers to entry are erected. 

We also should ask why there has been such serious focus on large generation sources such as coal, nuclear and solar thermal, rather than decentralised, medium and micro supplies that encourage a diversified energy supply. Perhaps this is not only about stable energy supplies, but goes far deeper. 

Given what happened with the Hitachi/Chancellor House deal, it is clear that mega-projects are far more prone to skimming and abuse by elites. Instead of fast-tracking an unambiguous energy policy, the vultures continue to circle. 

Cosatu opposes any privatisation of our power generation capacity because of the profit motives involved. It has indicated preference for a centralised, state run energy utility. This would be sensible if Eskom was capable of pursuing its founding mandate to supply energy at lowest possible cost. The reality is that this mandate has been rapidly eroded and compromised poor planning and political interference. 

Conversely, organisations like the Free Market Foundation insist that private capital would not enter the energy market if Eskom was competitive. The reality is that recent mismanagement has seen Eskom becoming an uncompetitive monolith.  

Wind generation is already becoming directly competitive with Eskom’s escalating tariffs, without subsidisation. Wind energy companies will be able to generate power at less than half of the estimated R2.40 per kW rate Eskom is projected to be charging in 2014, underlining their eagerness to enter the market. Solar power and even innovative renewables like current generation must be enabled to enter the mix, through adoption of progressive energy policies.

It is notable that coal will be more costly than wind and even solar generation, especially if all the externalities are considered. Nuclear will be by far the most expensive option and it would never be considered by IPPs. Nuclear is not competitive; no unsubsidised, independent nuclear power generation facilities exist anywhere in the world. Fukushima will make nuclear even more expensive as further safeguards are installed. The latest third generation nuclear plants in Finland, France and USA are all going to be prohibitively expensive and our government is naïve in its wish to pursue nuclear options, on cost considerations alone.

It is also important to note the implications of the “Protection of Information Bill” for energy policy and transparency. Because energy is a key strategic resource, this “secrecy bill” would permit the state to declare any related information confidential. This would make it impossible to expose Chancellor House/Hitachi type deals. It would enhance the ability for graft, crony capitalism and politically connected cadres to rob us blind. Instead of being supported, whistle-blowers would be punished.

Diversifying our energy supplies means shifting away from coal and nuclear. They are each deeply problematic energy sources for complex reasons. Efficient diversification means shifting away from centralised energy generation. The recent publication of the draft Independent System and Market Operator (ISMO) bill should encourage open competition in the energy market. 

If private power generators are able to reliably produce renewable energy at competitive rates, surely this benefits us all? Eskom has only itself to blame for its lack of competitiveness. By transparently opening the market, diversity of supply will naturally follow. Anyone, even trades unions, could invest. 

Arguments that micro and medium power producers are unreliable are archaic. Modern communications, coupled to meteorological reports can inform a centralised electricity control system by sharing predictive inputs (weather reports, service downtime) and real-time generation patterns.

Our chaotic energy policy and planning, exacerbated by political short-termism, crony capitalism and secrecy, underlies most of our energy problems. It is not an option to throw energy generation to the wolves. However we would collectively benefit by creating an enabling climate where all players, from micro-generators, to medium sized renewable providers are able to contribute to a sustainable and energy secure future.

Ashton is a writer and researcher working in civil society. Some of his work can be viewed at Ekogaia.

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