South Africa's Electricity Crisis: Beyond the Price Debate

By Michelle Pressend · 19 Jun 2008

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The rising price of electricity has dominated the media and many public debates in the last month. Indeed, concern about Eskom’s proposed 53 percent tariff increase was at the centre of discussions at the Energy Summit, which took place on 16 May 2008, in Sandton. 

The 'price issue' is a critical debate because it has huge implications for people's affordability and access to electricity, particularly the 'energy poor' in this country - 30 percent of South Africans do not have access to electricity.

However, there seems to be an enormous blind spot in current electricity pricing debates - no one appears to question the source of our electricity supply, which is dominated by a coal strategy, nor how our reliance on coal energy affects the price of electricity.

Our government's energy plan premises South Africa's energy future on a coal and nuclear strategy with limited renewable energy targets, pegged at 10 000 GWh (gigawatt hour) to the final demand by the year 2013. A report by Groundwork suggests that if this is a 'per year' figure, renewable energy amounts to 1.5 percent of final consumption, which is extremely low compared to South Africa's energy consumption from coal that is approximately 75 percent.

Even though South Africa has about 200 years of coal reserves, there are a number of reasons why a predominately coal-based strategy will have a negative impact on South Africa's current and future economic development.

Firstly, climate change - South Africa’s reliance on coal has made it a major contributor of carbon dioxide (CO2) emissions and we are ranked the 11th largest emitter in the world. South Africa is a middle-income country but has one of the highest levels of CO2 emissions, per capita, in the world, whereas India's per capita energy consumption is extremely low. In present climate change negotiations, emerging economies like South Africa are faced with mounting international pressure to commit to CO2 emission reduction targets.

Secondly, South Africa has to consider the domestic socio-economic and environmental impacts of coal energy. Pollution from coal not only contributes to environment problems in the form of land degradation, acid rain and smog, but also imposes serious social costs in terms of health problems, such as respiratory diseases for workers and communities living close to coal power stations.

Thirdly, South Africa’s reliance on coal and energy intensive industries may face future non-tariff trade barriers in the export of our energy intensive products as Northern countries are significantly investing in renewable energy and energy efficient production methods. Debates on environmental standards and eco-labelling are ongoing at the World Trade Organisation negotiations with a strong push from the European Union to negotiate on these issues.

Fourthly, studies indicate that oil peak scenarios and the high price of oil, make net oil importing African countries highly vulnerable to oil price shocks, both because they are highly reliant on oil as a fuel and because they lack the resources to cope with such shocks, such as providing support mechanisms for poor people.

Therefore, the high input cost of oil in the production and transport of coal energy has an impact on the price of electricity and has further knock-on effects increasing the price of consumer goods.

The Director-General of Public Enterprises, Portia Molefe, explained at the Energy Summit that one of the reasons for the electricity price increase is that Eskom has not kept up with inflation, while the inputs of coal and diesel have risen dramatically – she said, "the coal price index rose by 93 percent and diesel by 190 percent". Eskom transports coal using diesel trucks so their transportation costs most definitely influence the price of electricity.

Climate change, the social-economic and environmental impacts of coal energy, the depletion of fossil fuels and the high oil price all provide signals to shift away from a high carbon energy intensive economy to a low energy one.

In this moment of 'energy anxiety', energy security has become a national priority for many countries. The future of those countries primarily dependent on fossil fuels does not look bright; however, climate change and the energy crisis provides an opportunity for emerging economies to significantly change their production and consumptions patterns by investing in alternative sources of renewable energy, creating greater incentives for energy efficiency and developing efficient public transport.

Amongst the emerging economies, India, Brazil and China are soaring ahead with renewable energy. According to Leena Srivastava from the Energy Research Institute in New Delhi - India sees the potential for investment in renewable energy as it is well endowed with solar, wind and biomass (organic matter). In fact, India has set up an entire Ministry of New and Renewable Energy.

Research currently being conducted in India shows that price projections for solar photovoltaic power generation are in the range of 10-12 cents/kWh while those of solar thermal power generation are about nine cents/kwh, targeting 2010. These projections are calculated in American currency.

Brazil has been the industry leader, developing ethanol production from sugar cane, following the 1970s oil shock. Furthermore, several projects aimed at rural electrification include solar home systems, wind farms, biomass power and photovoltaics. A study on energy efficiency and renewable energy in Brazil shows that the government provides specific financial, fiscal and legal incentives for cogeneration plants and small hydroelectric plants. For example, a policy was enacted during their electricity crisis, which requires national utilities to purchase over 3000 megawatts (MW) of renewable energy by 2016.

In his recent article, “China’s Long March Towards Energy Security”, which appeared in the March 2008 edition of Global Dialogue,  Bo Kong, chief energy and environmental economist in China, stressed that the central government has prioritized energy intensity reduction by 20 percent in 2010.

The Chinese government has put in place administrative measures and market incentives to induce energy conservation and discourage over-investment in high polluting and energy intensive sectors, particularly targeting electricity, steel, non-ferrous metals, construction materials, petroleum processing and petrochemicals – because they account for 70 percent of national energy consumption.

Furthermore, China has become one of the world’s leading investors in renewable energy, contributing $6 billion of the global total investment of $38 billion in 2005.

Renewable energy generated from wind, solar, ocean and geothermal power are the fastest growing sectors according to the International Energy Agency - but from a very low base, points out the Groundwork report. In 2004, these produced around 0.6 percent of global energy supplies and have the greater share in electricity generation two percent. According to this report most the growth is located in the global North. 

Yet in South Africa, Eskom continues to subsidize energy intensive industries and has signed contracts with aluminium smelter developments providing low cost electricity. In the article, 'No Rush to Pick up Tab', Lynley Donnelly demonstrates how residential users subsidise industrial and commercial use of electricity. Mike Schussler, T-sec economist explains, "the difference between what Eskom charges its residential users and industry customers is 168 percent, compared to the international tariff of residential versus industry tariffs, which is 51 percent

The Energy Intensive Users Group (EIUG) and Brian Statham, chairperson of the South African Energy Association, counter this view. Statham states, "it is much cheaper for the electricity utility to provide large amounts of electricity at higher voltages to a single entity, than it is to provide power to a large number of residences, covering a larger area, at a much lower voltage".

This argument however, excludes the unaccounted socio-economic and environmental costs as well as the fact that South African residences don't have a choice but to consume coal energy.

Studies indicate that there are a number of factors acting as barriers to a sound renewable energy policy. Some of the barriers include subsidies for competing fuels, high initial capital costs, difficulties of fuel price risk assessment, transaction costs and environmental externalities. Renewable energy also faces legal, regulatory and technical constraints.

Notwithstanding these constraints, addressing climate change and meeting energy needs, must be done in a way that it curbs carbon emissions.

Investing in renewable energy can lead to self-sufficiency making energy importing countries less vulnerable to global market fluctuations; it also creates opportunities for new industries and has immense job creating potential.

So while government, business, labour, political parties and community organizations are bickering about the future price of coal based electricity, we can only help but wonder why our energy crisis is not leading us to transition to low carbon development that puts in place incentives and punitive measures for energy intensive users, ensures access and affordability for poor people, creates jobs and provides options for all to make more sustainable energy choices.

Pressend coordinates the Trade Strategy Group (TSG) at the Economic Justice Network and Global Network Africa at the Labour Research Services in Cape Town. She is also an independent socio-political analyst on global issues related to trade, environment and climate change.

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Rory Short
22 Jun

Renewable Energy

I could not agree with you more Michelle. As somebody who is very environmentally aware I simply cannot understand Eskom's thinking. It fits a pattern which is at least 50 years out of date. Are these folk not living in the 21st century.

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