By Ebrahim-Khalil Hassen · 4 May 2012
Whilst it is early days in the costing of our government’s infrastructure investment programme, ballpark figures suggest R800bn will be spent over the next 20 years. The numbers are still to be tallied, but it appears that the proposed nuclear power stations will be the biggest beneficiaries of government investment since 1994.
Government’s second Integrated Resource Plan indicates that nuclear energy will contribute to approximately one quarter of all power generated in South Africa by 2030. According to the 2012 Budget Review, government has budgeted R350bn for the proposed nuclear power plants over the next 15 years. However, independent estimates suggest that the total investment cost could go over R700bn. The exact mix between “user pays” and government funding is not yet clear, but either way, it is certain that citizens will foot the bill.
Those advocating nuclear power argue that nuclear power is safer today, would reduce electricity costs in the future, ensure consistent energy supply as well as support rapid economic growth. However, our current energy trajectory represents only one vision of reality. It is a reality of South Africa continuing to be an exporter of cheap electricity to the aluminium-smelting sector. The alternative reality of South Africa in 2030 - one without aluminium smelters - is not factored into our energy scenarios.
Nevertheless, this is a foundational costing that we must undertake before we invest in nuclear power stations. Despite the arguments in their favour, what is still not certain is whether we in fact need these nuclear power stations -- and there can be no definitive answer to this question until we assess a future without aluminium smelters.
Opponents of nuclear energy have raised cogent arguments against the proposed power plants. The safety of nuclear energy and its impact on our ability to achieve a low carbon future suggest that renewable energy provides a safer and cleaner alternative.
The arguments go deeper, quite importantly, linking our energy future to job creation.
The Electricity Governance Initiative of South Africa, a group consisting mostly of research organisations, argues that spending on nuclear energy will crowd out renewable energy initiatives and consistently reduce the employment creating impact of infrastructure spending. In fact, the “One Million Climate Jobs Campaign”, which has notable community organisation involvement, predicates its policy positions on a virtuous cycle of a low energy future that is labour absorbing and has developed a set of practical and achievable strategies to create one million jobs.
Our present situation muddies the link between a low carbon future that supports an egalitarian society and the need for nuclear energy. The factor that most muddies that link is the aluminium smelters.
Aluminium has been called “congealed electricity” because converting bauxite (aluminium ore) into aluminium metal is an energy hungry process that is probably the most energy-intensive industrial process in the world. It should be noted that bauxite ore is not mined in South Africa, but is imported from several countries.
The exact usage of electricity by aluminium smelters is not transparently stated in Eskom’s Annual Reports; however, there is broad agreement that smelters use as much or more than entire cities. Estimates suggest that between 5-7% of all energy produced in South Africa is used by aluminium smelters. The return is however minimal in terms of jobs with just a few thousand jobs being directly created and limited downstream linkages. More to the point, the smelters pay a “developmental price”, which is cheaper than most businesses are charged for electricity.
There is sufficient evidence to suggest that an energy future without smelters should be considered. The National Development Plan hints at this possibility, but sadly does not provide definitive guidance.
In this regard, government needs to undertake an exercise that has three primary aims. Firstly, to estimate our energy needs both with and without aluminium smelters. Secondly, based on these estimates, it should revalue the cost of infrastructure investments. And thirdly, the developmental impacts in terms of environment and job creation need to be assessed.
Government officials recognise that spending huge amounts of money must yield developmental returns for our society in order for it to progress more equitably and prosperously. Consequently there is support for such an exercise in some quarters of government. In this case government even has the support of the manufacturing and construction industries.
Companies in the manufacturing and construction sectors are beginning to make the argument that input prices need to be reduced for them to play an effective role in the infrastructure investment plan. One way to reduce prices would be, over the medium term, to shift “developmental pricing” enjoyed by the smelters towards sectors such as manufacturing and construction, which are labour intensive and more supportive of local industries.
In an even broader sense, because of the opportunity cost, the question we should be asking is: “Should we be building nuclear power stations or supporting National Health Insurance and small businesses?”
The stakes are exceptionally high. Together with programmes arising from industrial policy and the New Growth Path, government will be scaling up programmes such as the National Health Insurance and Community Works Programme over the next 15 years. Each of these programmes is essential to South Africa reducing unemployment and building capabilities for the poor. However, each of these programmes already facing tough budgetary challenges, is having to consistently motivate for spending over the medium term – a prospect made even more difficult by government committing to spending R300bn on nuclear power plants over the next decade or so.
The foundational argument is however more devastating. In a year of low economic growth, contracts signed with the builders of nuclear power plants will take precedence over other spending areas. It leads to the disturbing conclusion that should we face a recession over the next 15 years, we would be forced to pay for the nuclear power stations and cut funding in other areas, including flagship programmes that could create a more inclusive and equal society. Europe’s socially disruptive austerity programmes should strike a cautionary note here.
Nuclear energy is an emotive subject, but separating fact from myth is important if our hard earned tax revenue is to realise tangible results. It is crucial for our government to develop energy scenarios - both with and without aluminium smelters - to make a clear assessment of whether or not South Africa is prioritising support for enterprises that are energy and capital intensive over labour intensive initiatives. Such an assessment would also need to consider the cost of cancelling existing nuclear agreements. There is an important reason underlying this. South Africa must nurture and support the budding vision of a low carbon and labour intensive future for our society.