Mistra Book Launch �“A Just Transition to a Low Carbon Future in South Africa”

Shaping a new economic growth model for South Africa - the role of a well-managed energy transition

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By Dr Kenneth Creamer

24 February 2022

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Current context

• Load shedding is directly costing the economy billions of Rands per year,
• The indirect cost of South Africa’s electricity shortage, in the form of investments that are not being made and jobs that are not created, is so huge that it is difficult to comprehend. It is one of the reasons that South Africa has been trapped on a low growth path for the past decade and more.
• The programme to restore electricity security in South Africa together with the ongoing energy transition has the potential to stimulate growth and employment over the next 10 to 20 years – or it can lead to economic disaster
• A key objective of the energy transition should be to restore economic growth and employment creation through
• the restoration of reliable and widespread access to competitively priced, low-carbon electricity,
• taking advantage of all potential backward and forward linkages that such an investment programme will entail.
• A failed energy transition will result in ongoing electricity shortages and deepening poverty and inequality as scare electricity is accessible mainly to the well-off and the economy continue to shrink and decay

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4 Major interventions for energy security

1. Government’s Integrated Resources Plan (IRP 2019) puts forward a plan to invest in over 30 000 MW of new capacity over the next 10 years – it recognises that wind and solar power are the least cost options for new generation, but also include nuclear, gas and coal in SA’s future energy mix
2. Government has announced policy is to allow private entities – factories, farms, mines shopping centres, etc – to invest in up to 100MW of new electricity capacity without needing to follow cumbersome licensing procedures
3. Government’s emergency procurement programme knowns as the Risk Mitigation Independent Power Procurement Programme (RMIPPP) although questions have been raised about the costs and design of this programme, and there have been delays due to allegation of corruption
4. Eskom will be restructured into a generation entity, a transmission entity and a distribution entity, so as to recalibrate the pubic utilities strategic role (to make this vision practical mechanisms must be found to deal with its crippling debt of around R400bn)

Changing technology costs and low carbon objective are key drivers of the energy transition

• The reason that wind and solar electricity is coming up so fast in the IRP 2019 is due to the fact that these technologies (along with gas) are the lowest cost and have the shortest lead times
• Low-cost electricity is important for economic competitiveness and to assist in electrification of homes and villages
• Low carbon electricity is important for international competitiveness as there is talk of trade barriers against target intensive production
• New industries can be created from this both upstream (building wind towers and solar panels) and downstream (green hydrogen, green steel and electric vehicles) (but industrial policy must be well-designed and based on business logic rather than imposed in an ill-informed manner)

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Much of SA’s Just Energy Transition centers around Mpumalanga

• Account must be taken of the fact that Mpumalanga is SA’s most important province for the just energy transition
• Mpumalanga’s main advantage is that is at the heart of SA’s electricity grid - this will make it cheaper to connect new solar and wind electricity generation plants to the national grid
• Eskom already has announced plans to:
• Release land in Mpumalanga for wind and solar plants
• To repurpose old coal power stations to include gas, wind and solar
• To build industrial hubs for the manufacture of smart grids (inside movable containers) for electrification of villages
• The coal mining companies will continue to supply coal to Eskom and for export for decades ahead and are intimately linked into the Mpumalanga economy e.g. supplying water to Emalahleni
• All of this new potential and legacy issues will have to be carefully managed by Mpumalanga – perhaps in a Social Compact for growth, jobs and a just energy transition
• Financing is potentially available for Eskom and Mpumalanga through the various mechanisms including the R131bn offer made to SA for its just energy transition at the COP26 meeting late last year

Does technological change lead to job gain or job losses?

• Theoretically – it can be shown that technological changes can result in more employment and higher wages, just as it can be shown that technological change can result in job losses and lower wages. (Move from A to D)
• In practice - the actual outcome is conditional and depends the policy environment and how the supply-side of the economy actually responds to the technological change.

The outcome is contingent

• It is South Africa’s legal and public policy frameworks and the practices of trade union and employer organisations that will all determine outcomes
• Risks to incumbent workers and affected communities will be reduced:
• if public resources are mobilised to re-skill workers,
• if public utilities are able to repurpose ageing plants and provide new employment opportunities, and
• if policy frameworks operate efficiently and new firms are able to rapidly begin deploying the new technologies.
• If such contingencies do not occur, then there is a real risk that losers will outnumber winners and that the net effect of the technology shift will be negative.  

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Progress requires that we be forward looking, not backward looking

• Many workers and firms in the coal sector will continue to have employment as coal production will continue for decades to come, but over time it will be phasing down and some workers and firms will need find new employment pathways as there will certainly be some closures
• To manage this process will require political leadership and a clear forward-looking vision
• The process which will be made easier if new jobs and new firms are opening-up linked to the energy transition and upstream and downstream of the energy transition