Perspectives on �Just Energy Transition

Dr Kenneth Creamer

National School of Government’s Winter School

20 April 2023

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Outline

• Synopsis of the World’s Energy Problem
• Prices and policies drive technological change
• The Energy Trilemma Framework
• The Just Energy Transition in South African
• Final Word - Developing a common narrative
• Reading Resources

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• The production of energy is responsible for most greenhouse gas emissions (that cause global warming and climate change)
• People in the richest countries have the highest emissions.
• People in poorer countries require greater access to energy

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Synopsis of the World’s Energy Problem

The world’s energy problem breaks down into two related parts:

1. The first energy problem: those that have low carbon emissions lack access to energy (energy poverty)
2. The second energy problem: those that have access to energy produce greenhouse gas emissions that are too high

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Problems of energy poverty

• When people lack access to modern energy sources for cooking and heating, they rely on solid fuel sources – mostly firewood, but also dung and crop waste.
• This comes at a massive cost to the health of people in energy poverty. Indoor air pollution is estimated to be responsible for 1.6 million deaths each year
• The lack of access to energy subjects people to a life in poverty. No electricity means no refrigeration of food; no washing machine or dishwasher; and no light at night.
• Also there is less likelihood of gaining employment due to lack of electricity.

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Problem of high green house gas emissions

• Greenhouse gas emissions are currently too high.
• The problem is larger for the extremely rich, but it isn’t limited to them.
• The majority of the world population – the rich and the middle class – have greenhouse gas emissions that are far too high to be sustainable over the long run.

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Summary of the global energy problem

• Many live in energy poverty
• For the rest, greenhouse gas emissions are too high if we want to avoid severe climate change.

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Implications of this analysis

• If all the world’s poor were to see an improvement in their livelihoods and were to produce greenhouse gases at the same rate as those for whom greenhouse gas output is too high, then global warming will accelerate
• If the rate of green house gas production continues for those for whom greenhouse gas output is too high, then global warming will accelerate
• So, what is the way out of this dilemma?

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The rising threat of global warming

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Way out of this energy crisis

• The world must find large-scale energy alternatives to fossil fuels that are affordable, safe and sustainable
• We must make progress in the fight against energy poverty, but this will only translate into good living conditions if we can reduce greenhouse gas emissions at the same time.
• The key to making progress on both of these fronts are the signals received from policy and prices.
• Government policy has a particular role to play in leading the process of reducing energy poverty and in guiding the energy transition, this is key to achieving the vision of a just energy transition that decarbonizes and reduces energy poverty

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Changing prices drive technological change

• In recent years there has been an alignment between policy and prices
• Previously, fossil fuels dominated the global power supply as electricity from gas and coal was far cheaper than electricity from renewable sources like wind and solar.
• This pricing situation has changed within the last decade.
• In most places in the world, electricity from new wind and solar plants is now cheaper than power from new fossil fuel plants.

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Global technological shift underway

• In the electricity sector, new renewable generation technologies – which are typically smaller, distributed to many places, and are often privately owned – are displacing the vertically integrated electricity model of the past century. 
• Renewable sources like wind and solar are typically variable, and to see to it that supply can meet demand (load) renewable sources are part of a mixed system that includes diesel or gas peaking plants (that can quickly adjust as required), legacy coal plants, hydro plants, and battery storage systems
• Like the mobile digital telecommunications revolution of recent decades, the energy transition will have profound consequences for the operation of economies around the world:
• electric motor vehicles are on the way,
• the production of new products like green hydrogen, green ammonia, and green steel are on the global agenda.
• ”New technologies are closely connected to national power and strength… New technology represents an advance in productivity. The appearance of new technology not only encourages breakthrough economic development, but also changes the structure of global competition.” – Henry Sanderson’sVolt Rush

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Role of the State

• The state has a particular role to play in guiding the energy transition, facilitating modernization and the deployment of new technologies, stimulating industrialisation and reducing energy poverty
• This vision should inform a new set of objectives for Developmental States, which in previous periods focused mainly on industrial development and export promotion, but should now seek to advance the just energy transition
• Not always through direct state ownership, but more often than not through the creation of attractive investment conditions
• To be effective, State policies would need to be forward looking, capable of mobilising society around the national interest, in a manner that is relatively autonomous from powerful vested interests in business and labour, that are often backward looking
• Many African state’s face adverse conditions – financial constraints, rising indebtedness, political instability, security challenges, unfair global conditions, negative effects of global warming, extreme weather, prolonged droughts, and geopolitical destabilisation

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The Energy Trilemma Framework

• The World Energy Council coined the Energy Trilemma to describe balancing three, sometimes competing, priorities:
• Energy equity  including access and affordability;
• Energy Security including Reliability and Stability; and
• Environmental Sustainability including climate change, water-use, and air quality.  

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• NOTE, It could be argued that in South Africa, and other developing countries, Social Sustainability (e.g., employment, livelihoods, skills) should be added as a fourth priority.
• Others have argued for measures of battery storage to be included, and others for the inclusion of scores based on the energy/water nexus e.g. droughts can impact on livelihoods and energy security in countries that make use of a lot of hydropower

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Top Perfomers and Improvers in 2022

• The overall Trilemma Top Ten Performers for 2022 are largely unchanged from previous years rankings
• The top ten overall Improvers have increased their Trilemma scores by at least 25% since 2000.
• The list includes four Asian countries, two from Latin America, two from Europe, and two from Africa.
• Most are characterised by historically low levels of energy access but have made significant efforts to extend their grids and increase energy access in recent years.

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Energy Security

• The Energy Trilemma uses the latest published data to calculate performance at a snapshot in time and compares with historical data to measure progress.
• It is not a predictive tool of what might happen in future, it is based on the data used as they are at the time.
• The presence of European countries among the top ten performers for Energy Security reflects their performance over time and is not indicative of the current energy security challenges facing the region.

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Energy Equity

• The top Energy Equity improvers are from sub-Saharan Africa (Ethiopia and Kenya) and South East Asia
• Their progress is primarily due to investments in energy infrastructure to substantially increase energy access to their populations.
• All the top improvers despite their progress, are still within the lowest D rating for Energy Equity – so there is still much progress to be made

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Comment on Kenya’s positive performance

• The report notes that Kenya has made significant progress on improving electricity access as per UN Sustainable Development Goal 7 (UNSDG7) to ensure access to affordable, reliable, sustainable and modern energy for all.
• Kenya’s ongoing National Electrification Strategy to provide universal electricity access has added >50% of the population to the electricity network over the past decade which has helped to double the country’s energy equity score over the period.
• Yet, despite this improvement, Kenya still achieves a D rating for energy equity, so there is still a lot of room to continue to improve, especially on key metrics like clean cooking technologies (where burning of wood is still prevalent).
• For electricity generation, Kenya is about 50% geothermal, followed by hydro and solar/wind, with negligible hydrocarbon-based energy sources.

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Environmental Sustainability

• Environmental Sustainability measures the performance of a country’s energy system in avoiding environmental damage and mitigating climate change.
• It considers energy resource efficiency, decarbonization, carbon dioxide and methane emissions, and air pollution.

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Just Energy Transition in South Africa

• While globally the just energy transition is about combining decarbonsation with reduced levels of energy poverty, in South Africa much emphasis has ben placed on offering alternative pathways for workers, industries and communities negatively affected by the energy transition.  (This may also be due to the fact that South Africa has a relatively high rate of access to electricity.)
• In Coal producing areas, like Mpumalanga, a number of coal power stations will be repurposed and closed over time (mainly as they come to the end of their economic lives).  
• For example, Komati power station is over 60 years old – and activity is being created for new industrial activity on site to build containerized solar systems to electrify off-grid rural villages. 
• Also, Mpumalanga is well-endowed with grid access, so Eskom land is being made available for new wind and solar investment. This will create new employment opportunities.
• A coal company, Seriti coal, has set up Seriti Green in that area to build facilities to produce renewable power. 
• Petro-chemical giant, Sasol is also planning to build renewable energy components and hydrogen production facilities in this area.

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Just Energy Transition in South Africa

• For the sake of South Africa’s national interest and to improve prospects for employment and economic growth South Africa needs to be forward looking in how it leads the energy transition
• The process will be more resilient, and less hotly contested, if effective employment-creating pathways are put in place for those who are made vulnerable by the energy transition. 
• The introduction of carbon border adjustment mechanisms by the EU will pose a risk to South African competitiveness, exports and jobs if the country does not move decisively to decarbonize its electricity production.
• The US, Europe, China and others are contesting who will have the greatest economic and industrial benefit from this energy transition process, and there is scope for South Africa to also position itself to benefit from upstream and downstream industrial activity linked to the energy transition.
• Even though it has been shown that the country’s electricity shortage and loadshedding will be most rapidly overcome by the implementation of government’s Energy Action Plan (announced in July 2022) which includes accelerating investments in the just energy transition, the implementation of this plan has been put at risk due to political pressures associated with the ongoing loadshedding crisis

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SA government plans to overcome loadshedding

1. Skills and finance are being mobilised to assist Eskom to improve the maintenance and performance of power stations.
2. Funds are being mobilised to buy more diesel for diesel peaking plants
3. There has been a removal of red tape on private investment in electricity generation stimulating a spike in investments in new generation capacity.
4. Tax incentives have been put in place to make it easier for households and firms to invest in their own solar systems
5. Environmental exemptions have been allowed so that Kusile power station can get up and running again by the end of the year after it suffered damage to its chimney system.
6. Budget relief has been announced for Eskom on condition that Eskom is restructured and there is accelerated investment in the country’s transmission infrastructure by Eskom’s unbundled Transmission Entity
7. SA’s Just Energy Transition Partnership with France, Germany, the United Kingdom and the USA and the EU will mobilise highly concessional finance and grants in order inter alia to expand investment in grid capacity and the repurposing of end-of-life power stations.

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This is a selection drawn from a wider set of Energy Action Plan interventions.

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Accelerated investment in new capacity will assist in ending loadshedding?

• As an indicative example, modelling by Energy Specialist Clyde Mallinson has shown the following:
• Scenario 1: The current electricity situation in February 2023 with loadshedding indicated by the area between the red line (load or demand) and supply.

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Scenario 2: The counter-factual electricity situation in February 2023, if coal fleet performance were to be increased by 5%, and if there were 8 GW of solar, 5 GW of wind and 3 GW of storage added.

Then South Africa would not have experienced loadshedding, there would be more space to maintain Eskom’s coal fleet and we would not need to burn nearly as much diesel.

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Expanded capacity is being driven both at utility scale and smaller scale

• A constraint for the implementation of the IRP is that planned grid investment has not taken place so it is difficult to bring new electricity generation capacity onto the grid.
• As result of grid constraints, in December 2022, Bid Window 6 for new wind and solar capacity, was only able to announce 850MW to 1000MW of new projects rather than the planned for 4200MW.
• Investment in new grid capacity is urgently required (and it is one of the key investment objectives of the restructuring of Eskom and the concessional finance of the Just Energy Transition Partnership), but such investment will take some time to realise.
• Given this constraint, firms and households are also encouraged to invest in generation capacity, such as, rooftop solar and battery systems, which use local distribution networks rather than wider transmission networks.
• This has been done by removing licensing restrictions on private investment in generation capacity (see TIPS data in next slides), also through the introduction of tax incentives, and systems for feed in tariffs are under consideration

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Growth of renewable energy investment in South Africa

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Growth of renewable energy investment in South Africa

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Eskom to be restructured

• To be fit for purpose in the new energy-technology environment, and as has been done equivalantly in over 100 countries around the world, Eskom will need to be restructured into three entities, namely a Generation entity, a Transmission entity and a Distribution entity.
• Electricity from various sources will be supplied into a single national grid run by the Eskom Transmission entity.
• Eskom’s Transmission entity will manage the grid and will serve as a neutral intermediary contracting with public and private entities generating electricity, as well as those running consumer-facing distribution systems, a large part of which is likely to be Eskom’s Distribution entity.
• Eskom unbundling and grid strengthening and extension are essential components of the modernisation of South Africa’s electricity sector to facilitate increased private investment in generation capacity and to replace the erstwhile logic of monopoly provision with increased levels of competition.
• If Eskom is not restructured, due, for example, to political opposition, it will likely slide more into debt and dysfunction and public policy leverage over the energy transition will be progressively weakened.

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Final Word - Developing a common narrative

• There is a lot of noise around the just energy transition, but it is imperative to develop a common narrative to guide government policy. This will entail:
• Mobilising finance and investment to overcome energy poverty, especially in Africa where energy poverty is most prevalent.
• Embracing the opportunities offered by technological change and finding linkages tonew mining and industrial opportunities for our economies.
• We need to avoid policy error. There is a significant risk of investing in what will become ‘stranded assets’. For example, future revenue streams may not be secure for large investments in long-term oil projects if the world is moving towards electric vehicles

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Reading Resources

• Shaping a new economic growth model for South Africa - the role of a well-managed energy transition, Published in “A Just Transition to a Low Carbon Future in South Africa” – published by Mapungubwe Institute for Strategic Reflection (Mistra), By Kenneth Creamer (April 2022)
• Policy Brief Climate Policy is Macroeconomic Policy, Published by Peterson Institute for International Economics By Jean Pisani-Ferry (August 2021)
• How can SA advance a new energy paradigm, UCL IIPP Working Paper, 2022
• World Energy Council, Trilemma Index 2022
• The World’s Energy Problem, Max Roser, December 2020

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