Finance minister Tito Mboweni released a surprise 77-page economic policy document on Tuesday (27 August), detailing National Treasury’s plans to spur economic growth in South Africa, and create a million new jobs.
One of the key issues raised in the document is power utility Eskom, and the question of South Africa’s energy future.
Mboweni echoed the findings of a recently leaked discussion document on Eskom, which found that the utility’s business model is unsustainable, and that it needs to restructure and reform to avoid collapse – bringing down South Africa with it.
Among the policies and plans in the economic document are proposals to split Eskom’s business, and a proposal to sell off some of its coal-fire power stations to raise R450 billion.
Other measures, however, also include shifting South Africa’s power production towards renewable energy, and allowing independent power producers (including private citizens with solar panels, etc) to feed excess power into the grid.
The strong case for renewable energy in the document hails back to the ANC’s pre-election manifesto, which all but dropped previous talk of nuclear energy, punted heavily under former president, Jacob Zuma.
Nuclear energy also took a back seat in the country’s draft Integrated Resource Plan (IRP) published in 2018, in favour of renewable energy.
Despite energy minister Gwede Mantashe’s recent comments around nuclear energy being part of South Africa’s energy mix, Mboweni’s plan makes it clear that the country doesn’t really have the capacity for it.
Not only in terms of finances – but also in skills.
Treasury stressed that in addition to cost considerations, the technology choice in electricity planning should also be influenced by the availability of skills and South Africa’s existing capabilities.
“Renewable technologies require more low- and semi-skilled workers whereas nuclear technologies require highly skilled experts and technicians, which are in limited supply locally,” it said.
A strong case for renewables
While the country’s energy planning is tightly aligned to the IRP – which does still include nuclear plans, along with restrictions on renewables – research done on models that were not restricted found that renewable energies were likely the best option to follow.
According to the documents, the Council for Scientific and Industrial Research (CSIR) used the same modelling framework as the Department of Energy (DOE) to develop an unconstrained, least-cost version of the IRP.
This model did not include the limits imposed on renewables and has the results of the latest IPP bidding rounds as inputs for the cost of solar photovoltaic (PV) and wind.
The CSIR found that, by 2050, its least-cost mix would cost R70 billion less per annum than the DOE’s base case.
Renewables’ share of total energy would be over 70% in comparison with the current 30% limit in the DOE’s base case. At the same time, this would generate half the emissions, create more jobs, consume significantly less water, and still satisfy projected demand.
According to Treasury, the IRP takes a long time to update, but it is becoming increasingly necessary to updated more regularly to keep up to date with the rapidly changing technology landscape, which is making energy production cheaper and easier.
However, while the document speaks to the future of the country’s energy production, it warned that consumers will come under increasing pressure.
Between 2008/09 and 2016/17, electricity prices increased by an average rate of 18.2% per year, based on energy regulator Nersa’s annual increases.
“To ensure Eskom’s sustainability going forward, electricity tariffs will need to continue to increase,” Treasury said.
This will place a significant burden on firms and households, it said.Even with a relatively low projected electricity tariff path, electricity expenditure by households will almost double by 2030,
Lower- to middle-income households will be affected the most, putting further strain on welfare, economic growth, investment, and employment.
Over time, these pressures will force households and businesses off-grid, which has further negative consequences for Eskom and municipalities who rely on electricity sales as a revenue source, Treasury warned.
With fewer people on grid, and revenues declining, municipalities will be unable to provide its free electricity mandate to those on welfare.
As a solution, the document suggests that municipalities start sourcing revenue through other means – while social housing projects should incorporate solar power into their plans.