In this commentary, independent economic consultant Rob Jeffrey cautions that a future electricity mix which relies heavily on wind and limits the contribution of coal could undermine South Africa’s plans for addressing unemployment and poverty
There is a critically important debate taking place in the media at present regarding South Africa’s future power generating sources as set out in the 2016 update to Integrated Resource Plan (IRP 2016) base case and assumptions. The current debate centres on the strong supporters of its findings and those with a contrary view. The outcome will determine whether South Africa faces a dark future of slow economic growth and rising unemployment or the potential of achieving high sustainable economic growth and achieving the only key objectives that matter to this country, namely reducing poverty, inequality and unemployment.
The difference arises as to whether the country selects a reliable, secure and stable source of electricity at the lowest possible price or not. The fact is that electricity growth is a necessary but not a sufficient condition to achieve economic growth. Naturally, high sustainable economic growth can only be achieved if supported by other economic, social and political policies.
Unfortunately, this appears to have become a debate between fact and fiction. The facts are simple truths and logical argument, which are often deliberately not mentioned or insufficiently emphasised. It is perfectly true that:
• Wind is today one of the cheapest sources of generating electricity.
• Both wind and solar energy sources are relatively free, and the cost to harvest this free energy is falling.
• Wind and solar are variable, unreliable and unpredictable.
• They require extensive back-up by way of either storage or alternative highly reliable electricity generating sources.
• Importantly, neither of them can generate electricity for immediate use and for storage at the same time.
What is not said and certainly not emphasised are the following truths:
• Wind only supplies electricity at best on average 34% of the time. It is highly variable, unreliable and unpredictable.
• Solar is only available to generate electricity on average 26% of the time.
• Solar has considerable advantages over wind because it is more predictable. It is only able to generate during daylight hours. During this period, it on average generates electricity 52% of the time.
Many people are not aware that all energy is derived from the sun and earlier periods as stars form and collapse in terms of their nuclear life. At that time, heavier elements were formed, such as nuclear material and carbon, the essential basis for all human existence. The most efficient usable energy storage systems are natural and are today stored underground. Nuclear is the most efficient, formed by their earlier nuclear processes followed closely by fossil fuels, primarily coal, gas and oil from plant growth driven by the sun. Thereafter comes energy from current solar activity namely biomass, wind, tidal, hydropower and of course solar and wind.
The above truths are supported by facts from the real economic world:
• South Africa is still in an industrial phase of its economic development. It is an emerging economy with a natural comparative advantage in its mineral resources, its abundant labour force and its agricultural potential.
• The engine rooms of economic growth and employment are mining, manufacturing, and agriculture and those sectors that beneficiate their output. They require secure dispatchable electricity at the lowest possible price.
• Wind and solar are highly unreliable and variable. In other words, their electricity supply is not dispatchable
• Nuclear and coal are the cheapest sources of supplying sustainable dispatchable electricity.
• Renewable electricity requires extensive back-up either in the form of expensive storage or from alternative source of secure reliable electricity generating sources. This makes their delivery costs higher or marginally lower at best.
• Due to the variability of wind and solar there are significant periods when electricity cannot be supplied. As a result, there is an economic cost to the economy, called the cost of unserved electricity.
• The back-up assumptions to the IRP 2016 estimate this cost at R77.30 per kWh.
• When the full costs arising from the variability are included the cost of wind exceeds the costs of coal and nuclear.
• It has been estimated that as a result of the electricity crisis since 2008, the cost of unserved electricity has reduced the gross domestic product (GDP) by more than R300-billion.
• The cost of virtually destroying the coal mining industry and its associated exports could, by 2050, reduce the GDP by 3% or more, and increase unemployment by more than 150 000.
• The above cost excludes the fact that these policies are driving mining investment, both foreign and domestic, and investment generally away from this country.
• The proposed policies will also dramatically increase opportunities that exist for junior miners and local beneficiation.
These facts are not mentioned by those vested financial and idealistic interests favouring renewables. In fact, they are studiously and deliberately avoided.
The facts set out above are supported by events overseas. Firstly, ‘energiewende’, the German policy to eliminate nuclear- and coal-based electricity and make the country virtually completely dependent on renewables, primarily wind, is now considered to be a total failure. Germany has put a cap on further wind development and has withdrawn all subsidies associated with wind. Electricity prices in Germany and Denmark are now more than 65% higher than nuclear France and the highest in Europe. The policy is chasing industry out of the country and has resulted in rising levels of energy poverty in a rich country. This is true elsewhere in Europe, even in the UK, as well as in California. The impact of the current cold winter is considered by many to be the final nail in the coffin for energiewende.
South Australia is another spectacular example of the failure of the policy of increasing wind based electricity. The prices of electricity in South Australia have increased significantly and are approximately 50% higher than in coal dependent Queensland. Political, financial, economic and environmental experts in both these countries and elsewhere are strongly condemning any major use of large-scale wind. It is not surprising under these circumstances that German wind energy manufacturers are targeting new markets, particularly in Africa and South Africa.
The above truths and facts based on practical experience and evidence support the view that baseload electricity should be supplied by proven technologies namely, in South Africa, clean coal and nuclear. This involves building new clean-coal-fired power stations and importantly the refurbishment of old power stations with clean-coal technology as an urgent major priority. Solar and gas must support these plans. Both these technologies could become major industrial drivers. Gas, however, must be found in significant quantities in South Africa in the form of shale gas, coal-bed methane, or new offshore or onshore gas discoveries. If this is not possible, and gas is developed on a major scale, South Africa will become a major energy importer as opposed to the current little-recognised position of being an energy exporter. The full socioeconomic impacts of changing from a coal-based energy country have not been fully or realistically considered.
High growth economies of the world, namely India, the Asean countries, such as Indonesia and Vietnam, are increasing their use of their natural resource coal not decreasing it. Former US President Barack Obama recognised the needs of these countries and recommended that clean-coal technology be used. America’s new President, Donald Trump, has clearly indicated that he favours increasing the use of fossil fuels, including coal, because of the material economic and social damage caused in the Midwest by closing coal plants. It has resulted in increasing unemployment amongst the lower middle classes and the poor in these regions. The same fate could await those in power in South Africa if that were to occur here. Poverty is globally the world’s biggest social and health problem. Energy poverty is rising wherever excessive wind is used and where reductions in coal use have taken place.
Finally, it has been disturbing to watch the debate in the media on the benefits derived from wind when there was a shortage of supply of electricity. It is true. However, it is biased and one sided. When there is a sufficient electricity supply from a stable reliable source, it is not true. In fact, the opposite is true.
Germany has been forced to export surplus electricity at a loss and when there has been a shortage of electricity to import the shortfall at a considerable cost. Effectively, this amounts to a subsidy to their wind energy industry. In South Africa, the same occurs, except that here it is not possible to import electricity when there is a shortage. The cost to Eskom is a straight subsidy to the wind industry paid by electricity users throughout the country. The fact is that renewables and the carbon tax are regressive taxes as they hit the poor hardest.
Eskom has the legal and moral obligation in terms of its mandate to "supply secure electricity at the lowest possible cost” to business, to foster economic development, and, naturally, to the public. Eskom is currently being criticised unfairly by some commentators for doing exactly that, placing the facts before the public and executing its mandate.
In conclusion, there are domestic and foreign financial and idealistic interests that are unknowingly or knowingly driving the country in a direction that in time will prove to be a social and economic disaster as the facts above prove. It is strange that in this country, amongst some experts, there is such a strong bias towards wind when all the evidence and recommendations from experts in countries that have experience of major wind strongly point in the opposite direction. The correct decision supported by the facts above is that South Africa needs to foster proven competitive technologies, namely clean coal, nuclear, solar and gas, providing the contracts are awarded in terms of public, fair and competitive legal tenders. Energy, electricity and employment growth are the keys to South Africa’s future economic, social and political prosperity, sustainability, stability and individual economic freedom.
If South Africa follows the path of increasing renewables and cutting the use of coal and nuclear, South Africa is indeed heading for a dark future.
Jeffrey is an independent economic consultant