A ‘just transition’ is complicated – panel

24th November 2020 By: Marleny Arnoldi - Creamer Media Online Writer

As South Africa emerges from the Covid-19-induced economic crisis, the most strategic objective would be to relieve the economy and its growth path from the stranglehold of insufficient access to sustainable and competitive power generation, advisory Pan-African Investment and Research Services founder and CE Dr Iraj Abedian has said.

He has published a research paper on a just energy transition, which states that even before the pandemic struck, the country had already recorded a technical recession, the second in just two years, which is in part owing to State-owned energy utility Eskom’s inability to supply adequate and reliable electricity.

During a webinar hosted on November 24 to discuss his research, which forms part of the University of the Witwatersrand School of Governance research drive on a just energy transition, he highlighted that the energy transition should rather be one of "optimal" consideration, instead of “just”, since it can never be that all parties are satisfied with how the energy sector is transforming in South Africa, particularly not for coal stakeholders.

Abedian said that, over the past 12 years, South Africa’s sovereign rating had been downgraded three times, while the country had lost billions of investment opportunities and unreliable and expensive energy supply had been at the heart of this economic contraction, with many job losses linked to de-industrialisation.

“We have a real opportunity to turn the crisis of energy and [the] damage it had caused into a different paradigm – a more diverse, environment-friendly and socioeconomically compatible sector – by using new technology,” Abedian noted.

He added that South Africa had, for the most part, been self-sufficient in terms of energy generation, and did not have to import power; however, if the new policies around energy are not configured right, "we risk seeing South Africa needing to import power".

Abedian also believed that if government created the environment and support for local manufacturing, the country could produce the items demanded by a new energy mix and thereby create jobs and re-industrialise.

He mentioned that asset financing would also have to be reconfigured to account for self-generation across households and commercial enterprises.

Further, Abedian pointed out that a new energy mix in South Africa would bring about a just transition for municipal spend, since they would traditionally get power from Eskom, put their own margin on it before selling to consumers and often not pay Eskom for the power in the end.

He explained that it was an easy form of revenue for municipalities, but a new system would require them to trim down and reinvent themselves to become more efficient, if they are to generate revenue.

Consultancy EE Business Intelligence MD Chris Yelland agreed that the question of “just” meant different things to different stakeholders. Instead, he remarked that South Africa needed to avoid inflicting economic and social wounds that would present problems for decades to come if they were not addressed properly.

Yelland was of the view that South Africa needed to look at short-, medium- and long-term solutions.

“In this process of industrialisation that is so critical, we need to take into account spatial planning in the just transition. We do not need to build all our solar power in the Northern Cape, nor all the wind on the eastern coast to avoid transmission losses and be closer located to customers. We should look at re-industrialisation where there is existing infrastructure, roads, labour and other services.”

He noted that, although the energy transition would still take decades, it provided the country time to educate young people in renewable energy; create value chains for manufacturing and services related to renewable energy; create the right regulatory and legal frameworks that were consistent; create spatial location incentives, tax incentives and import tariffs; and build trust between the private and public sectors.

Advisory firm Meridian Economics MD Dr Grové Steyn echoed the sentiment that a just transition needed a broader perspective.

“We tend to only focus on the communities that would be affected by the declining coal mining sector. However, there are other considerations such as what happens when the power sector continues to fail to provide adequate power and jobs in other parts of the economy are lost.

“As important are the many communities who have never participated in industrial activity at all, because of the nature of the historical energy generation sector, which had no participation spread across the country,” Steyn noted.

He believed renewable energy had the potential to be the least import-intensive of all energy technologies in South Africa.

He said that, with properly coordinated policy frameworks, it was possible to localise almost all of the value chains for both solar and wind manufacturing, for example.

Moreover, Steyn mentioned that South Africa was at risk of foregoing vital trade agreements, trade activity and foreign investment, since institutions, governments and businesses are increasingly partnering with countries that are low emitters of carbon dioxide and are affecting a renewable energy transition, as well as those with generally greener practices.

He said this was already evident in how banks are divesting from fossil fuel assets and increasingly retracting support for fossil fuel project development. South Africa remains a massive carbon dioxide emitter, with fossil fuels being used in all elements of its energy mix, which is not only a risk to the country’s long-term growth, but also its international trade and finance relations.

Lastly, Steyn mentioned that South Africa may well need new models around buying and guaranteeing of power, since government did not have the capacity to absorb those guarantees at the moment.

“We need new market models and regulatory reforms to leverage balance sheets for companies to take equity in new build projects.”