The choice between a path of economic growth or stagnation over the next decade depends on the
energy mix selected for SA and the policy choices that are made for this country.
Public Enterprises Minister Lynne Brown recently gave cause for hope when she said SA was not about to turn its back on coal. However, the debate still rages on how quickly SA will move towards renewables.
The criticism of Eskom and its executives for refusing to sign power purchase deals with 37 independent producers selected under the government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is unjustified and unfair.
They were merely carrying out their mandate to provide electricity in an efficient and sustainable manner, as a strategic contributor to the government’s goal of ensuring power security and enabling economic growth and prosperity.
The facts strongly suggest that renewable sources of energy — primarily wind and solar — cannot help Eskom achieve its mandate and aims.
There is a perpetual debate about the levelised costs of electricity (LCOE) and the fact that wind and solar have the lowest LCOE at about 62c/kWh compared to coal’s R1.05/kWh and nuclear’s R1.30/kWh.
However, these figures do not take into account that the renewables deliver electricity less than 34% of the time, are highly variable and subject to the vagaries of the weather.
Their generating lives average 20 years, compared to a nuclear plant’s 60 years.
Dispatchable electricity (coal and nuclear) cannot easily be compared with nondispatchable electricity (wind and solar).
Studies measuring energy returned from energy invested (EROI) have shown that all renewables, except commercial solar installed in the Sahara Desert, are uneconomic. Unless there is a major breakthrough in energy storage, renewables must be subsidised indefinitely.
Because society requires so much energy, when the overall EROI drops below 7:1, an economy contracts and a country is at risk of recession. Backed-up wind and solar have orders of magnitude less than 4:1, while nuclear and coal have magnitudes several times higher.
Land owners bordering on wind farms have found their land devalued by up to R3,000 a hectare
These figures were arrived at in a research study conducted
in Germany. The figure of 7:1 may drop slightly in less developed economies.
Doubtless there will be countless people who will be able to prove that EROI is not a justifiable measure. In 2016, the prices paid for electricity by industry in Germany were 52% higher than France (nuclear) and 86% higher than Poland (coal).
In Ireland, often used as an example of the success of wind power, the equivalent comparisons were 34% compared with France and 64% compared with Poland. Ireland is a tiny country with a grid of only 4.7GW.
Electricity in the US appears to be about half the price of equivalent German prices. On average, Germany’s price appears to be 44% higher than other average electricity prices in Europe. This has cost Germany jobs and businesses.
Renewables Subsidies
The Wall Street Journal estimates that Germany’s electricity costs have risen 60% due to the country’s subsidies of renewable energy.
This has lowered their GDP, standard of living and competitiveness. Several companies, including BASF, SGL Carbon and Siemens, have moved or are considering moving their operations from Germany.
Another concern is the land area involved in producing renewables. For example, onshore wind farms in Germany produce less than 2W per square metre of land. A modern oil field produces an average of 90W per square metre of land. Nuclear requires minimal land area, and although coal requires more space, it remains negligible compared to wind and solar.
SA’s Integrated Resource Plan (IRP) contains scenarios that will involve more than 10,000km² of land. This is equivalent to 1,500km of coastal land 3km deep for wind turbines and a similar length of mountainous land and other wind-farm areas.
Land owners bordering on wind farms have found their land devalued by up to R3,000 a hectare. Environmentalists are concerned about the devastation caused to habitats of birds, bats, insects and other forms of life, including human health.
The renewables faction will no doubt also find it difficult to argue with the plans for increasing the use of coal and fossil fuels in many countries.
Japan is set to build 45 high-efficient, low-emission coal plants producing about 45GW.
The International Energy Agency forecasts that 730GW worth of these plants will be built by 2040.
Despite being one of the most richly endowed coal countries in the world, SA is planning to increase its coal output by less than 15GW. According to the planning, SA is happy to increase exports to countries that will increase their manufacturing and industrial sectors more efficiently and effectively, and then export lower-priced goods to SA. This will ensure that SA’s structural deficit
continues and the country has lower economic growth for years into the future.
The renewable lobby will find it difficult to argue with the fact that SA will pay an extraordinarily high economic price if its coal industry declines.
If Eskom’s demand were to decline 37% because of closing coal plants, it is estimated that the coal sector would shrink 17%. This would reduce the country’s GDP by more than 0.9% (R27.8bn) and reduce employment by more than 60,000 people, affecting almost 250,000 dependants.
It is also likely that export sales of coal could be reduced by more than R10bn a year. The overall economic effect would be far greater — probably more than 300,000 people would lose their jobs.
The IRP 2016 base case and unconstrained scenarios are more than likely going to be the final nail in the coffin for the mining industry.
SA is facing economic stagnation with major economic, political and social implications.
Unfortunately, there are many vested domestic, foreign financial and idealistic interests in the decision mix.
Not least are financial institutions that have entire departments geared towards pushing the renewable energy agenda. They are interested in the rich prize of investing their own and clients’ funds in long-term, high-return, index-linked government-guaranteed investments. They are joining forces with foreign financial interests that have only one aim: to increase their renewable technology sales in a new market.
Meanwhile, their domestic markets are at best losing steam if not declining because of a failure of the technology.
Look closely at the failure of "energiewende" in Germany and wind in South Australia.
The future energy potential of SA lies in the efficient, proven technologies of nuclear and coal that give the country a competitive edge and comparative advantage, reinforced by solar for domestic and general business use.
These must be supported by a significant expansion of gas, but only if SA can find it in sufficient economic quantities.
The way forward involves building new modern coal plants and refurbishing old power stations where economically possible, not to close them. Yet, the IRP 2016 plan is about
to result in the overinvestment in a technology that has proven to be one of the world’s least economically efficient and effective technologies.
It is not surprising that sailing ships and clippers — although beautiful — became obsolete
and died out in the second half of the 1800s.
Eskom’s officials are doing their jobs — looking after the interests of the country and the public. Renewables, particularly wind, increase energy poverty and effectively become a tax on the poor.
• Jeffrey is a senior economist and managing consultant
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