Portfolio Committee on Energy
Mpho Ramonotsi
South African Energy Policy Proposal - Towards Inclusive Growth and Black Industrialist Policy
9 September 2019 4:26 p.m.
Dear Portfolio Committee on Energy,

South African energy policy under the ANC leadership is dominated by uncertainty with respect to the key drivers of optimal energy mix for the sector. Although the ANC government and its bureaucrats have shown pragmatism in dealing with these challenges, this pragmatism is reaching the stage at which it may be hindering more than it is helping the transformation of the sector. Consequently, there is no transparency or acknowledgment of the damage done to economic growth and Radical Economic Transformation especially when it comes to the costs and benefits of the various options. Moreover, by also not recognizing the costs of indecision or of reversing decisions based on public perception and political considerations rather than on facts.

Several studies world-wide has shown that for each percentage increase in industrial output, electricity consumption increases by 0.09%. This suggest that for GDP growth of 10%, the country like South Africa should plan to increase electricity supply/production by at least 10%.

In South Africa it has been shown that there was an increasing trend on electricity generation till around 2007 when generating capacity flattened and this can be directly related to the end of economic growth. The electricity production was increasing at the rate of 500GWh per annum between 1985 and 2007 or roughly 5% per annum. The government policy that saw the end of power generation has resulted in several technical recessions and growing unemployment. The other factor that the government need to consider in energy policy beyond energy provision for inclusive economic growth is the energy price. In South African the effects of prices of energy is largely ignored. The government, if inclusive growth has to take top priority, has to take the effects of prices of energy resources on economic growth.

Berk and Yetkiner (2013) as well as other researchers such as van Zon and Yetkiner (2003) studied the relation between energy price and economic growth and showed that the growth rate of energy price has a negative effect on the growth rates of energy use and the real GDP. The results showed significant cointegration between energy prices and the real GDP per capita as well as between energy prices and energy consumption per capita. Moreover, long-run elasticity estimates reveal a negative and significant impact of composite energy prices on both GDP per capita and energy consumption per capita. Studies have furthermore found that the energy prices have negative and significant long-run effect on both energy consumption and economic growth.

When it comes to energy supply management, the government should use a balanced mix of energy sources in South Africa as stipulated in the Integrated Energy Plan (DOE, 2013) and the Integrated Resources Plan (IRP, 2010), (see Figure 4). The Integrated Energy Plan (IEP) should remain an over-arching plan that informs the development of various parts of the energy policies and roadmaps, such as the IRP. The government should no longer vacillate to implement the IRP of 2010 which sets out the development of new generation capacity for South Africa. This plan was developed to take into account the need to optimise costs, promote job creation and mitigate adverse climate change. and these metrics are equally vital for Radical Economic Transformation.

There is a strong lobbying to lock the South Africa energy supply to the renewables with exaggerated affordability figures. The challenge with renewable energy sources is characterized by their cost and their intermittency. This makes the development of renewable energy sources difficult without public subsidy. The only hope for renewables to become competitive is to make use of the so-called ‘grid parity’, which is the possibility for these sources to compete against fossil-fuel and nuclear sources on a level field. The ‘grid parity’ (or socket parity) occurs when an alternative source can generate power at a levelized cost of electricity (LCOE) that is less than or equal to the price of purchasing power from the national grid. The European study published by Albrect et. al. (2012) shows the total cost of (LCOE) of Solar 198EUR/MWh, Wind 107EUR/MWh, Nuclear 98EUR/MWh, Coal 67EUR/MWh and Gas 76EUR/MWh for different energy sources respectively. Renewables remains expensive but should not be ignored for the long run as the price and technology will surely come down.

Recommended Policy Positions on Various Energy Sources:

1. Coal
• As stipulated in IRP 2010, the coal should constitute 65% of electricity supply down from the current 90%.
• The government must recognize that coal is relatively abundant resource in South Africa and it should retain the lion share of energy supply. However, the country must insist on low carbon emission technologies for coal fired generators such as the technologies employed at Medupi and Kusile. Much like the Canadian President, although he's considered a champion of climate change in the world, he still insists its ludicrous to ignore the abundant natural resource in the ground when considering climate change and economic growth. This is why Canadian government is expanding the use of oil sands in Alberta despite their dirtiness when it comes to environment.
• The government must also work tirelessly to change the concentration of coal industry which is currently dominated by five major producers: Anglo American Coal, Glencore Xstrata, Exxaro and BHP Billiton Coal South Africa (BECSA) which together accounts for 84% of the country’s total saleable production, with the remaining 16% being accounted for by junior coal producers (DMR, 2015).
• The diversification of coal industry must be achieved by introduction of exclusively new suppliers on to new project such as Kusile and Modupi. The policy of using only new supplier with the correct demographic ownership will secure the business case for the existing producers while coupling the diversification or exclusivity of the industry with economic growth.
2. Nuclear
South Africa under the current government has vacillated beyond reproach on nuclear energy and energy security in general. The country needs strong leadership that can respond to the country energy needs and address the desperately needed Radical economic Transformation and Growth.
Nuclear Energy Institute (2014) also reported that nuclear plants create the largest workforce annual income based on both large capacity and being a labor-intensive technology.
• South Africa possesses sizeable uranium reserves and has an extensive uranium mining industry, making the country one of the important producers of uranium in the world. Department of Mineral and Energy in 2008 contended that the presence of Uranium as a primary energy source in South Africa is a key element of security of energy supply nationally.
• From global climate change perspective, nuclear power is another reason to develop a new generation of nuclear power reactors. Nuclear power plants emit relatively little carbon dioxide, mostly from nuclear fuel production and auxiliary plant equipment. MIT in its report also stated that: “Our position is that the prospect of global climate change from greenhouse gas emissions and the adverse consequences that flow from these emissions is the principal justification for government support of the nuclear energy option.”
• Nuclear power is poised to be a major energy source and economic engine for many decades to come. In addition to providing clean and reliable electricity, nuclear energy will also continue to play a key role in supporting energy security, creating jobs, and providing export opportunities. South Africa will be dammed to ignore the advantages presented by nuclear energy in the face of surmounting challenges of illusive inclusive economic growth.
3. Renewable Energy
• South Africa has run a very successful Renewable Energy Independent Power Producer Programme (REIPPP), which has resulted in 79 projects being commissioned since 2011, with 1,500 MW of the total of 5,200 MW that will be added to the grid from these projects already online (Forder, 2015). However, as mentioned, renewables requires large public subsidies and their intermittency makes them unaffordable when both redundancy and storage is taken into account. Hydropower is also not viable for South Africa as a reliable energy source or storage due to water scarcity in South Africa.
4. Natural Gas
• As compared to coal, natural gas is more costly. Its price has been very volatile and generally on a rising trend in recent years as a result of the increasing demand globally for cleaner energy. Natural gas price delivered to South Africa in the foreseeable future is difficult to predict at this stage. However, the discovery and exploitation of large-scale shale gas production in the Karoo or offshore of Mosselbay should be pursued as this can bring prices down and make price volatility more constrained. Shale or offshore gas can also bring about much needed economic boost in terms of GDP growth and positive impact on unemployment.
• At this stage, South Africa depends on imports which also affect balance of payment and is exposed to currency fluctuations. The long distance transportation to deliver natural gas to South Africa, and the strong global market demand, makes the prices in South African market not to be expected to get as low as they are in Europe and North America. It is therefore a policy travesty to promote the use of gas for electricity generation in South Africa. Perhaps, shale or offshore gas exploitation can change these dynamics.
5. Liquid Fuels
• South Africa is still heavily reliant on liquid fuels for transportation and agriculture. South Africa has very limited known oil and gas deposits (safe potential for shale and offshore gas), its current fuel-refining capacity is insufficient to meet local demand for liquid fuel products, and the shortfall is being met through imported refined products. In recent years, the country has become increasingly dependent on imported petrol and diesel. In 2013, four-billion litres of diesel and 1.2-billion litres of petrol were imported; and it has been estimated that, by 2020, South Africa will have to import 180 000 bbl/d of petrol and diesel if there is no significant investment in local refining capacity. This makes South Africa an attractive prospect to energy groups involved in importing the fuel. But this place a heavy burden on balance of payments. The imports of liquid fuels constituted 66% of South Africa ́s liquid fuel consumption. The rest of liquid fuels requirements are produced from coal. These numbers are an indication of the strong role which coal plays for the South African economy.
• South Africa should increase its coal-to-liquid production and this policy can also be used to transform the economy without affecting the current industry incumbents. With regard to the development of coal derived liquids, and given the continuum of policy positions, where at one extreme is the hands-off position, which favors the free operation of the market and private decision-making unfettered by government interference, and on the other extreme, where the government provides large-scale support of coal-to-liquid industry for black industrialist to ensure successful development of the industry that can displace conventional oil imports while radically transforming the economy. The former approach has been tried in South Africa for the past 23 years and has failed to increase production of liquid fuels from coal or even to transform the economy. It is time to consider the latter approach where government intentionally assist black industrialist to enter the market of coal-liquid fuel industry. The technology is simple, the barrier to entry is financial capital requirements. Government could assist black industrialist much the same way the previous regime helped SASOL to take off.

6. Hydrogen and Platinum Fuel Cells
• The advantage of hydrogen economy in South African is that it can be produced through variety of sources such as thermal, electrolytic, or photolytic processes applied to fossil fuels, biomass, and water. Coal can be used to produce hydrogen through Fischer-Tropsch technology employed at SASOL. Renewable and nuclear systems can also produce hydrogen from water using thermal or electrolytic processes. The thermal production process, which uses steam to produce hydrogen from natural gas or other light hydrocarbons, is also most common. The hydrogen can either be consumed on site ("captive" hydrogen) or distributed via pipelines or trucks ("merchant" hydrogen). Hydrogen can be stored in its elemental form as a liquid, gas, or as a chemical compound, and then converted into energy through fuel cells or by combustion in turbines and engines. Each of these components of the hydrogen industry has been under development and demonstrated in various countries.
• South Africa, as the world’s main producer of platinum which is used as a catalyst in PEM fuel cells for FCEVs and other fuel cell applications should see the supply of PGMs to fuel cell markets as having a potential to lead Global industry. The country should aim to supply majority of global PGM-based catalyst demand by 2030. It worth noting that South Africa’s Department of Science and Technology’s (DSI) launched a National Hydrogen and Fuel Cell Technologies Flagship Project, also known as Hydrogen South Africa or HySA in 2008. The HySA project was envisioned as a long-term (15-year) Hydrogen and Fuel Cell Technologies (HFCT) Research, Development, and Innovation (RDI) strategy for the country. The overall vision of the HFCT RDI strategy is to bring about wealth, job and IPR creation through the initiation of new high technology industries based on minerals found on South African soil, especially Platinum Group Metals (PGMs). The project is also meant to pioneer the production and usage of renewable hydrogen in South Africa for fuel cell and energy storage applications. In 2015, South Africa had two major project implemented based on hydrogen economy.
• The government should:
A. Provides incentives for installation of fuel cell facilities in residential areas and buildings including government buildings.
B. Ensure incentives are offered on the purchase of hydrogen-powered cars utilizing platinum catalyst and the installation of refuelling stations.
C. Promote domestic fuel cell vehicle market growth and to transform the current automobile landscape with fuel cell powered vehicles utilizing platinum catalyst.