The economics of renewable energy in South Africa

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Photo: PA/NIC BOTHMA

There are controversies and contradictions around energy in South Africa, to a point where the modus operandi of supplying electricity have been highly politicized at the expense of the ordinary citizen. The energy sector in this country is characterized by skewed distribution, corruption, maintenance inefficiencies, high prices and periods of complete darkness resulting in low production which in turn contribute significantly to the poor performance of the economy. 

The heart of an urban and industrial economy lies with the functionality of the energy sector. It ignites effective and faster production, consumption and most importantly information dissemination. With that said, for an economy to grow it is imperative that the energy sector then becomes the apex of its priorities. The current stance on the energy debate, is the phasing in of Renewables into South Africa’s economy as the main supplier. 

This means that the current 70:30 ratio between Eskom and Independent Power Producers should be adjusted to bring this new technology intended to improve the current conditions of Energy. Coal, in its present state, supplies 77% to electricity production and employed 86 919 people in 2018 contributing 19% to the mining industry. South Africa is the 5th largest coal supplier in the world with reserves of 66.7 billion tons estimated a life-line of 200 years. 

Despite the utopia outlook of coal supply, the sector has been largely dominated by oligopolies wherein 79.6% of the country’s total coal production is derived from 6 companies and only 26.1% is from 4 Black-owned companies. Regulations are stringent for new players to attain mining rights and participate in the sector. With that being said, the oligopolistic nature of coal supply with Eskom being a monopoly utility supplying 70% of energy in South Africa, has realized a hefty coal bill contributing significantly towards the entity’s current R450 billion debt. Another bone of contention is the issue of sustainability. 

Despite the estimated 200-year lifeline, the population of South Africa grows each year, making it difficult for economies, particularly those at the periphery to attain electricity. This poses a desperate need for a forward thinking strategy to Energy Sustainability. South Africa is the 12th most attractive investment for Renewable Energy. Independent Power Producers have attracted investment to the value of R201.8 billion where only 24% are foreign investment. This growing industry has induced small-to-mediumbusiness participation creating the opportunities to realize 5 million jobs. This is a clear indication of the economic opportunities and appetite the renewable energy posits. 

Furthermore, this sector provides a more reliable alternative to electricity supply. The current configuration of energy, given that it solely relies on a single Entity, has left the economic conditions of South Africa in a plethora of crises. Load shedding as an example has resulted in citizens with no alternatives, in the midst of darkness. The President has recently written a letter to the United Nations with the plan to build a R160 billion solar power plant in Mpumalanga. 

Albeit a hefty upfront payment, renewable energy suggests a cost effective and reliable electricity supply with low maintenance, low reliance on foreign energy sources with the sole intention to turnaround the economy. The political controversy around having alternatives to energy supply is the weakened sovereignty and high risks of exploitation. In contrasts, there’s an already implied weakened sovereignty if 79.6% of supply to produce the electricity lies only on 6 companies. 

A phasing in of renewable energy will force the oligopolies in the coal sector to downsize. This will curb the high risk of policy influence maintaining the status quo, low accountability on Eskom and political inconsistencies resulting in the poor state South Africa is currently in. There is a desperate need for an alternative to improve energy distribution. The monopolistic form of governing energy has brought more harm than good. The periphery economies continue to battle with energy supply whilst central economies have difficulties with prices. 

Government and the ruling party are facing major challenges in finding innovative ways to ignite the economy and Energy is at the helm of it all. The fragmentation of a three sphered economy, i.e. the urban, township and the rural economy continue to be untransformed. There’s a lack of political will to revive these economies and there’s no clear broad macroeconomic approach intended to grow them, ultimately creating inclusive opportunities. 

Government and the ruling party must take decisive steps, given the failures. The proposed economic strategy approach by Minister of Finance is mainly focused on an inclusive economy and opening barriers for new economic participants. Therefore, policy positions on energy must review the 70:30 energy distribution and renewable energy must take center stage to align with the proposed economic approach. 


Noma Gamede is an Economist and Political Researcher.