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Renewable Energy Fact Sheet – Shumi Mudavanhu & Jeff Rudin

Until fairly recently, Renewable Energy was widely seen as being the welcome future that couldn’t come soon enough. Most dramatically, this changed, in March 2017, when a coal truckers’ demonstration caused peak-hour traffic mayhem in Pretoria. The cause of the mayhem was the truckers’ hostility to the Government’s intention of going ahead with its renewable energy programme. Since then, Renewable Energy has become a hugely controversial issue, subject to multi-pronged attack from a wide range of sources, including Ministers of Zuma’s Government, the (Zuma-era) Eskom, the Coal Truckers Forum, trade unions, trade union federations, academics and civil society (via social media and the radio).
Rational debate between the various antagonists has not been possible because of diametrically opposed claims and counter claims. Yet, a substantial body of basic facts do exist. This Fact Sheet seeks to provide a core of basic information that can, with confidence, be described as incontrovertibly accurate.

The Fact Sheet makes no claims beyond this; nor does it take or promote any particular position. Those are matters it leaves for further debate.

The format of this Fact Sheet is to present the main claims being made against renewable energy. Each italicised claim will be followed by the briefest possible statement of the actual situation.

However, there is first need to point to a common mistake. Both sides of the controversy often conflate renewable energy – the wind and sun technology – with the government’s privatisation of renewable energy in the particular form of its Renewable Energy Independent Power Producers Procurement Programme (REIPPPP). Both the technology and its particular form are open to critique, but it must be clearly understood that they are not the same. This is to say, a critique of REIPPPP is not necessarily the same as a critique of renewable energy itself.

Finally, this Fact Sheet expresses no opinion regarding the different forms of ownership to which renewable energy readily lends itself. That, too, is a matter for subsequent debate.

***

1. Renewable Energy is more expensive than coal.

(a) This was partially true but is no longer the case. The already contracted REIPPPP consists of 4 stages covering the 4-year period between November 2011 and 2015. During this period, the cost per kWh of solar-derived electricity fell from R3.65 to R0.62; for wind, the cost fell from R1.51 to R0.62. The R0.62 are for projects that are still awaiting Eskom’s formal signature[1]. They are therefore referred to a ‘new RE’. The cost of ‘new coal’ from the two independent coal producers has been bid at R1.03. The projected costs of the new giant coal-powered stations, Medupi and Kusile are R1.70 and R1.91 respectively.[2]

(b) The cost of existing coal-based electricity excludes a whole range of ‘externalised’ costs, including the health costs of coal polluted air. These latter costs include 2,239 deaths a year; 21,782 asthma and bronchitis cases, in a year; 2,379 hospital admissions per year; 996,628 lost working days, and, 3 972 902 days of restricted activities. In so far as a cost can be attached to these afflictions, the estimated total is R2.3 billion a year[3].

(c) Former Minister of Public Enterprise, Lynne Brown, last year said that meeting Eskom’s environmental compliance obligations would cost about R340 billion.[4] Eskom is using this amount as the reason for asking for yet another (effective) exemption from the provisions of the Air Quality Act. Its intention is to be no more than 57% compliant with South Africa’s Minimum Emissions Standards by 2025[5].

2. Eskom has had to bear the cost of expensive Renewable Energy

This is not the case. The National Energy Regulator South Africa (Nersa) has allowed these increased costs to be included among the many reasons Eskom has given for its requested tariff increases. In other words, Eskom bears no direct Renewable Energy costs.

3. Expensive Renewable Energy is a major cause of Eskom’s financial crisis.

(a) Apart from the above, Nersa does not accept this argument[6]. In its 180 page explanation, in March 2018, of why Eskom’s most recent request for a tariff increase of 19.9% was substantially reduced to 5.23%, it points to Eskom’s historic inaccuracies in forecasting sales volumes as well as its operation and investment inefficiencies. Nersa addresses these inefficiencies by disallowing historical cost overruns of R72.3 billion associated with Kusile, Medupi and Ingula Pump Storage Scheme. Nersa drew additional attention to a range of Eskom’s problematic employment practices. In the 2007 financial year, for instance, Eskom produced 239 109 gigawatt hours (GWh) of electricity with 32 954 employees, an average of 7.26GWh per employee. Eskom is now producing 216 771GWh with 39 186 employees, which is 5.3GWh per employee. In Nersa’s words: “This means that Eskom is producing less GWh with more employees and higher employee costs.” Although not said by Nersa, nepotism, patronage and ‘cadre deployment’ (all legitimised by transformation and affirmative action requirements) play a major part in this context. Furthermore, Nersa highlights bonus payments to senior managers, “despite the decrease in its sales volumes and low profit”. Finally, Nersa identified Eskom’s previously allowed primary energy costs as a major problem. It accordingly reduced coal usage costs by R10-billion and energy from independent power producers by R7.6-billion.

(b) Guptas. The exact cost of the Guptas to Eskom’s financial woes has still to be determined. No one, however, can doubt that the number is going to be very high[7].

(c) The post-Zuma Eskom no longer accepts the arguments of the Zuma-era Eskom. This can be inferred from the new Energy Minister, Jeff Radebe’s, announcement that Eskom now supports the government’s much delayed final approval of the 27 Renewable Energy developments.[8]

4. If Renewable Energy is so wonderful, why doesn’t it compete with Eskom?

The answered is simple: The law prevents it from doing so. The law gives Eskom a monopoly over everything other than the tiniest of electricity generation. Moreover, these individual household, small, roof-top solar-based generators are indeed so successfully competing with Eskom that they are undermining Eskom’s demand forecasts. This point is further dealt with at 5(a) below.

5. There is no need for renewable energy because Eskom is already burdened by a surplus.

It is true that Eskom is now producing more electricity than it can sell. But, is this a problem or blessing?

(a) Nersa’s answer is to subject Eskom to heavy criticism based on what it calls Eskom’s “death spiral”: Faced with a constant decline in its sales, yet having to achieve its projected revenue, Eskom increases its tariffs, which result in an even sharper decline in sales, which leads to Eskom wanting even further increases in its allowed tariffs and so on. It is this vicious cycle that produces what Eskom chooses to call an ever increasing ‘surplus’.

There are three main reasons for declining sales. First, the unreliability of Eskom’s supply (including periods of actual power cuts) resulting in incentives for largescale users to find alternate energy sources. Second, Eskom’s increasingly expensive electricity coincides with increasingly cheap renewable energy. These two points result in large energy users choosing renewable energy to save their costs at Eskom’s expense. Third, energy efficiency technologies, plus changing individual behaviours, contribute towards a declining energy demand.

(b) Nersa’s critique of Eskom’s “death spiral” points to another and neglected ‘market’ for electricity. If, rather than increasing prices, Eskom cut its price, the very large number of workers and the poor would immediately be able to buy more electricity and, thereby, increase the demand and, hence, Eskom’s revenue. The very logic of Nersa’s critique underscores this much neglected need to better distribute what would then be affordable electricity to the majority of South Africans.

6. Coal will always be needed because the sun doesn’t shine at night and the wind does blow for 24 hours & for every day of the year.

This seeming truism is false. This is because South Africa is blessed by both being a large country as well as having some of the best solar energy areas in the world. This combination ensures that there is always sufficient solar or wind somewhere in the country. Finally, there is the already existing, well-proven and reliable technology to switch between these various energy sources and areas to guarantee a smooth supply of electricity for every hour throughout the year[9].

7. Coal-fired power stations are having to close because of renewable energy

There are several reasons why this claim is mistaken.

(a) No power plants have closed.

(b) Contrary to the widespread impression of Eskom being crushed by a huge Renewable Energy industry, the 27 projects still awaiting government approval represent a mere 1.5% of electricity supply; combined with existing Renewable Energy plants, the total comes to just under 5% of the national electricity supply.[10]

(c) It is Nersa that has instructed Eskom to close expensive coal stations. Indeed, it is Nersa that has removed Eskom’s most expensive coal plant, Arnot, from Eskom’s 2018/19 production plan. (Other than new renewable energy now being cheaper than coal, this instruction has nothing to do with renewable energy, as will be seen below.)

(d) Eight power stations are scheduled for decommissioning by 2033, having reached the end of their planned lifespan. But it is Eskom itself that advised Parliament, in early March 2018, that it is not financially feasible to extend the lives of its plants, and that it instead plans to place three of them in “cold storage”, i.e. keeping them available should there be teething problems with Medupi and Kusile. (The cost of the extensive emission abatement retrofits to meet compliance with statutory requirements figure prominently in Eskom’s thinking about what is financially feasible)[11]

8. Between 30-40,000 workers will lose their coal-station jobs because of renewable energy.

(a) No jobs are immediately threatened by renewable energy because no power plants have closed.

(b) No accurate numbers are available for jobs that will be threatened when power plants do close.

(c) A year ago, the then Public Enterprise Minister, Lynne Brown, said about 6,000 jobs could be lost, if Eskom closes four of its most aging coal power stations[12].

9. Global changes will result in job losses

This is true, for two reasons.

(a) Although the global economy continued to grow during the past decade or so (as measured by GDP) demand for energy – the entire energy mix – has remained constant.[13] A combination of increasing costs plus widespread energy efficiencies and energy awareness is responsible for the stagnant demand.

(b) Stagnant demand, together with the increasingly rapid uptake of cheap renewable energy, is a very real threat to coal in particular. This is manifested by the closure of coal mines in the US, notwithstanding President Trump’s strident efforts to support the coal industry. [14]

(c) This same process is beginning to unfold in South Africa.

(d) Unlike the claims covered by Points 1 to 8 above, this point represents a real – though still developing – threat to jobs. This development is almost certainly unstoppable.

***

The (long) predictable threat to jobs alone demands a Just Transition from a low carbon economy to different futures. The call is old; what is now needed is, in the first instance, for detailed practical safeguards for workers threatened by the new energy future to be negotiated.

The need for this call is self-evident; it should therefore be non-controversial. The call also serves to bring all sides of the Renewable Energy issue together, notwithstanding the differences between them. The precise content given to the Just Transition is where these differences will emerge.

Let the debate begin. Let it be framed by the body of factual information that is this Fact Sheet.

Shumi Mudavanhu, an intern at the Alternative Information & Development Centre (AIDC), working on the One Million Climate Jobs Campaign, she is also an M.Phil student at the Sustainability Institute, Stellenbosch University. Jeff Rudin is a Research Associate at AIDC and member of the One Million Climate Jobs Campaign

22/3/18

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