Rebuilding the energy base for real economic growth in South Africa

Rob Jeffrey

The Department of Mineral Resources and Energy in South Africa (DMRE) has published the Request for Information (RFI) in respect of the commencement of preparations for a nuclear build programme to the extent of 2,500MW.  It is already causing considerable debate between the usual protagonists, the renewable lobby and so-called greens and the nuclear lobby. 

It is an excellent start to rebuilding the reliable energy base necessary for the country.  The country must start the urgent tasks of reindustrialising and reconstructing its failing mining industries.   Both depend on reliable supplies of electricity, steel and other materials and products.  Rebuilding these two industries plus essential infrastructure development improvement will revitalise the construction industry as well.  These two industries have traditionally provided 70% of the country’s exports, and this growth will help South Africa improve its balance of payments.

Business investment needs certainty about energy sources and future potential growth.  As a developing economy, South Africa needs both to fulfil its key objectives.  Facts and science prove that this cannot be achieved by using renewables, particularly wind and solar.  Furthermore, it has been shown that wind and large scale solar are environmentally damaging and costly.  They require 100% back up and cause major chaos in supplies due to their variability and generally unpredictable supply.  The only energy sources available in South Africa capable of providing certainty of supply and economic growth at competitive prices are nuclear and HELE ‘clean’ coal supported by limited gas and domestic solar.  Both reduce South Africa’s carbon footprint while nuclear is carbon emissions-free.

Many arguments are claimed and put forward that wind and solar are the least cost options and that they create more jobs.  The arguments put forward are at best, misleading, but they are false statements and untrue.   Apart from being unreliable, they require 100% back up being instantaneously available at all times of the year.  They cause major grid supply problems which in turn results in many additional costs not included in stated figures.  These include the high Costs of Unserved Energy (COUE) due to interruption of supplies and the resulting loss of economically value-added production.  Their costs should consist of all these additional costs. They are effectively carried by Eskom or passed on to the Consumer.  Renewables are effectively heavily subsidised.

Solar and wind create relatively few jobs.  One cannot compare dispatchable Energy with non-dispatchable Energy.  There are many papers on this subject written by experts (Sklar-Chic et al.,2016, ‘Critical review of the levelised cost of energy metric’, South African Journal of Industrial Engineering), (Joskow Alfred P Sloan Foundation, P. L. (2010) ‘Comparing the Costs of Intermittent and dispatchable Electricity Generating Technologies’).  The correct way of comparing the effectiveness and efficiency of electricity-generating sources is to examine the Gross Domestic Product (GDP), and the number of jobs created after completion of construction and the units are generating power.  Using SA figures GDP is at R5.1 trillion supporting 16.3 million jobs.  One can work out that nameplate 2500MW approximately supports GDP of R386 billion and 1.2 million jobs.  Nuclear with a load factor of 90% will create a GDP of about R347 billion and R1.1 million jobs.  Wind with an average load factor of 30% would create R116 billion GDP and only 360000 jobs.

The equivalent figures for solar with an average load factor of 20% are approximately GDP R77 billion 240000 jobs.  The Levelised Cost of Energy (LCOE) for nuclear is often given as R1.30/kWh, Coal R1.10/kWh and both wind and solar are given as R0.62/kWh.  In theory, and as an estimated approximation to deliver the equivalent power of a nuclear power station 900 MW twenty-four hours per day seven days a week, approximately at least three windfarms would need to be built and 4.5 solar installations.  The real cost of wind and solar would effectively increase to at least approximately R1.86/kWh and solar R2.79/kWh.  These figures can be confirmed by including all the additional grid, system, subsidies and other costs and the economic COUE.  These additional costs must be factored into the costs of wind and solar costs to arrive at the real costs of these energy sources.  It is no surprise, therefore that many experts such as Weißbach, D. et al. have found that large scale wind and solar become a drain on the economy because of their high costs and general inefficiency.  (Weißbach, D. et al. (2013) ‘Energy intensities, EROIs (energy returned on invested), and energy payback times of electricity-generating power plants’, Energy. Elsevier Ltd) It is not surprising that where there is high penetration wind and solar in an economy, prices of electricity have increased substantially and energy poverty has increased.  High prices can be found in a variety of countries, including, for example, Australia, Germany, Canada, and California.  Following the economic slump caused by the Corona Virus countries can no longer afford the subsidies paid by the state and users to renewable Energy.

It is to be hoped that this is just a first step in stabilising the energy sector and securing long term economic growth for the economy.  The Government needs to announce a programme whereby at this stage all future baseload power will be based on HELE coal and nuclear power.  An immediate announcement should be made of new coal-fired HELE PowerStation inland.  Thyspunt should be selected as the site for the first nuclear power station.  Not only has initial preparatory work been done at the site, but the choice will guarantee reliable power for the Eastern Cape, and it will help alleviate poverty in the area. It can be seen from the figures above that potential increase in employment in the Nelson Mandela Bay, and Coega areas of over 1 million jobs would secure long term growth to the Eastern Cape which is one of the high unemployment areas of the country.

The introduction of the RFI by the DMRE should be welcomed, and Minister Gwede Mantashe congratulated on this positive move for the Energy sector. 

Rob Jeffrey

Economic Risk Consultant

Rob Jeffrey is an independent economic risk consultant.  He is the former MD of Econometrix and continues to consult for them.  Areas of specialisation and expertise include global and domestic economic trends and strategies to foster economic growth, the development of several vital sectors of the economy, including industry, mining, agriculture, credit and financial services.  One of Rob’s significant areas of expertise is the South African electricity and energy requirements of the South African economy.  He has been the author or co-author of numerous reports, papers, presentations and articles on matters related to national industrial, energy-related, economic policy and the carbon tax.  He co-authored submitted and presented reports on the economic consequences of introducing the carbon tax to the Davis Tax Committee.  Rob has broad practical experience and expertise in the industrial, construction, and engineering sectors.  He was MD of Dorbyl Structural Engineering, Chairperson of the Constructional Engineers Association (CEA), the CEA representative on the Steel and Engineering Industries Federation of South Africa (SEIFSA), and an executive member of the Association of Steel Merchant Stockholders.  He has sat on numerous councils and advisory panels.  Rob graduated with a B.Sc. in Mathematical Statistics and Applied Mathematics at the University of the Witwatersrand and has Masters Degrees in economics from Cambridge University and Business Leadership from the University of South Africa.