Given the economic stagnation that South Africa is currently experiencing, new ideas to stimulate growth are desperately needed. Reliable and competitively-priced renewable energy could offer a timely opportunity.
Historically, South Africa’s vast coal reserves enabled it to deliver cheap electricity to both domestic and international markets. While this created many jobs, the industry is now facing severe headwinds, including the urgent need to curb global warming, the negative health effects on communities caused by burning coal and the imminent decommissioning of Eskom’s ageing coal fleet, with no real plan nor budget to maintain it.
Both the public and private sectors are being forced to take climate change more seriously. The reality is that coal as a fuel for electricity generation is being overtaken by newer and mainly renewable technologies. These fast-improving technologies present compelling alternatives that are not only cheaper and quicker to implement, but also go a long way towards addressing the concerns around climate change caused by greenhouse gas emissions.
Renewable energy is key
There is now a compelling opportunity to reposition the economy to take advantage of renewable energy. The foundation already exists in the Renewable Energy Independent Power Producer (REIPP) Programme, which has received global recognition for its transparency, innovation and contribution to local economic development. Policymakers can help boost the economy by reskilling workers in soon-to-be obsolete coal-fired generation jobs and by creating new jobs centred around renewable energy.
The president took a step in the right direction when he combined the energy and minerals resources portfolios. With the new Integrated Resource Plan (IRP2019)*, Mineral Resources and Energy Minister, Gwede Mantashe, has set South Africa on a clear course towards a cleaner and greener energy mix that would boost economic growth. It is especially in the manufacturing sector that renewable energy could play a key part.
Public Private Partnerships
Public Private Partnerships (PPPs) like the REIPP Programme can call on the private sector to deliver clearly-defined outcomes such as affordable, yet clean electricity, local ownership and participation, and the reskilling and training of workers. People at risk of losing their jobs due to the planned decommissioning of coal-fired generators can be retrained for a career in an industry with a more promising future. As with the REIPP Programme, PPP models impose significant penalties for non-performance by the private sector, while spreading private sector returns over the life of the project to align interests. These models ensure that the government ultimately only pays for what it actually receives.
Renewable energy hub
Given its existing infrastructure and service capabilities, South Africa has the potential to turn itself into a renewable energy hub to service Africa and beyond and drive focused innovation in the sector. The critical requirement remains the long-term buy-in from policymakers to create a conducive environment for the private sector to drive innovation and competition.
One way that PPPs can grow the economy is by developing a local electricity storage industry such as battery systems, compressed air energy storage, flywheel energy storage, hydrogen fuel cells etc. The IRP2019 noted that South Africa’s inadequate storage capacity will let the generation of renewable energy go to waste.
The private sector could deliver large-scale energy storage capacity at existing coal-fired generation sites where aging generators are due to be decommissioned soon or have already been decommissioned. These sites already have strong grid connection and transmission infrastructure in place (a sunk cost) which can be positively exploited long after the coal-fired generator is switched off.
South Africa cannot afford to lose the opportunity to fundamentally change its approach to energy and in doing so, influence its growth trajectory for good.
*Integrated Resource Plan (IRP2019), October 2019
Dario Musso is the Co-Head of Infrastructure Finance at Rand Merchant Bank.
This post was sponsored and paid for by Rand Merchant Bank.