On silver clouds with dark linings
With two large Eskom plants at Majuba and Lethabo experiencing well-publicised and severe technical difficulties, it is not surprising that electricity is in very short supply. Or indeed it could be a municipal problem: we have heard that the maintenance backlog is now more than ZAR 60 billion.
As a country we are in need of more electricity, and careful analysis shows this will be the case for the next five years. Even if the authorities decided today to engage in another mega-initiative to build a large and conventional power plant, the funding would be near-impossible and the first electricity would only come in a decade. Until Medupi and Kusile are fully commissioned, only renewable energy can ease the constraint as it can be built very quickly and dozens of projects are ready to build, just waiting for a Power Purchase Agreement to prompt them.
The downside of our energy crunch is real and tangible and has adverse impact on our economy. However, it holds a very large opportunity. Already, it is clear that renewable energy is “on the right side of history” and has largely won the struggle to be the long term source of supply. Wind power is now extremely cheap and very efficient, other renewable technologies are on a similar trajectory. The International Energy Agency has said recently that the future is one of variable electricity supply and variable demand, with the challenge being to balance the two. The concept of base load power as an immutable constant over which there is no control is largely being retired in informed circles. Energy efficiency will lead to lower total demand and various forms of electricity storage are being developed. It might take a few decades, but renewable energy is going to emerge victorious. Already, in Germany and Denmark, there are days when more renewable energy is generated than the country needs.
In many countries, the challenge has been how to deal with existing energy assets that had cost a great deal of money to build without incurring economic losses and creating stranded “assets”. It is a bit like wondering how to migrate to the 2014 smart phone, having signed a twenty year contract with a mobile phone provider in 2003 and having received a bare-bones mobile phone for free that has to be used until the end of the contract.
The power crisis in South Africa has given us a way to do this. Many things work together to create a unique, five year window of opportunity to set the country on a green path now, rather than in 2030 or 2050. In addition to the fact that only renewable energy can be built in time, there is the fact that it allows us to avoid the use of very expensive diesel in Open Cycle Gas Turbines (“OCGT’s”). This means that in 2013, had all of the 4 GW of renewables procured in REIPPPP Round 1 – 3 been built at Round 3 costs, the country would have paid a net price of ZAR 0,17/kWh for its electricity – one quarter of Eskom’s average selling price. On wind power alone, the benefit to country just in Eskom fuel savings is greater than the cost of the power.
Moreover, in about a decade much of the Eskom coal fleet will need to be retired. This means that the capacity we build now will be needed anyway.
We are thus is a position to really accelerate the building of renewable energy plants, reach the critical mass that allows maximal localisation, increase our energy efficiency dramatically so that the demand is no higher than what it should be in a modern economy, then assess in about 2020 (when Medupi and Kusile are fully online as Eskom’s financial position eases) what we want to do about replacing the coal fleet. By this time huge advances will have been made in electricity storage, many people will have rooftop renewables and solar water heaters will be widespread.
Assuming similar diesel costs as the ZAR 11 billion in 2013, an aggressive renewables build would come at very close to zero cost until 2020. It is all built by private capital, and the country pays only for the electricity. The cost for wind is less than the saving for the country in fuel. Economic opportunities are opened up by electricity availability and the National Development Plan is facilitated.
More than anything else, the green electricity revolution is brought forward by a decade or more. It is an opportunity to be seized.