Don’t be like Germany — figure out our energy needs

Iam an energy economist, sometimes referred to as a power system economist. I concern myself with the supply and demand of energy as it relates to a system or a market. One of my common interfaces is power system operators and what informs their decisions.

When solving for the energy crisis it is easy to run to supply side solutions such as more renewables, gas or nuclear. There seems to be very little focus on demand, more importantly why demand looks the way it does.

The power system is a function of two main factors: the supply of electricity and the demand for electricity. The system operator must ensure these are always balanced. Demand is driven by socioeconomic and technological factors.

Under socioeconomic factors there is economic growth, population growth, urbanisation and lifestyle choices. This is why one of the key variables in the Integrated Resource Plan (IRP) is modelling economic growth along various growth scenarios.

Much like the IRP 2010, the IRP 2019 assumed economic growth scenarios that sadly did not materialise. This had a direct effect on energy demand. Since 2008, electricity demand and its intensity have been in decline, though GDP growth has been positive.

Typically, there is a positive and sometimes causal relationship between economic growth and electricity demand. However, in 2019 there were already signs that GDP growth was decoupling from electricity intensity and electricity demand, signalling a structural change in the economy. This is critical because it means the supply-side solutions proposed in 2010 were inadequate for the 2019 economy.

Typically, a presidential term is characterised by three or four target sectors. SA has not in the recent past articulated the kind of economy it wants, the sectors it intends to grow, how it will grow them and the energy mix required. At this point it’s hard to say what economy SA is, or aspires to be.

For the IRP to be successful, planners need to understand what sector(s) government is targeting for growth. This is followed by setting a GDP growth target commensurate with these sectors. This growth trajectory is then layered with variables such as electricity demand, plant performance, technology costs and technology parameters, environmental considerations, and plant commissioning and decommissioning schedules. This churns out a technology mix that should provide energy security and meet cost and decarbonisation targets.

UNCOMPETITIVE

De-industrialisation in Germany is a direct consequence of rising electricity and gas prices, its dependency on Russian gas, global economic shifts and market dynamics that favour goods from China and inconsistencies in energy and environmental regulations.

This has rendered Germany uncompetitive and has deindustrialised its economy. German industry continues to either shut down or move to nuclear-fuelled France. Despite a technical reserve margin of over 200%, Germany is now procuring 20GW of gas to ensure energy security.

A country whose GDP is growing at less than 1% a year has different needs from a country growing at 8% a year. A services economy is vastly different to an industrial or agrarian economy, thus requiring a different approach to energy. A de-industrialised economy has a very different electricity load profile to one that is industrialised, and the demand for electricity also varies widely.

In SA, energy-intensive users already decry tariffs and shift load to summer months to avoid the punitive winter tariff. Some are shutting down amid rising electricity costs, unreliable rail, load-shedding and the cost of doing business.

SA must learn from Germany: energy policies should not dictate your GDP growth by imposing forced deindustrialisation.

SA cannot afford to have high energy costs driven by self-interest that inhibits growth and development. SA, with the highest unemployment and inequality in the world, can little afford energy policy that leads to further de-industrialisation.

With every new policy or regulation we need to ask ourselves as a country: what are we solving for?

FOR SUCCESS, PLANNERS NEED TO UNDERSTAND WHAT SECTOR(S) GOVERNMENT IS TARGETING FOR GROWTH