Get aboard the Green Train, Gwede!
The energy minister thinks SA will be a ‘major player in gas and oil’ when it comes to power generation. But global trends show that train is long gone. We need a new plan that integrates renewables, including ‘green hydrogen’
Mark Swilling
On the day that the International Energy Agency (IEA) brought out a report on how to achieve the global consensus target of “net zero” carbon emissions by 2050 by ensuring no more fossil fuel infrastructures get built, Gwede Mantashe, the Minister of Mineral Resources and Energy, declared in Parliament during his budget vote speech: “We are going to be a major player in gas and oil.”
And, in the same week, the G7 countries issued a communiqué after a breakthrough resolution on climate change that stated: “International investments in unabated coal must stop now.”
In reality, all fossil fuels are being targeted as global leaders become more concerned about the economic implications of climate change. Mantashe may think he’s standing waving his SA flag at Park Station waiting for the Blue Train to arrive, but he never read the sign on the way in that said the train service had been cancelled. He cuts a terribly lonely figure on that deserted platform.
President Cyril Ramaphosa has made it clear that he understands that the global energy transition under way is a economic opportunity for SA. He sees it’s not just about the moral challenge of climate change; it is also about access to the massive build-up of low/zero cost investment funds looking to invest in renewable energy, now the cheapest energy source available in the global economy.
The globally recognised group of economists on his Presidential Economic Advisory Council (PEAC) issued a report in October 2020 on South Africa’s economic recovery that this is clear.
“What used to be a choice is now mandatory,” the report said. “Those countries not adapting to a green transition will find themselves behind and excluded. They will be behind on the innovation curve, the cost curve will suffer from stranded assets and will face increasing barriers to markets that have accelerated their own transitions. Thus, the question is not whether, but how.”
By becoming “a major player in gas and oil”? Surely not, Minister Mantashe. Read the sign. The Blue Train left long ago. The Green Train is coming now.
According to a report released in May 2021 by Edmond de Rothschild Asset Management, “the last year could have seen the energy transition take a back seat, but investment increased to a record high”.
Reflecting the views of most of the largest investors in the world, it goes on: “Globally, governments are united in their determination to facilitate a strong, green recovery from the pandemic.” It says Covid-19 “has instead increased people’s environmental and social awareness”.
The election of Joe Biden as US President reinforces this trend. One of his first actions was to re-enter the 2015 Paris Agreement and he has promised a $2-trillion green investment stimulus.
China is now the largest producer of renewables, increasing the solar content in its mix by 16.6% last year. The PEAC’s reading of the trends is spot on.
According to Bloomberg New Energy Finance, investments in 2020 in the low-carbon energy transition went over the $500-billion mark for the first time. This included investments in wind and solar (60% of the total), energy storage, electric vehicles charging infrastructure, green hydrogen production, carbon capture and storage, as well as a range of small-scale systems (heat pumps, zero-emission vehicles, energy-efficient appliances and so on). Investments in renewables, at $303-billion in 2020, are now double the total investment in new fossil fuels and nuclear energy combined.
Green investments
As of March 2021, more than 1,300 financial institutions globally had announced they would divest from coal mining and/or coal-fired power plants – representing nearly $15-trillion of Assets Under Management (AUM). Those funds need outlets, and that is pushing down the cost of capital globally for green projects – a major opportunity for first movers. Indonesia, for one, is taking the gap to fund the turnaround of PLN, the state-owned energy utility company moving into renewables.
Economists are also united in thinking that green investments are the best drivers of economic recovery. In a recent survey of 230 leading economists from 53 countries led by former World Bank chief economist Nick Stern, all agreed that the most effective post-“pancession” stimulus would be green infrastructure investments.
German policymakers have a €130-billion post-Covid-19 economic recovery package, which includes €50-billion for climate change, innovation and digitisation.
It is true that Mantashe announced in his speech that a significant amount of renewables would also be procured. This needs to be welcomed, but it does not achieve the target of 5GW of renewables a year, which is what is needed if we want to avoid permanent load shedding by 2025 and if we want the lowest-cost energy available.
What SA and international investors want to see is clear-cut policy certainty that aligns with global trends, the PEAC report and South Africa’s Nationally Determined Contribution (NDC) document (required for submission to COP26 later in 2021).
As the chair of COP26, the UK government is clearly making it the “finance COP”, that is, how to ramp up investments in renewables to accelerate the energy transition.
It set up the Energy Transition Council for this purpose, but South Africa did not accept an invitation to join this club of funderready potential energy transition countries (although there is some unconfirmed evidence the invitation has now been accepted).
In anticipation of the upcoming “finance COP”, the World Bank announced the formation of the Coal Transition Fund to manage large-scale investments in the energy transition.
When the energy minister says in Parliament that “We are going to be a major player in gas and oil”, investors just roll their eyes.
Although gas must play a role as backup for a renewables-based national electricity system in future, many researchers and investors are concerned that Mantashe’s agenda is to put in place a new national gas infrastructure to provide baseload energy.
Again, this runs against global sentiment captured by the president of the European Investment Bank (EIB), who said in January 2021: “To put it mildly, gas is over.”
Saliem Fakir has attempted to join the dots: “Mantashe is working with his colleagues to unfurl what looks like new economic diplomacy with Mozambique – both necessity and gas economics are driving this.” The displacement of local communities from traditional livelihoods by the gas project in Rovuma catalysed a locally driven insurgency in northern Mozambique that has now brought the gas project to a halt.
The Gas Master Plan Consultation Document (March 2021) clearly states that “South Africa does not currently feature on any of the published proven natural gas reserve lists”. This, the report states, could change “provided the initial gas estimates, specifically unconventional natural gas reserves, hold true”. This is a major proviso: it means, as of now, we have no certainty that we actually have the gas we need to realise the ambitious aims of the Gas Master Plan.
According to the late Prof Bob Scholes, scientists have found no support for significant shale gas potential in the Karoo, and the majors have left the room. Nor is (the dollar-denominated) gas from Mozambique a long-term option – security specialists predict that this low-intensity war will escalate over time, not dissipate.
A baseload plan?
Nevertheless, there are many indicators to support the notion that there is an ambitious baseload gas plan afoot. The Gas Amendment Bill approved by Cabinet in February 2021 for submission to Parliament is clearly underpinned by a baseload gas strategy for SA. Most concerning of all, it gives the minister extraordinary executive powers to determine how this will take place and who will benefit. And how you set the rules of the game determines the outcome. This is clear in the Risk Mitigation Independent Power Producer Procurement Programme (RMI4P): the rules favour gas producers and non-lowest-cost energy.
The RMI4P rules (which a team of expert consultants from respected engineering and law firms drafted) requires every project to be a stand-alone “energy island”, with no interactivity with the wider energy system. It is specified that each project must guarantee continuous supply for a daily minimum of 16 hours. Easy for a gas ship not dependent on the weather, but hard for a renewable energy plant that can only achieve that with a lot of expensive backup storage and/or fossil fuel generation.
By contrast, in a widely circulated
paper by energy expert Clyde Mallinson, who explicitly used a systems approach, a very different result was achieved.
The RMI4P process resulted in eight successful bidders, three of which were the controversial Karpowerships making up twothirds of the 10TWh of energy that will be generated a year over 20 years. The average price is R1.58/kWh.
All the projects will create 3,800 construction jobs plus 13,500 operational jobs over 20 years. The capital investment will be at least R25-billion (excluding connection infrastructure) and possibly as high as R45-billion, plus at least another R150-billion to import the gas (paid in dollars at unpredictable prices, with exchange rate risk).
Mallinson estimates that by adding – in a systems-integrated way – 5GW of photovoltaic, 3GW of wind and 2GW/4GW of storage for an investment of R95-billion, an additional 30 Terawatt-hours of energy would be produced a year over 20 years.
Because these new facilities are interconnected, the average cost is lowered from R1.58 to R0.61/kWh. A systems approach enables all the available energy to be used and the grid’s capacity becomes the systemic energy storage and efficiency regulator.
Most important of all, there is no price volatility because no gas needs to be imported and all the local content requirements remain applicable, which catalyses upstream manufacturing and services jobs on scale. We have already built 5GW of renewables, creating 50,000 jobs in the process – no reason why this cannot happen again. This excludes the operational jobs created and the up- and downstream manufacturing and services jobs that will also be created.
In other words, to generate three times more energy at much lower cost (and with price certainty), with nearly four times higher infrastructure investment (with full local content adherence) and (at least) 10 times more jobs, all that is required is an appropriate set of rules that treats the energy system as a system with many interconnected generators and storage facilities controlled by a system operator (as Eskom does already).
This is how sophisticated energy systems are run elsewhere in the world. Why not here?
Green hydrogen
The smoke signals rising above the Karpowership gas deals look similar to the start of a familiar cycle: journalists uncover problematic connections (met with denials), whistleblowers follow soon after (and get dismissed), academics write their analyses, and then we have a commission of inquiry. Can we change the pattern this time round?
Despite all the concerns about the future of natural gas, there is a future for a gas about which discussion has only just started – “green hydrogen”. This is taking off globally, and major plants are already being constructed in France and Germany. And the first domestic household green hydrogen storage module is now commercially available in Australia.
Hydrogen is made by splitting the H²O molecule using electrolysis to capture the hydrogen. But for this you need electricity. If you use renewable energy, then the output is called “green hydrogen”.
The massive quantities of water used by coal-fired power stations could be used
for this when the power stations close, thus creating a whole new industry with significant export potential. Sasol has indicated that it is heading in this direction.
If natural gas is used in a gas infrastructure designed to switch later on to green hydrogen, this could ensure that we avoid the stranded assets of the Gas Master Plan.
But the problem is that hydrogen is not even mentioned in our Gas Master Plan. And, given the speed of the green hydrogen revolution, natural gas may well be in danger of becoming redundant as a so-called “transition fuel” (as suggested by the EIB president). Indeed, this may mean the Gas Master Plan is already out of date.
South Africa’s greatest need now is certainty about our energy future. A fully updated Integrated Resource Plan aligned with global trends, the PEAC and NDC would do the trick. The continued uncertainty prevents investment and has a negative impact every day on businesses and households. As Eskom drifts closer and closer to the edge of a system collapse, policy uncertainty and mixed signals at the highest levels continue and investors hold back.
Under its new leadership, Eskom is well aware of the challenges it and South Africa face and what needs to happen to address the challenges. Yet, after many bold statements and initiatives since the start of 2020, at a press conference on 18 March, Mantashe told Eskom to “stay in its lane”.
Without the full deployment of Eskom’s full suite of skills and resources, the government on its own will not prevent the looming disaster we face. Nor will the short term be resolved by long-term strategies to rely on fossil fuels we either don’t have, or else no one will invest in them.
What should worry us all is that the best strategic decisions only tend to get made when the crisis hits. Must we really wait for this to happen before we finally unite around an energy transition strategy that delivers the cheapest energy in the shortest possible time? Undeniably, only renewables can deliver on that. Why delay the inevitable? The Green Train is leaving the station.