What’s not to like about independent power production?
After a failed attempt to halt the signing of 27 independent power producer contracts by new Energy Minister Jeff Radebe, the National Union of Mineworkers is now threatening to pull its support for the governing party because, it says, renewable energy is a bad idea for South Africa.
“Workers of this country will not continue to vote and support an organisation which is taking away jobs from the poor. We cannot perpetually campaign and vote for the so-called New Dawn as narrated by Cyril Ramaphosa,” the NUM said in a statement this week.
I have tried to understand the position of the NUM on this one, and I have failed. If anything, its argument that clean power will kill jobs and create ghost towns is akin to the dispute between metered taxi drivers and Uber — it’s a losing battle against the new normal.
The Eskom model is that of a vertically integrated utility that is inherently a monopoly because of the capital-intensive nature of large power-generation technologies. The high levels of investment required and the long-term nature and development-agenda mix of returns have historically made energy generation a government-led industry.
Until now.
In recent years, modular smaller powergeneration plants have become more economically viable, and this makes it possible for the industry to have more players, which will inevitably improve standards and reduce prices.
Another factor is the global shift towards carbon-emission reductions. This has also rightfully forced Africa’s most industrialised economy to start incorporating these cleaner technologies in its energy mix.
But exactly what are the commercial benefits of having these IPPs? Well, for starters, it should ease the burden, historically solely on the shoulders of the government, of investing in and maintaining all energy-generation infrastructure in the country.
Given the inextricable link between investment attraction, economic growth and electricity capacity, this is a welcome relief and one that, bar corruption, should benefit all South Africans, particularly the poor, if such investment rands can be redirected towards service delivery, social security and poverty alleviation.
The IPP model means that the private sector takes on the risk of building and maintaining power plants, and the cost of new generation is passed on to consumers only when the electricity is generated.
This is very different to the occasion when Eskom builds electricity infrastructure.
The costs are often included in the tariff well before the electricity is generated, as the utility needs to build up cash reserves even before construction begins.
If you add the very common phenomenon of cost overruns, the picture gets even bleaker as these are borne directly by the economy without the benefit of additional capacity. In the world of IPPs, this is no longer our problem.
But wait: there is more.
Remember the 30% electricity tariff increase Eskom was seeking from the regulator, Nersa? The one that got most of us strapping up our toyi-toyi boots ready for mass action? Well, all things being equal, this will be a thing of the past.
IPP tariff increases are fixed for the life of the power-purchase agreements, which can last well more than 20 years. This gives us, as customers, a predictable electricity cost price, making our own planning and budgeting easier and more accurate.
Add to that the reality of Eskom’s cost of electricity supply increasing quite dramatically in recent years against falling IPP prices, how can we not see the potential benefit of a balanced energy mix?
There is a growing appetite from electricity-intensive users for the private supply of cleaner energy. Just this week, Sappi inked a deal with the Department of Energy to build a renewable-energy plant at its mill in Mpumalanga. The company and its partners will spend an estimated R1.8-billion for a 25MW biomass energy unit at the Ngodwana mill. It will primarily be used by the paper and pulp producer — but is expected to contribute to the national grid in two years.
Private capital. Private risk. National benefit. What is not to like about this?
The deal signed by Radebe is expected to add 2 300MW of electricity to the grid over the next five years, and create 58 000 jobs. The NUM says the contracts are an “insult to the working class and the poor”.
Change generally creates exaggerated fear and panic, but the global shift towards less carbon-intensive goods and services is a disruptor that South Africa has to accept and innovate towards to remain competitive.