Rethinking electricity is key to the quest for socio-economic transformation

By Sikhulekile Duma 14 June 2018

A South African woman carrying her daughter on her back runs her takeaway restaurant by candle-light during a sheduled power outage known as load shedding in the impoverished neighbourhood of Masiphumelele, Cape Town, South Africa 26 May 2015. EPA/NIC BOTHMA

When speaking of transforming the nature and structure of the South African economy we need to ask: How do we invest in an energy sector that underpins an inclusive economy where a multitude of producers and players are able to take part?

The conversation about electricity in South Africa has in most part been shaped by the events of the last decade. The most impactful of these events include an eight-year period of load shedding (2007- 2015) and the deterioration of the ethical and financial standing of the state utility. Thus, the performance of the electricity sector has been largely measured by Eskom’s ability to keep our lights on while also managing to keep financially stable. The current state of excess electricity supply along with positive signs of a turn-around strategy at Eskom have been met with understandably great enthusiasm among business, civil society and the general public.

While this new state of affairs should indeed be celebrated, it would be a mistake to view the electricity sector through this one-dimensional lens only. The fact of the matter is that electricity in South Africa is much more important than simply “keeping the lights on”. It is central to the political economy of socio-economic development in South Africa. It follows, therefore, that that conversation about the future of the energy sector needs to be broadened out to include a wider range of priorities.

Present day South Africa was shaped by and continues to be shaped by several political and economic events, with the discovery of minerals in the late 19th Century being a catalytic event. It was the discovery of diamonds in Kimberly and gold in the Witwatersrand that set off the industrialisation of South Africa. While racism and segregation were already deeply in-grained in South Africa before the discovery of gold and diamonds, it was this very discovery and the subsequent industrialisation that created a system that not only institutionalised racism but more importantly provided a cheap racialised labour force that subsidised the cost of South African capitalist modes of production. However, it was not only labour that was responsible for the cheap operational costs of South African mining and manufacturing, but cheap electricity played the same role.

In the first two decades of the 20th Century, electricity alone accounted for 32% of final production costs in the mining industry. At the time, electricity generation, transmission and distribution were in the hands of private companies, namely the Victoria Falls and Transvaal Power Company, and municipalities. Thus in 1923, what would become known as Eskom, was founded for the sole purpose of nationalising the electricity sector to generate energy as cheaply as possible.

According to Sylvy Jaglin and Alain Dubresson in their 2016 book titled ESKOM Electricity and Technopolitics in South Africa, the function of this cheap energy would be to ‘provide the best possible conditions for an intensification of mining activity and the development of manufacturing’. So successful was this effort, that within a few decades of its founding, Eskom was providing the cheapest electricity in the world to mining companies and the manufacturing industry. Without this, the structural disadvantages and related costs of deep-level mining in a geographically marginal economy would have made it impossible for the South African capitalist economy to grow in the way that it did.

While cheap energy and labour are understood as two equally important pillars in the development of South African capitalism, what is less understood is the role of these pillars in the development of the labour movement around the world, South Africa included. In Timothy Mitchell’s book titled Carbon Democracy he details how the connected nature of energy production in industrial-age Britain was essential in the building of a strong labour movement.

Energy production in industrial-age Britain was heavily reliant on coal, as it was and still is in South Africa. To transform coal from a raw material into electricity that powers factories, businesses and homes involved an interconnected process of mining, rail transportation and energy generation and distribution. This connected mine workers to rail road workers to workers in power plants. These workers were united under a union such as Britain’s National Union of Mineworkers (NUM) and wielded the power to totally disrupt the economy by shutting down mines, rail transportation and power plants.

By the mid-20th Century this industrial power had been transformed into real political power. It would be the demands of these unionised workers that propelled the emergence of the social democratic state in Britain. It is not a coincidence that Thatcherism’s first target, in an effort to dismantle the social democratic state, was the unions. In South Africa, the interconnected nature of energy production gave rise to the black labour movements which were not only essential to crippling the apartheid system but also shaping the economic and ideological philosophy of the liberation movement.

This brief history of electricity in South Africa and its connection to labour is given as context to explain the central position that the electricity sector occupies in the South African economy. Ben Fine and Zavareh Rustomjee collectively coined the term Mineral- Energy Complex (MEC) to describe the system of linkages that placed the extraction of raw minerals, the processing of those minerals and the production of electricity at the centre of South African economy.

While the South African economy has changed in some respects since Fine and Rustomjee first coined the term MEC, we still find these linkages very much in place except now they have become increasingly intertwined with our financial sector in a process known as financialisation. While finacialisation has found expression in most parts of the world, in our context it has meant that our financial institutions have tended to invest heavily in the Minerals-Energy Complex, further perpetuating the structure of an untransformed economy. This is a chilling example of path dependency.

This analysis has profound implications: if we are to speak of an untransformed economy, it is important that we understand that the electricity sector was essential in constructing racial capitalism before and during the apartheid era. Not only was cheap electricity necessary to keep an extractive and oppressive economic system going, but the sector itself was able to churn out cheap energy because of cheap coal. To understand how intertwined this system was and still is, one need look no further than where the power stations are located. The vast majority of power stations are located near mines owned by the country’s largest mining conglomerates, such as Anglo-American. These power stations are then supplied with cheap coal by these conglomerates through multi-decade deals. The fact that these conglomerates are in prime position to supply Eskom with this coal is not a mistake but by design, a design which can only be defined as long-term structural collusion.

Thus, it’s important that when speaking of transforming the nature and structure of the South Africa economy that we ask ourselves how do we break away from this path dependency and invest in an energy sector that underpins an inclusive economy where a multitude of producers and players are able to take part.

South Africa faces a myriad challenges. The need for job creation, another phase of industrialisation, transformation and the reduction of inequality are all urgent priorities. This raises key questions about which industries and sectors can best contribute to the achievement of these goals. Evidence shows that the energy sector, just as it was in the first part of the 20th Century, can also be used to kick start a new inclusive phase of economic transformation.

South Africa is not only gifted with minerals below the ground but also gifted with wind and solar energy that can put the economy at the forefront of innovation in the energy industry globally. Multiple reports including one published by the CSIR in 2016 titled Formal comments on the Integrated Resource Plan (IRP) Update Assumptions, Base Case and Observations 2016 have made a compelling case for increasing investments in renewable energy while dramatically decreasing investment into coal fired plants. Both the above mentioned CSIR report and one titled Eskom’s Financial Crisis and the Viability of Coal-Fired Power in South Africa written by Meridian Economics go further by recommending the early decommissioning of six of Eskom’s coal fired plants for financial and environmental reasons. Their analysis has shown that extending the lives of these plants will add further and unnecessary financial strain on the state utility. An early decommissioning of these six plants could save Eskom almost R40-billion in present value terms.

Central to why renewables make more financial sense than coal is that while the price of coal sky rockets, the price of renewables is rapidly falling across the globe. For example, in 2000 Eskom’s average coal price was R60/t (in nominal terms) and by 2018, this amount had skyrocketed to over R400/t. This drastic increase in coal price compounded with rent seeking at the state utility largely explains a 400% electricity tariff increase over the last decade, which has hit the poorest South Africans the hardest.

Renewable energy on the other hand is getting cheaper as competitive bidding around the world drives the cost lower. In countries such as the United Arab Emirates, renewable energy is costing as low as 2.42 U.S. cents per kWh. In South Africa, the average cost of renewable energy sits at 62 ZAR cents per kWh (2016), while coal powered plants such as Kusile are calculated to cost as much as R1,91 per kWh. What can’t be denied is that there is a financial case for renewable energy, one that coal simply can’t compete with.

Therefore, by investing in and building a renewable energy centric energy mix, it may well be possible to once again supply relatively cheap energy that can provide power not only to all South Africans and industry but also to the African continent. Sub-Saharan Africa is in deep need of electricity supply, a continent of almost a billion people has less generational capacity than France, a country of 66-million people. Thus, the rethinking of the South African electricity sector and its reliance on monopoly, collusion and unsustainable sources does not only bring benefits for the South African economy, but has the potential to be at the centre of a sustainable and equitable industrial revolution in Africa.

The disappointing and rather reactionary response to renewable energy by the National Union of Metalworkers of South Africa (Numsa), given the historical context of the development of South African capitalism and its ties to labour, are testament to the fact that the greatest barrier to just transitions is not the economics but rather vested interest and lack of political will to change the status quo. Numsa has taken the unfortunate position that renewable energy in South Africa threatens jobs that are connected to the coal industry. While it may make political sense that a union takes this position, it also shows how short sighted the leadership of Numsa really is.

Unions in South Africa were formed to challenge the exploitative nature of the Minerals Energy Complex. Key to achieving this would mean a dismantling of the Mineral Energy Complex and an ushering in of industries that allow workers to be more than a cheap labour source devoid of any agency. As we enter the fourth industrial revolution, the biggest talking point becomes the future of work itself. What is clear is that traditional forms of employment are being decimated by mechanisation, and mining is a good example of this. Like any industrial revolution, this process cannot be reversed but rather prepared for and adapted to.

The decentralised nature of renewable energy allows for societies to come up with a sustainable response to changing nature of work. Only renewables allow for community participation and ownership. It is through community based energy generation and distribution that we can turn exploited miners into active participants in the South African economy. While the fourth industrial revolution continues to redefine work, it’s also important that unions such as Numsa ask themselves what is their role in this new age: is it to fight the inevitable or is it a more positive contribution that ensures that workers are prepared and actively participating in the future as the true custodians of our renewable energy resources?

This article has attempted to argue why there is a need to rethink the role and structure of the electricity industry. Having suggested the outlines for an argument, the next step is to start a conversation on where the electricity sector goes from here. It is not enough to keep the lights on and a small number of conglomerates continue to be supplied with cheap electricity. It is time for South Africa to start investing in an energy future that is inclusive, innovative and in prime position to build an economic structure that dismantles the old political economy instead of perpetuating it. This conversation must keep going so that the broader public becomes aware that real alternatives to the MEC exist. DM

Sikhulekile Duma is a Masters Student and Researcher, attached to the Economic Policy Working Group (EPWG), at the Centre for Complex Systems in Transitions (CST) at Stellensbosch University. The CST, directed by Professor Mark Swilling, compiled an academic response to State Capture titled The Betrayal of the Promise. The EPWG is now seeking to answer the question of what socio-economic interventions can be pursued to ensure that such grand forms of corruption never find root in our society again.