OP-ED

Only a public pathway for electricity supply can meet the climate crisis challenge (Part 3)

By Bruce Baigrie 30 July 2020

Medupi power station in Marapong, South Africa. (Photo: Gallo Images / Sowetan / Sandile Ndlovu)

Three international energy research organisations have worked with Eskom trade unions to compile a report – ‘Eskom Transformed: Achieving a Just Energy Transition for South Africa’ – released on 23 July. This is the final piece of a three-part series on the analysis contained in the report, as well as proposed strategies for SA’s energy sector. The researchers argue that the future of an unbundled Eskom includes a multitude of problems.

The most important decade in history

“1.5 to stay alive.”

This catchy chant, prolific during the school strikes of 2018 and 2019, lays things out quite simply. The Paris Agreement of 2016 agreed to “holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels.”

Two years later the Intergovernmental Panel on Climate Change (IPCC) put to bed any notion that going above a 1.5°C increase would be anything short of a disaster. It’s simply a case of “1.5 to stay alive”.

Fortunately, the IPCC also provided – albeit roughly – an indication of what needs to be done. Global emissions must be reduced by 50% by 2030 and must reach net-zero by 2050 (net-zero means the overall balance of emissions must be zero. Emissions could still be released so long as they are counter-balanced by carbon sequestration.)

So, we are now in the last decade to avoid climate catastrophe. There has never been such an existential challenge to humanity and our planet. Meeting it will require an unprecedented response. Yet, it is private actors, through the market, who are championed as our saviours. They cannot vaguely deliver it, it is only the public sector that can.

South Africa’s role

South Africa has a significant obligation towards meeting the reductions set out by the IPCC. We have higher per capita emissions than China and aside from some far smaller economies, have the most carbon-intensive one in the world.

Much of the commentariat would hold that South Africa’s transition to a low-carbon economy should be led by the private sector. According to them, the first step towards this would be expanding the Renewable Energy Independent Power Producer Procurement Programme (REI4P). The programme was launched in 2011 by the Department of Energy to procure alternative energy from the private sector, primarily renewable energy (RE).

It is not surprising that the assessment of the REI4P as the best way forward to a RE future is so widely held. Eskom and the ruling party remain highly contested terrains, embedded with powerful coal interests and seemingly incapable of delivering basic services, let alone an energy transition. This is not even to speak of Eskom’s current financial position that in no small part threatens the economy. What little RE exists in South Africa has come through the REI4P programme and those in the state who see a renewable future have seemingly tethered themselves to it.

But a market-led transition will fail on both the required core components: a transition that is both just and meets the climate targets described above. On the former, we have already outlined our arguments here. The rest of this article will focus primarily on the latter, its inability to meet the climate crisis.

The market has failed (again)

The last two decades have seen RE production – excluding hydropower – increase almost five-fold. Countries like Germany have been trotted out as great success stories and China accounts for almost a third of all RE capacity. Critical, as many proponents of RE point out, is how cheap it has become, so much more so than energy based on fossil fuels.

So, what percentage of global energy has been produced by this impressive boom? Around 8%. “But,” you might ask, “will this 8% now not grow similar to the rates that created the above boom in the production of renewables?” No. The almost terminally bad news is that the rate of global investment in RE has in fact fallen in recent years, (specifically in the world’s largest economies such as China, Germany and the US). And it should thus surprise no one that emissions have in recent years continued to rise.

The slow-down in the rate of investment is explained by the fact that there has been a major shift in policy. Most of the world’s RE was “incentivised” by a feed-in tariff (FiT) system, whereby producers of RE feed solar and wind power into the grid at a guaranteed above-market price. The costs of this subsidy were passed on to end users – the public – and, in places like the EU, increases in the retail prices for electricity led to a political pushback. In 2013 the EU decided to phase out the FiT system and move to competitive auctions. This meant that wind and solar companies now had to compete against each other to win new contracts known as “power purchase agreements” (PPAs). The introduction of the auction system led to falling bid prices, which is one of the main reasons why RE costs have been falling.

This process is part of what Sean Sweeney from the Trade Unions for Energy Democracy (TUED) describes as a “three-fall effect”. The TUED’s paper, Preparing a Public Pathway, outlines this process and the investment crisis in RE. As competition between RE firms increases, the bidding price of RE falls – while capital expenditure costs do not at the same speed. As a result, profit margins also fall, and thus what follows is a fall in the rate of investment. According to one source in our report:

“We are not the only ones seeing a looming crash in renewables investment if the current trend of pushing renewables towards merchant price risk continues. While it’s accurate to say renewables have become much cheaper over the last few years and no longer require outright subsidy, the idea of a pure market for electricity is a mix of ignorance and wilful fallacy. Pushing renewable energy to compete with fossil fuels in the wholesale electricity market may, in fact, undo much of the progress made over the last decade in developing investment-ready climate policies.”

This is alarming. To give the scale of the investment required to avert climate catastrophe, the International Renewable Energy Agency (IRENA) estimated – in 2016 – that:

“The [annual] average [amount of investment in RE] then needs to reach $900-billion between 2021 and 2030”.

Now – briefly setting aside that it amounted to a decrease in the rate of investment in RE – 2019 was a record year in the total amount of investment in RE. The record amount? $282.2-billion. A $617-billion shortfall of what’s required just two years later. Much worse still, the IRENA projections are based on limiting the average global temperature rise to 2°C rather than 1.5°C. There is currently nowhere near enough investment to meet even the woefully inadequate targets adopted under the Paris Climate Accords. 

Public goods are good

The auction system has made visible the true cost of renewable energy. With no fuel costs, renewable energy can be cheap – but cheap does not make it profitable. RE is only profitable when it is protected from competition via subsidies in the form of Feed-in Tariffs or long-term PPA contracts. Remove these protections and private renewables are stopped dead in their tracks. Without the prospect of guaranteed returns, no renewable energy project would get the financing it needs from lenders. But the problem is not renewable energy; but renewables for profit. So what is the alternative? Well, the motivating force for averting climate breakdown will have to transcend the profit motive, as unsettling as that may be for some.

“For privately owned renewable energy companies, ‘cheap’ is bad. For publicly owned renewables, the prospect of abundant clean energy for all becomes an achievable reality.” – Eskom Transformed (page 54).

The good thing for those who want to reimagine the economy, who want a just transition, is that this is good for the justice and equality that they seek. A true just transition must follow a “public pathway”, whereby low-cost electricity can be generated as a public good, and the real costs recovered through tariffs and other downstream charges. But recovering the costs is less important than providing affordable, reliable, clean, energy – the benefits of which are recouped in the form of better health, higher productivity, and a more stable climate.

Rather than subsidise private entities for their own profit, the state must subsidise public energy as the representative of our interests. Private energy will bring no justice to the working class and poor of our country. When markets require private firms to lower their prices, they overcome this by reducing their costs, starting with the wages of their employees. After that, the costs of externalities, pollution for example, are pushed elsewhere, usually on to the poor and the environment. Rather than ameliorating our urgent crisis of unemployment, the potential of RE to do this is being squandered through the REI4P. Since these firms will always seek the cheapest inputs, they will not nurture the local manufacturing industry. The latest round of the REI4P saw all photo-voltaic panels imported from China.

Finally, in the long run, the price of privatised electricity in a society like ours will be too high for the majority of people, who are either poor through low wages or unemployed. The report and the previous article in this series develops the above in much greater detail.

What to do with Eskom?

In South Africa, we are faced with a momentous dilemma. While the markets cannot avert climate catastrophe, how could Eskom ever be the vehicle to do so? With energy demand dropping, one of the slimmest of silver linings of the Covid-19 pandemic had been the space afforded to Eskom for critical maintenance. But blackouts of earlier this year are back, with more to come. Of far greater concern is that Eskom is still some R480-billion in the red and producing around 90% of its electricity from coal. We who push the public pathway cannot deny this urgent reality. The challenges of building an Eskom Transformed are immense, and go beyond transforming it to generating 100% of its electricity from RE. But to build the Eskom we need we must first understand what brought Eskom to this position in the first place.

The current crises were caused by political decisions and they can be undone with political will. The Eskom Transformed, that we propose, will require restructuring around a series of principles that make it a truly publicly owned utility. This requires much deeper levels of public and worker participation. There are examples for us to follow.

In Paris, the water utility was municipalised with various civilian bodies that provide oversight. In Chinese state-owned enterprises there are elected employee congresses with decision-making power on a variety of social issues, including welfare and housing, wages and bonuses. They also have a say in the nomination of senior managers, a safeguard against outside “cadre deployment”. It is through such processes and bodies that the transparency and accountability required of Eskom can be developed and ensured.

Shifting the debate

The stark reality is that the required historic levels of investment in renewables – among so many other things required to build a low-carbon economy – can be achieved only through unprecedented levels of public-led investment. But such a public role, particularly after a crisis like Covid-19, is hardly unprecedented. In any event, it’s the public sector that has got us this far – through financing high-risk innovation and nurturing the growth of private renewables. Fortunately for us, such an investment drive and potential millions of jobs it will bring is incredibly appealing to the mass of unemployed people – and those workers whose wages are depressed as a result.

The appeal of the transition to a low-carbon economy goes beyond employment. The mass roll-out of public transport – particularly commuter rail; the retrofitting of RDP houses; and overhauling and expanding sanitation services, all for climate resilience, are all in the interests of the working class and poor.

The crises of Eskom are some among many that show the enormity of the challenge of the South African state leading a just transition. But South African activists and policymakers serious about a just transition must break from the dichotomy of our energy future being either that of the REI4P or the unacceptable continuation of our coal-powered economy. The data is clear, we have examples all around the world to look at – the market cannot save us. Any proposals serious about meeting climate targets must begin from this position and do the hard work of preparing the public pathway to a RE future. Critical to such proposals is that they provide the knowledge and support that assist social forces, whether they be trade unions or community movements, in shifting the state. DM

See also PART 1: Eskom unbundled: Contradictions in the plan will exacerbate the energy crisis and PART 2: Renewable energy must become a public good

Eskom unbundled: Contradictions in the plan will exacerbate the energy crisis

Renewable energy must become a public good

Bruce Baigrie works as an organiser and researcher for the Alternatives to Climate Change and Extractivism Programme at the Alternative Information and Development Centre (AIDC). AIDC was part of the Eskom Research Reference Group which released a new report on 23 July entitled Eskom Transformed: Achieving a Just Energy Transition for South Africa, arguing that rather than unbundling and privatisation, Eskom’s transformation requires intensive decorporatisation. 

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