A target of about 50,000 by 2020 green-economy-related jobs was set by government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPP). In a context of rising unemployment, reported to be 29% by Statistics South Africa, the highest since 2008, the renewable energy sector has the potential to generate jobs but a privatised model through the Independent Power Producers (IPPs) falls short on this promise and raises questions about whether it makes sense for Eskom to continue funding these multi-billion Rand contracts.
The market-driven approach taken by the indebted state-owned Eskom to introduce renewable energy through the privatised IPPs is also detrimental for the affordability of electricity for ordinary and impoverished South Africans in the long term.
The Public Protector, Busisiwe Mkhwebane, has announced a probe into Eskom’s renewable Independent Power Producers’ (IPPs) contracts which were signed in April 2018. The complaint was allegedly laid by former Zuma ally, Phaphano Phasha, through the Anti-poverty Forum which alleges that the signing of the alleged contracts was improper and unlawful. This probe comes at a time where factional battles in the ANC are rife and it has become apparent that South Africa’s energy mix is also a central in these divisions.
It is said that former president Jacob Zuma’s faction blocked the signing of these IPPs in favour of nuclear energy. However, their finalisation was soon initiated by the newly elected President Ramaphosa as one of his first administrative tasks. Despite this political background, Phasha’s complaint raises an important concern about the loss Eskom is currently making and the Public Protector’s probe into these IPPs should reignite a conversation about a socially owned renewable energy and the just energy transition.
Through civil society mobilisation, the decision to abandon nuclear energy in favour of renewable energy is praiseworthy. But it does not look like the Ramaphosa faction has properly considered the long term effects of a private sector-driven renewable energy sector which is mostly focused on profit accumulation. South Africa needs a massive, state-led investment to address the ecological crisis but it needs to be confronted in a manner that will not expose South Africans to widening inequalities and energy poverty.
In the past five years, IPPs have been a major source of investment and have so far brought in about R190bn into the energy sector but have also been strongly opposed by trade unions such as the National Union of Metalworkers of South Africa (Numsa). To introduce renewables into South Africa’s energy mix, in line with the Independent Resource Plan (IRP) vision 2030, Eskom embarked on the multi-million dollar REIPPPPs and now provides subsidies to private companies but these will only benefit investors at the expense of local communities, sustainable farmers and local businesses.
The IRP outlines South Africa’s energy roadmap to the required energy mix to meet its electricity demands and this consists of about 46% of coal power, 16% of gas, 15% wind and 6% hydropower. But some critiques by trade unions like Numsa and civil society organisations such as the Alternative Information Development Centre (AIDC), have rightfully pointed out that the REIPPPP doesn’t empower local communities, nor does it create jobs and that this is just another business-oriented project.
Numsa’s critique is mostly based on the job-losses in the mining industry which cannot be recreated through the current small-scale IPP model. Jobs in the renewable energy sector are mostly created in the construction phase and are not sustainable. A privately-owned renewable energy sector also relies on imports instead of creating a local manufacturing industry and it’s important that the renewable energy sector avoid failures that are similar to that of the mining industry where communities have experienced little or no benefit for the plunder of their resources. A socially owned renewable energy should result in a planned and integrated transition that can avoid a privately enforced chaos. As it stands, banks and investors stand more to gain than the state or ordinary South Africans.
Part of Mkhwebane’s probe is based on the allegation that IPP contracts do not make financial sense and that Eskom is losing money. The financial loss can mainly be explained by the need to incentivise private companies to buy-in renewables which are considered the more expensive option when compared to coal. As part of the incentive, a feed-in tariff requires Eskom to purchase renewable energy from IPPs at a predetermined price but below the national tariff to reduce the financial risk on renewable energy generators, generate a stable income stream and an adequate return on investment. But in the pursuit of a self-sustaining renewable energy market, the long term effects are detrimental especially to alleviate energy poverty.
Since 2017, the Department of Energy announced that businesses are able to enter into Power Purchase Agreements (PPAs) with service providers to buy renewable energy directly from producers, a shift from the feed-in tariff. PPAs use competitive auctions to determine electricity prices. These auctions are however costly and prevent smaller companies from participating in the renewable sector leaving large scale companies as the primary beneficiaries of government subsidies and incentives. The main rationale behind these subsidies is to ensure that electricity prices remain low while renewables are integrated into the energy mix to ensure “competitive electricity prices” to absorb infrastructural, maintenance and borrowing costs incurred by private companies but this market-driven approach only has limited benefits.
BusinessDay recently reported that “Eskom only receives about 89c/KWh for every 2.23/kWh for renewable energy. It thus absorbs a loss of 133 per KWh, an estimated cost of about R21bn per annum to an already indebted state-owned enterprise”.
Ideally, the loss absorbed by Eskom will decline as subsidies decrease and are eventually eliminated entirely when there is a mature renewable energy sector where private companies compete with another. In the long term, impoverished people will be negatively affected as electricity prices increase. The decline in subsides will birth a market-driven renewable sector that will eliminate smaller companies as monopolies develop and this is a typical characteristic of capitalism.
The renewable energy sector should address existing unequal power relations between large international companies and smaller local businesses and protect vulnerable communities from corporate impunity. In essence, as argued by Sean Sweeney, based at the Trade Unions for Energy Democracy (TUED) in New York, the current government subsidies can be described as “regressive subsidies” because in the long term, monopolies will dominate “competitive bidding” and ultimately set unaffordable electricity prices which will not be in the public’s best interest.
In contrast, state-owned renewable energy will eliminate the borrowing costs that private companies factor into price determination and ensure that electricity prices remain affordable whilst addressing the ecological crisis. Moreover, the public ownership of renewable energy will ensure that all the proceeds are directed into the public purse and can be reallocated to key government sectors such as health, education and housing.
This is why IPPs should receive a resistance akin to that of the nuclear build programme from civil society because the failure to oppose a market-driven renewable energy will see South Africans gripped on the edge of their seats, watching, as Ramaphosa ushers us into a “new dawn” of neoliberal energy production characterised by unaffordable electricity prices and a widening inequality gap if a socially-owned renewable energy is not fought for.
While Mkhwebane’s probe cannot be isolated from the ANC’s internal battles, it should reignite a conversation about who stands to benefit from IPPs. Moving forward the conversation should be centred on the consideration for state-owned renewable energy once again. This, however, can only be achieved if we can first ensure that state-owned enterprises foster a climate of transparency and accountability.
Key emphasis should be placed on how nationally developed plans such as the REIPPP can be integrated into local development plans. Furthermore, it is important to ensure that communities participate in and are consulted for the development of local economic plans. For energy democracy and energy poverty to be alleviated, local communities need to be given the opportunity to develop and own their own development path. DM
Sikho Luthango is a Labour Relations and Economy Programme Manager at the Rosa Luxemburg Stiftung Southern Africa Office based in Johannesburg.
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