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Energy dominates growth debate
Johann Wingard
Posted: Wed, 15 Mar 2006

[miningmx.com] -- WHERE the electricity sector was previously – in the words of Thomas Edison – “a natural monopoly”, it has now become a political plaything. The oil shocks of the Seventies resulted in governments worldwide reconsidering their energy plans – so scores of nuclear power stations were built.

The emphasis on the growth of South Africa’s energy capacity can be seen as the policy of separate development having to succeed through a healthy economy. An energy-driven economy could ensure relative peace in the labour sector.

That’s the reason for the second and third Sasols, Mossgas and the string of power stations – such as Arnot, Tutuka, Lethabo, Kendal, the Drakensberg pumping station, Grootvlei, Hendrina, Koeberg, Majuba, Kriel and others. These projects negated the possibility of an international energy boycott by promoting economic and labour stability.

However, the consequences of an energy shortage are just as real today as they were 30 years ago. And they hold the same serious political and economic problems in the economic, social and labour spheres.
Energy shortages could endanger the stability of the current democracy
The energy industry should lead the economic system and not be seen as an unwilling partner or subservient, economic milch cow. A country’s energy certainty is related to its ability to have sufficient reserve capacity available so that its economic growth doesn’t suffer. Economic stability usually brings political stability, and vice versa.

Energy shortages could therefore endanger the stability of the current democracy and even bring an end to the ANC’s political domination. The recent fuel shortages and endemic power failures raise serious questions with regard to the sustainability of SA’s fuel and electricity capacity, so that Government’s envisaged economic growth target of 6%/year will probably be out of reach.

Crisis management or commissions of enquiry don’t create reserve capacity by technology projects that are worked out 20 years in advance within a transparent, legal framework and strictly implemented by technicians.

What should SA’s energy planners do?

Researchers find that, though there’s no causal connection, there’s a correlation between electricity consumption and economic growth. At a planned economic growth rate of 6%/year, GDP doubles over 10 years. (The mining industry was until recently still SA’s largest single power consumer. However, the growth in that sector isn’t directly in relation to SA’s economic growth rate.)

There are further correlations between population growth, urbanisation, increasing standards of living and power consumption.

So unless SA’s generating capacity is increased proportionately, the graph lines will diverge in all four cases. In terms of that, SA’s current capacity must have grown by at least 50% by 2026 in order to keep up with the demographic and economic realities to prevent economic/political tension.

The current capacity of about 40GW must therefore be expanded in steps of 1GW/year to 60GW over 20 years.

As a result of the time lost over the past 10 years, Eskom is apparently not ready for that. So it’s time to look urgently at the monopoly that’s Eskom and its ability to bridge that increasingly larger gap. The following points could be useful and practical hints for an integrated energy plan:

  • The most important is to make the policy of black economic empowerment and transformation secondary to a policy of sufficient energy. There are contractors and consultants who say more time is being spent on the nature and structure of empowerment partnerships than on the technical or financial aspects of their tenders, and they’re therefore unwilling to make their services available to Eskom.
    An energy-driven economy could ensure relative peace in the labour sector
    The interests of black organisations that benefit from contracts are therefore getting more attention than the merits of the tenderer’s offer. That leads to time and money being wasted and decisions being delayed. A balance must be found between achieving energy targets and transformation targets, with the emphasis largely on the former. If not, it will cost SA dearly.

    Just as representation and transformation don’t apply to SA’s information services in terms of the Constitution, so they shouldn’t apply to the energy sector either. Being sure of having sufficient energy is far too complicated and needs career assurance and stability for the technicians working on 10-year or longer projects where experience and skill are essential. For the energy sector – and therefore for SA as a whole – political intervention in such a specialist field is fatal, since SA’s economic and political stability could be endangered by inexperienced energy officials’ lack of understanding, experience and skills.

  • As was the case with SA’s telecommunications sector, alternative service suppliers could be introduced to provide power to municipalities, industries and/or businesses. Eskom must be compelled to sell or lease out some of its sub-stations so that new service providers can set up power generating systems on a decentralised basis. Eskom would then be freed from its commitment to supply power to the regions served by those sub-stations.

  • A range of national energy projects should be developed and special incentive measures announced for them to encourage the private sector to invest in them generously.

    Such projects include ethanol and bio-diesel projects, at least one new 3 600MW coal-fired power station and another three 2 200MW nuclear power stations. The pebble bed reactor planned for Koeberg could serve as a platform for a series of smaller, decentralised and possibly privatised nuclear power generators in regions where nuclear power has a natural advantage. Eskom could tackle those projects, in conjunction with private sector partners.

  • Another national energy project is a natural gas power station that could be built on the Cape’s west coast to use natural gas from the Kudu field in the Atlantic Ocean. Consideration could be given to piping the gas via the west coast to Cape Town (to serve the energy-starved Western Cape) and then to Mossel Bay (to supplement Mossgas’s waning reserves). Gas in the Cape would substantially reduce the need for electrical power for heating purposes and would create thousands of new jobs.

  • A technology development programme financed by the State would enable entrepreneurs to develop, install, test and market new eco-friendly turbines, solar power, wind power and fuel technology in SA by entrepreneurs themselves or in conjunction with international role players.

    Hundreds of scientists and engineers who previously worked on weapons-related projects and who are currently not utilising their energies and talents could be used.

  • Maintenance of existing power stations could be privatised to small specialist companies that have the necessary knowledge and experience and are therefore not subject to empowerment issues.

  • Special incentive measures could be implemented to enable industries, offices, technoparks and secure residential estates to buy and run their own power plants. Insurance companies could also consider lower premiums for such endeavours against loss of perishable products.

  • Policies and incentive measures could be formulated at an energy congress where practical input on these and other proposals could be presented and then submitted to the State.

  • The necessary legal framework for an integrated energy plan could then be drawn up as soon as possible and submitted as a national project at the next Budget to help SA’s planned economic growth become a reality. Meanwhile, existing deregulatory measures could be applied diligently.

    Johann Wingard is a former CEO of Bateman Project Holdings’ oil, gas and energy division. From 1978 to 1985 he was involved in several new Eskom power stations. Between 1985 and 1992 he was involved in the Mossgas project as chairman of the executive of the managing contractors’ consortium.