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Hello and welcome to the So What podcast, in which political economic analyst JP Landman

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discusses the issues uppermost in the minds of South Africans.

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You can find a written version of this content on JP's website, jplandman.co.za.

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I am Ruda Landman and I am your host.

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These first few recordings were done at our dining room table, but we will soon be moving

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into a studio.

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Hello, and a very warm welcome, as always, to another recording which goes with JP's

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latest newsletter.

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This one dated the 1st of August 2022 and the title, Electricity, Green is the New Gold.

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We are going to do this in two sections because it is a much longer newsletter than usual

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and it has so much information in it that we are going to split it up.

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So this is part one of this recording.

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JP, I think before we get to the major thrust of this newsletter, we have to go back to

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the elephant in the room and that is load shedding.

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The moment we talk about electricity, that is what is in all of our minds.

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So how do you see it?

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When will we be rid of this horrific thing that has been hanging over us for so long?

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Indeed, it is the big elephant in the room and it is the big constraint holding South

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Africa back.

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No question about that.

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It is our biggest crisis.

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The short answer today is, I think towards the end of 2024.

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It means two and a half years from now.

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Why do I say that?

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Well, it is now beyond all doubt that we need 6,000 megawatts or 6 gigawatts, if you want

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to talk like that, of additional capacity that must be installed, additional capacity

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that must be created to avoid load shedding.

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S-COM is not capable of meeting that 6,000 megawatt deficit or shortfall.

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So as soon as the 6,000 megawatts are installed, then load shedding can end.

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If you look at what is currently going on, with all the decisions that have been taken

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up to date, about 14,000 megawatts of electricity, mainly renewable electricity, have been procured

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and are in the process of being set up.

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In other words, the different projects by different entrepreneurs and companies must

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reach financial closure, then they must get technical approval and link up to the S-COM

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grid and they must be built.

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On average, it takes about 12 to 18 months to build a solar farm, a wind farm, perhaps

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a little bit longer.

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So if you say that we wait two years from where we are now with the 14,000 that we have

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that have been procured, then you're looking at the middle of 2024, throw in a few extra

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months and you're looking at the end of 2024.

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So I think there's a very good chance that by the end of 2024, the country will be able

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to produce from a variety of sources the electricity that it needs and that will end load shedding.

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But I think the one thing we must all accept, internalize, is that there is no switch that

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can be thrown to just end load shedding tomorrow.

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Oh, absolutely.

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It's a very critical point.

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Indeed, we must accept that.

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This is a problem that has built up over many, many years and it's a problem that got worse

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as the years went along.

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And you're not going to fix it in, as you say, with the flick of a switch.

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It's not going to happen.

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What is also not going to happen in the short term is that we're not going to see a substantial

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improvement in S-COM's efficiency in what is called the energy availability factor.

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That used to run above 75%.

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That's the benchmark that has always been worked to.

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At some stage it ran above 80%.

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That has now come down to 60% and some weeks even lower than that.

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That's the reality of an old plant.

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That's the reality of old equipment.

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And that reality will not change.

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So I think there's a growing acceptance of that.

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The Minister of Energy, Mr. Guilherme Antáce, would like to jump up and down, up and down

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and say S-COM has become more efficient and so on and so forth.

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Well, you can't get blood from a stone.

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It's not possible.

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So yes, there's no quick fix.

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It's old equipment.

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The deficit is 6,000 megawatts.

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It'll take until the middle end 2024 to fix the deficit.

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That's how long load sharing will be with us.

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Okay.

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So now let's turn to your newsletter.

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The heading is, green is the new gold.

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It makes me think of Mango Groove and the Springbox.

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And when they're saying we go for gold, our blood is green.

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But this is a different quote.

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There have been three major announcements.

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Is it in the last week?

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Yes, indeed.

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In the last week of July, we got three very big announcements around electricity.

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The first one was the president making a TV address to the nation on electricity, where

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he spoke about the short term problems and fixing S-COM.

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But they also spoke about the longer term.

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The second one was two days later, when S-COM revealed their vision of electricity going

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forward, what they think the demand is, what will have to be supplied, built and supplied,

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and how much that will cost.

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And the third one came at the end of last week, Friday, when the national treasury confirmed

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that they are looking at taking over the substantial portion of S-COM's debt.

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Now you will recall that up till now, there were lots of speculation around that and so

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on and so forth.

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But it looks as if that's not the direction things are going.

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Now what is remarkable about these three announcements, Ruda, is that they tie together.

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They are clearly coordinated.

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They're clearly coming from the same place, so to speak, and it's clearly part of the

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bigger government program of tackling electricity.

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And those three announcements, when you look at them jointly, signal a huge game changer

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for South Africa, a game changer that really can change the country's trajectory and where

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it is.

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And I want to say, if you go back, in November 2017, before Mr. Ramaphosa was elected president

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of ANC, he was still deputy president then, in November 2017, he basically spelt out what

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is happening now.

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He said that what we need is a new energy dispensation that is much more reliable on

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renewables, saying we could again…

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Reliant, much more reliant on…

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Yeah, reliant on renewables.

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To quote his words, we could again become the investment destination of choice for activities

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that are electricity intensive.

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So against that background, one must look at these three announcements.

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Now why do I say it's a game changer?

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There are four reasons.

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The first one is we're ending a monopoly in South Africa in the provision of electricity.

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It's commercial monopoly has been for a long time in its existence.

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It provides most of South Africa's electricity.

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It has been a state run monopoly.

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For a long time it was successful and then it has become, for a variety of reasons, unsuccessful.

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And what's happening in this change is not just that you're trying to make an unsuccessful

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company successful.

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What's happening with this change is that we're moving from a monopoly electricity

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market to a free market in electricity where a variety of producers and consumers can buy

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and sell electricity as they see fit at prices that they negotiated amongst themselves.

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This is the modern trend in electricity, modern as in about 20, 30 years old.

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We have not followed that modern trend.

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We will now follow it with this change.

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It's a dispensation which is used in many countries from the Netherlands to China and

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it's successful.

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So that's the first thing.

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We're moving from a state run monopoly industry to an industry that's opened up for competition,

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opened up to the private sector and basically giving us the benefit of competition.

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The second reason why it is a game changer for South Africa is that we will be moving

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from a coal based electricity system to a system that is largely reliant on solar, wind

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and gas.

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Now, this will not happen overnight.

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Again, it's not a switch that can be flicked, but it will play out over the next 10 years.

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The role that coal is playing in providing our energy, which is three quarters of our

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energy needs being satisfied from there, that role will drop to below 50% by 2030.

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And after 2030, it will drop down further.

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We will still use coal for a long time.

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In Dupuy and Kusili, those two big power stations are coal fired.

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They're new.

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They will run for the next 40 years.

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They must in any case run because you've got to pay back the loans of the money that

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you borrowed to build them.

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But they're coal fired and we will use them for a long time.

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But I don't think South Africa will see again a new coal fired power station.

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Not a big one and also not a small one.

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The whole world is moving against coal fired power stations, also the banks and they will

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no longer finance it.

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So that on which South Africa's electricity system was built, i.e. cheap coal, will now

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be replaced by solar gas wind.

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It's a completely different ballgame.

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Now that change over, that change over will require enormous investment.

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Wind farm doesn't come for free.

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Solar farm doesn't come for free.

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The transmission lines don't come for free.

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And ESCOM, this is where the ESCOM numbers come in.

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ESCOM has calculated that up till 2030, South Africa will need between 50,000, yeah, about

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50,000 megawatts of new capacity, solar gas wind.

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And that will cost the best part of a trillion rand.

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It's an enormous amount of money.

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If you bear in mind that our economy is about a six trillion rand economy.

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So one trillion rand of investment in one industry is an enormous amount of money.

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Then there's more money needed for transmission lines, for new substations and so on.

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So you'll probably end with investment of about 1.2 trillion between now, 2022 and 2030.

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And most of that money, in fact, probably all of that money will come from either the

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private sector or concessional funding.

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There will be very little state money in that amount of 1.2 trillion.

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So huge investment opportunity for the country, huge ability to create jobs, particularly

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in rural areas of South Africa.

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One doesn't find solar plants in cities and you don't find wind farms in cities.

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It is out in the rural areas.

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And that's where we need jobs and that's where we need development.

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And the fourth reason why I think it's a game changer is that this massive swing from coal

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to renewables, this massive new investment in renewables infrastructure, this breaking

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up of the monopoly and allowing a free market and electricity to develop will bring with

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it industrialization possibilities and benefits.

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You have to manufacture a lot of solar panels.

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You have to manufacture a lot of batteries, cables, transmission lines.

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Now, some of that can be done here.

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A lot of it cannot be done here, but you can do parts.

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You can do portions of these products.

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And I quote two examples in the written piece.

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The one is the Swedish company Polarium.

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They specialize in battery storage systems and they've got two factories in the world,

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one in Mexico and one in Vietnam.

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Swedish company having factories there.

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They've now put up a battery manufacturing facility, storing and battery facility in

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Montague Gardens in Cape Town.

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And then the mining company Bushveld Minerals want to be more than a mining company and

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they're putting up a huge battery and electrolysis factory in East London.

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So these are examples of industrialization benefits that can flow from energy.

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And that is for me in line with our history.

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If you look back at South Africa's economic history, what made us a modern economy?

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Well, it was the discovery of first diamonds and then gold, actually copper and then diamonds

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and then gold and later on other minerals.

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Our entire industrial and financial system was germed, if you want, by the discovery

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of precious metals and minerals.

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And I think the same thing is going to happen again.

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This enormous investment that we have to make in renewables will be like the discovery of

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gold or diamonds, and that's why the title of this piece is Green is the New Gold.

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And in fact, it's a formulation that the president himself used.

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He said that our energy program is a case of green is the new gold.

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And I think that's why it's a game changer for South Africa.

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You take the three announcements together, it's a big story.

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Can I just ask, if you have gold and diamonds, you know that you will have a buyer.

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But electricity, energy needs to, it needs economic activity to find a buyer.

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How do we know that that is going to happen?

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Well, we have millions of buyers all over the country, households, businesses, factories,

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malls, mines.

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The clients are already there.

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But not an increase of the kind that you are describing.

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No, but remember you're switching from coal too.

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So at the moment you buy your electricity from Eskom and 95% of that comes from coal.

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So when Eskom switches from coal to something else, or when the system switches from coal

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to something else, we are already there.

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We are the clients.

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So we know that they are consumers that will buy the product.

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The problem is not that we don't have consumers, the problem is we don't have enough product.

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And that's what makes this investment so interesting.

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Talk us through what it has taken politically to get here.

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Mr. Ramaphosa, the president at the moment, was put in charge of the so-called Eskom war

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room, when was it, in 2014?

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December 2014.

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Why has it taken eight years?

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That's a very good question.

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A very, very good question.

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He was put in charge by then President Zuma in December 2014.

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In the beginning of 2015, it looks like if it was March 2015, February or March 2015,

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in other words, two or three months after he was put in charge of the war room, he reported

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back to President Zuma and he said, look, I cannot get my hands around Eskom.

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There are too many entry points and there are too many people involved and coming in

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with all kinds of ideas and agendas.

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Now we can only speculate on who the people were and what their agendas were.

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So he recommended to President Zuma that the war room be disbanded and that the CEO was

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appointed.

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That stage he was only an acting CEO.

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That the CEO was appointed and let's run the place and we can be held accountable.

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Zuma accepted those recommendations and in April 2015, the then minister of public enterprises,

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Lyn Brown, appointed Brian Wollefe as the chief executive of Eskom.

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So by March, April 2015, four or five months after he was put in charge of the war room,

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the war room was gone, Ramaphosa was out, Brian Wollefe was in charge and as the saying

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goes, the rest is history.

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So it is incorrect to suggest that he's been around for eight years dealing with electricity.

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That's not the case.

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I think, you know, one can only speculate, but I think Mr. Zuma had all kinds of nefarious

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intentions about putting Ramaphosa in charge.

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Ramaphosa probably saw through the game, then moved himself from the scene and to play

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out the way that he did.

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We got two very early indications of what Ramaphosa is thinking about electricity.

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The first one, as I said in the beginning of this broadcast, was in November 2017, while

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he was still deputy president and before his election, where he made the case that South

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Africa should do more about renewables and that is the way for South Africa to become

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an investment destination again.

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That was in 2017.

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He became president in 2018, president of the country.

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Seven weeks after he became president of the country, after he took power, his government

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signed the 27 independent power producer contracts that Brian Wollefe suspended in 2015.

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Brian Wollefe at the time argued in the same year that he became the CEO of Eskom 2015,

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he argued that these independent power producer contracts were too expensive.

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The price per kilowatt hour was simply too high and on that he was right, but one must

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see it in a particular context.

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And he said nuclear would be a better option.

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He punted the example of Kuberg and how well Kuberg has served Eskom and how well Kuberg

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has served South Africa and he wanted to go for nuclear.

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Now he then suspended those 27 independent power producers contracts and it was a tragedy.

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It was a tragedy because they brought the whole independent power producer program to

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his pedestal.

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There was a factory in Durban that produced solar panels.

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Well, it had to close down.

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People lost their jobs and the capital was gone.

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So what Wollefe did was a real, real tragedy.

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Seven weeks after he took power, the Namibian government signed those agreements and the

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process could get going again.

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So those two very early indications told you very clearly where Namibia was going.

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Then of course it took time.

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In 2019, we got February 2019, a year after he became president.

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He made a very important policy speech in the state of the nation and he said Eskom

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will be broken up.

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At that point in time, a lot of people were against this.

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Unions were against it.

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People in Eskom were against it.

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Consumers were against it.

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Activist NGOs and so on were against it.

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I think it's safe to say that a minority of people understood and supported the decision

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in 2019, but he announced and he went for it.

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And he did so three months before the general election.

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Let's not forget that.

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He could have waited until after the general election.

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He did not.

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That was in 2019.

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It's now 2022.

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And what you see if you look back over time is that he's consistently pursued this vision

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that is now busy unfolding.

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In the written piece, there's a timeline of political decisions taken by the government.

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And since 2018, the Ramaphosa government has taken 12 political decisions, 12 political

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decisions on electricity supply.

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And the cumulative effect of that is now coming through very, very strongly.

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And that's what we saw in the last, in the announcements, the three announcements last

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week.

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So it is worth our while, without reflecting back, that when those independent power contracts

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were signed, there were strikes and blockades in Chuanhe on the end for coal truckers blocked

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the highways and the streets.

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Nobody could move.

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They did that not once, but more than once.

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They launched court applications all the way to the appeal court in Blomfontein to try

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and get the government to stop signing those agreements.

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Those against the splitting up of ISCOM didn't let up.

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So what looks today like very logical things that were supported by everybody, in fact,

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were not logical things for many people.

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And people, there are still people opposed to it.

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I mean, this past weekend, we had the ANC's policy conference and the SACP was very unhappy

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about what's happening in energy.

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You can now go on certain Twitter feeding lines and you will see the unhappiness with

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the decision.

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So it's not that the nation is behind the idea.

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In fact, the nation is not behind the idea, but he's pushing ahead slowly and he's getting

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to where he wants to be.

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So my view on this is you can love Ramaphosa or hate him.

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That's absolutely fine.

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You can love his strategy of moving slowly, building consensus, getting people to come

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along or you can hate it, but you can't deny the results.

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What we're having today started in 2017, if you go by public pronouncements, it's now

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five years later and it's playing out in the way that he set the vision five years ago.

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I think that's a testimony to his political ability.

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I almost want to say it feels as if the role that Gwere Mantash has been playing is almost

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indicative of this tug of war, political tug of war that's going on.

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You say the nation, but more specifically within the ANC.

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Oh, absolutely.

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It is indicative of that.

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And the fact that these things are happening and that Mantashia is coming along tells you

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the success of the president's strategy.

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We know that he's a coal man.

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We know that he would like to extend the life of the South African coal industry.

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We know that he's skeptical about renewables.

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None of these are secrets, but he's coming along.

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He's not resigning from cabinet.

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He's not mobilizing opposition against it.

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In fact, he's helping the president to get the ANC over the line on these issues.

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So his obstructionist approach is indicative of how divided South African society is and

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the fact that the president is bringing him along is indicative of the success of the

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president's approach and strategy.

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And that's why I say you can love him, of course, or hate him, but you can't deny the

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results.

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Okay.

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Let's break this recording here simply because it gets too long.

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And then we'll make a second episode to cover what looks to me like frequently asked questions.

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Will it be implemented?

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How much of the IRP 2019 has been implemented?

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And is that an indication of the future of what's happening now or not?

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Eskom's debt.

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What about Eskom's debt?

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So let's do that in a separate package.

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So for the moment, thank you very much and goodbye.

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Thank you for listening to the So What podcast.

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If you enjoy this content, please don't forget to leave a review and a rating and please

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consider subscribing so you don't miss any future episodes.

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Remember you can find a written version of all JP's content at JPLandman.co.za.