Hello and welcome to the So What podcast, in which political economic analyst JP Landman
discusses the issues uppermost in the minds of South Africans.
You can find a written version of this content on JP's website, jplandman.co.za.
I am Ruda Landman and I am your host.
These first few recordings were done at our dining room table, but we will soon be moving
into a studio.
Hello, and a very warm welcome, as always, to another recording which goes with JP's
latest newsletter.
This one dated the 1st of August 2022 and the title, Electricity, Green is the New Gold.
We are going to do this in two sections because it is a much longer newsletter than usual
and it has so much information in it that we are going to split it up.
So this is part one of this recording.
JP, I think before we get to the major thrust of this newsletter, we have to go back to
the elephant in the room and that is load shedding.
The moment we talk about electricity, that is what is in all of our minds.
So how do you see it?
When will we be rid of this horrific thing that has been hanging over us for so long?
Indeed, it is the big elephant in the room and it is the big constraint holding South
Africa back.
No question about that.
It is our biggest crisis.
The short answer today is, I think towards the end of 2024.
It means two and a half years from now.
Why do I say that?
Well, it is now beyond all doubt that we need 6,000 megawatts or 6 gigawatts, if you want
to talk like that, of additional capacity that must be installed, additional capacity
that must be created to avoid load shedding.
S-COM is not capable of meeting that 6,000 megawatt deficit or shortfall.
So as soon as the 6,000 megawatts are installed, then load shedding can end.
If you look at what is currently going on, with all the decisions that have been taken
up to date, about 14,000 megawatts of electricity, mainly renewable electricity, have been procured
and are in the process of being set up.
In other words, the different projects by different entrepreneurs and companies must
reach financial closure, then they must get technical approval and link up to the S-COM
grid and they must be built.
On average, it takes about 12 to 18 months to build a solar farm, a wind farm, perhaps
a little bit longer.
So if you say that we wait two years from where we are now with the 14,000 that we have
that have been procured, then you're looking at the middle of 2024, throw in a few extra
months and you're looking at the end of 2024.
So I think there's a very good chance that by the end of 2024, the country will be able
to produce from a variety of sources the electricity that it needs and that will end load shedding.
But I think the one thing we must all accept, internalize, is that there is no switch that
can be thrown to just end load shedding tomorrow.
Oh, absolutely.
It's a very critical point.
Indeed, we must accept that.
This is a problem that has built up over many, many years and it's a problem that got worse
as the years went along.
And you're not going to fix it in, as you say, with the flick of a switch.
It's not going to happen.
What is also not going to happen in the short term is that we're not going to see a substantial
improvement in S-COM's efficiency in what is called the energy availability factor.
That used to run above 75%.
That's the benchmark that has always been worked to.
At some stage it ran above 80%.
That has now come down to 60% and some weeks even lower than that.
That's the reality of an old plant.
That's the reality of old equipment.
And that reality will not change.
So I think there's a growing acceptance of that.
The Minister of Energy, Mr. Guilherme Antáce, would like to jump up and down, up and down
and say S-COM has become more efficient and so on and so forth.
Well, you can't get blood from a stone.
It's not possible.
So yes, there's no quick fix.
It's old equipment.
The deficit is 6,000 megawatts.
It'll take until the middle end 2024 to fix the deficit.
That's how long load sharing will be with us.
Okay.
So now let's turn to your newsletter.
The heading is, green is the new gold.
It makes me think of Mango Groove and the Springbox.
And when they're saying we go for gold, our blood is green.
But this is a different quote.
There have been three major announcements.
Is it in the last week?
Yes, indeed.
In the last week of July, we got three very big announcements around electricity.
The first one was the president making a TV address to the nation on electricity, where
he spoke about the short term problems and fixing S-COM.
But they also spoke about the longer term.
The second one was two days later, when S-COM revealed their vision of electricity going
forward, what they think the demand is, what will have to be supplied, built and supplied,
and how much that will cost.
And the third one came at the end of last week, Friday, when the national treasury confirmed
that they are looking at taking over the substantial portion of S-COM's debt.
Now you will recall that up till now, there were lots of speculation around that and so
on and so forth.
But it looks as if that's not the direction things are going.
Now what is remarkable about these three announcements, Ruda, is that they tie together.
They are clearly coordinated.
They're clearly coming from the same place, so to speak, and it's clearly part of the
bigger government program of tackling electricity.
And those three announcements, when you look at them jointly, signal a huge game changer
for South Africa, a game changer that really can change the country's trajectory and where
it is.
And I want to say, if you go back, in November 2017, before Mr. Ramaphosa was elected president
of ANC, he was still deputy president then, in November 2017, he basically spelt out what
is happening now.
He said that what we need is a new energy dispensation that is much more reliable on
renewables, saying we could again…
Reliant, much more reliant on…
Yeah, reliant on renewables.
To quote his words, we could again become the investment destination of choice for activities
that are electricity intensive.
So against that background, one must look at these three announcements.
Now why do I say it's a game changer?
There are four reasons.
The first one is we're ending a monopoly in South Africa in the provision of electricity.
It's commercial monopoly has been for a long time in its existence.
It provides most of South Africa's electricity.
It has been a state run monopoly.
For a long time it was successful and then it has become, for a variety of reasons, unsuccessful.
And what's happening in this change is not just that you're trying to make an unsuccessful
company successful.
What's happening with this change is that we're moving from a monopoly electricity
market to a free market in electricity where a variety of producers and consumers can buy
and sell electricity as they see fit at prices that they negotiated amongst themselves.
This is the modern trend in electricity, modern as in about 20, 30 years old.
We have not followed that modern trend.
We will now follow it with this change.
It's a dispensation which is used in many countries from the Netherlands to China and
it's successful.
So that's the first thing.
We're moving from a state run monopoly industry to an industry that's opened up for competition,
opened up to the private sector and basically giving us the benefit of competition.
The second reason why it is a game changer for South Africa is that we will be moving
from a coal based electricity system to a system that is largely reliant on solar, wind
and gas.
Now, this will not happen overnight.
Again, it's not a switch that can be flicked, but it will play out over the next 10 years.
The role that coal is playing in providing our energy, which is three quarters of our
energy needs being satisfied from there, that role will drop to below 50% by 2030.
And after 2030, it will drop down further.
We will still use coal for a long time.
In Dupuy and Kusili, those two big power stations are coal fired.
They're new.
They will run for the next 40 years.
They must in any case run because you've got to pay back the loans of the money that
you borrowed to build them.
But they're coal fired and we will use them for a long time.
But I don't think South Africa will see again a new coal fired power station.
Not a big one and also not a small one.
The whole world is moving against coal fired power stations, also the banks and they will
no longer finance it.
So that on which South Africa's electricity system was built, i.e. cheap coal, will now
be replaced by solar gas wind.
It's a completely different ballgame.
Now that change over, that change over will require enormous investment.
Wind farm doesn't come for free.
Solar farm doesn't come for free.
The transmission lines don't come for free.
And ESCOM, this is where the ESCOM numbers come in.
ESCOM has calculated that up till 2030, South Africa will need between 50,000, yeah, about
50,000 megawatts of new capacity, solar gas wind.
And that will cost the best part of a trillion rand.
It's an enormous amount of money.
If you bear in mind that our economy is about a six trillion rand economy.
So one trillion rand of investment in one industry is an enormous amount of money.
Then there's more money needed for transmission lines, for new substations and so on.
So you'll probably end with investment of about 1.2 trillion between now, 2022 and 2030.
And most of that money, in fact, probably all of that money will come from either the
private sector or concessional funding.
There will be very little state money in that amount of 1.2 trillion.
So huge investment opportunity for the country, huge ability to create jobs, particularly
in rural areas of South Africa.
One doesn't find solar plants in cities and you don't find wind farms in cities.
It is out in the rural areas.
And that's where we need jobs and that's where we need development.
And the fourth reason why I think it's a game changer is that this massive swing from coal
to renewables, this massive new investment in renewables infrastructure, this breaking
up of the monopoly and allowing a free market and electricity to develop will bring with
it industrialization possibilities and benefits.
You have to manufacture a lot of solar panels.
You have to manufacture a lot of batteries, cables, transmission lines.
Now, some of that can be done here.
A lot of it cannot be done here, but you can do parts.
You can do portions of these products.
And I quote two examples in the written piece.
The one is the Swedish company Polarium.
They specialize in battery storage systems and they've got two factories in the world,
one in Mexico and one in Vietnam.
Swedish company having factories there.
They've now put up a battery manufacturing facility, storing and battery facility in
Montague Gardens in Cape Town.
And then the mining company Bushveld Minerals want to be more than a mining company and
they're putting up a huge battery and electrolysis factory in East London.
So these are examples of industrialization benefits that can flow from energy.
And that is for me in line with our history.
If you look back at South Africa's economic history, what made us a modern economy?
Well, it was the discovery of first diamonds and then gold, actually copper and then diamonds
and then gold and later on other minerals.
Our entire industrial and financial system was germed, if you want, by the discovery
of precious metals and minerals.
And I think the same thing is going to happen again.
This enormous investment that we have to make in renewables will be like the discovery of
gold or diamonds, and that's why the title of this piece is Green is the New Gold.
And in fact, it's a formulation that the president himself used.
He said that our energy program is a case of green is the new gold.
And I think that's why it's a game changer for South Africa.
You take the three announcements together, it's a big story.
Can I just ask, if you have gold and diamonds, you know that you will have a buyer.
But electricity, energy needs to, it needs economic activity to find a buyer.
How do we know that that is going to happen?
Well, we have millions of buyers all over the country, households, businesses, factories,
malls, mines.
The clients are already there.
But not an increase of the kind that you are describing.
No, but remember you're switching from coal too.
So at the moment you buy your electricity from Eskom and 95% of that comes from coal.
So when Eskom switches from coal to something else, or when the system switches from coal
to something else, we are already there.
We are the clients.
So we know that they are consumers that will buy the product.
The problem is not that we don't have consumers, the problem is we don't have enough product.
And that's what makes this investment so interesting.
Talk us through what it has taken politically to get here.
Mr. Ramaphosa, the president at the moment, was put in charge of the so-called Eskom war
room, when was it, in 2014?
December 2014.
Why has it taken eight years?
That's a very good question.
A very, very good question.
He was put in charge by then President Zuma in December 2014.
In the beginning of 2015, it looks like if it was March 2015, February or March 2015,
in other words, two or three months after he was put in charge of the war room, he reported
back to President Zuma and he said, look, I cannot get my hands around Eskom.
There are too many entry points and there are too many people involved and coming in
with all kinds of ideas and agendas.
Now we can only speculate on who the people were and what their agendas were.
So he recommended to President Zuma that the war room be disbanded and that the CEO was
appointed.
That stage he was only an acting CEO.
That the CEO was appointed and let's run the place and we can be held accountable.
Zuma accepted those recommendations and in April 2015, the then minister of public enterprises,
Lyn Brown, appointed Brian Wollefe as the chief executive of Eskom.
So by March, April 2015, four or five months after he was put in charge of the war room,
the war room was gone, Ramaphosa was out, Brian Wollefe was in charge and as the saying
goes, the rest is history.
So it is incorrect to suggest that he's been around for eight years dealing with electricity.
That's not the case.
I think, you know, one can only speculate, but I think Mr. Zuma had all kinds of nefarious
intentions about putting Ramaphosa in charge.
Ramaphosa probably saw through the game, then moved himself from the scene and to play
out the way that he did.
We got two very early indications of what Ramaphosa is thinking about electricity.
The first one, as I said in the beginning of this broadcast, was in November 2017, while
he was still deputy president and before his election, where he made the case that South
Africa should do more about renewables and that is the way for South Africa to become
an investment destination again.
That was in 2017.
He became president in 2018, president of the country.
Seven weeks after he became president of the country, after he took power, his government
signed the 27 independent power producer contracts that Brian Wollefe suspended in 2015.
Brian Wollefe at the time argued in the same year that he became the CEO of Eskom 2015,
he argued that these independent power producer contracts were too expensive.
The price per kilowatt hour was simply too high and on that he was right, but one must
see it in a particular context.
And he said nuclear would be a better option.
He punted the example of Kuberg and how well Kuberg has served Eskom and how well Kuberg
has served South Africa and he wanted to go for nuclear.
Now he then suspended those 27 independent power producers contracts and it was a tragedy.
It was a tragedy because they brought the whole independent power producer program to
his pedestal.
There was a factory in Durban that produced solar panels.
Well, it had to close down.
People lost their jobs and the capital was gone.
So what Wollefe did was a real, real tragedy.
Seven weeks after he took power, the Namibian government signed those agreements and the
process could get going again.
So those two very early indications told you very clearly where Namibia was going.
Then of course it took time.
In 2019, we got February 2019, a year after he became president.
He made a very important policy speech in the state of the nation and he said Eskom
will be broken up.
At that point in time, a lot of people were against this.
Unions were against it.
People in Eskom were against it.
Consumers were against it.
Activist NGOs and so on were against it.
I think it's safe to say that a minority of people understood and supported the decision
in 2019, but he announced and he went for it.
And he did so three months before the general election.
Let's not forget that.
He could have waited until after the general election.
He did not.
That was in 2019.
It's now 2022.
And what you see if you look back over time is that he's consistently pursued this vision
that is now busy unfolding.
In the written piece, there's a timeline of political decisions taken by the government.
And since 2018, the Ramaphosa government has taken 12 political decisions, 12 political
decisions on electricity supply.
And the cumulative effect of that is now coming through very, very strongly.
And that's what we saw in the last, in the announcements, the three announcements last
week.
So it is worth our while, without reflecting back, that when those independent power contracts
were signed, there were strikes and blockades in Chuanhe on the end for coal truckers blocked
the highways and the streets.
Nobody could move.
They did that not once, but more than once.
They launched court applications all the way to the appeal court in Blomfontein to try
and get the government to stop signing those agreements.
Those against the splitting up of ISCOM didn't let up.
So what looks today like very logical things that were supported by everybody, in fact,
were not logical things for many people.
And people, there are still people opposed to it.
I mean, this past weekend, we had the ANC's policy conference and the SACP was very unhappy
about what's happening in energy.
You can now go on certain Twitter feeding lines and you will see the unhappiness with
the decision.
So it's not that the nation is behind the idea.
In fact, the nation is not behind the idea, but he's pushing ahead slowly and he's getting
to where he wants to be.
So my view on this is you can love Ramaphosa or hate him.
That's absolutely fine.
You can love his strategy of moving slowly, building consensus, getting people to come
along or you can hate it, but you can't deny the results.
What we're having today started in 2017, if you go by public pronouncements, it's now
five years later and it's playing out in the way that he set the vision five years ago.
I think that's a testimony to his political ability.
I almost want to say it feels as if the role that Gwere Mantash has been playing is almost
indicative of this tug of war, political tug of war that's going on.
You say the nation, but more specifically within the ANC.
Oh, absolutely.
It is indicative of that.
And the fact that these things are happening and that Mantashia is coming along tells you
the success of the president's strategy.
We know that he's a coal man.
We know that he would like to extend the life of the South African coal industry.
We know that he's skeptical about renewables.
None of these are secrets, but he's coming along.
He's not resigning from cabinet.
He's not mobilizing opposition against it.
In fact, he's helping the president to get the ANC over the line on these issues.
So his obstructionist approach is indicative of how divided South African society is and
the fact that the president is bringing him along is indicative of the success of the
president's approach and strategy.
And that's why I say you can love him, of course, or hate him, but you can't deny the
results.
Okay.
Let's break this recording here simply because it gets too long.
And then we'll make a second episode to cover what looks to me like frequently asked questions.
Will it be implemented?
How much of the IRP 2019 has been implemented?
And is that an indication of the future of what's happening now or not?
Eskom's debt.
What about Eskom's debt?
So let's do that in a separate package.
So for the moment, thank you very much and goodbye.
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