Affordable electricity essential for eliminating poverty
March 13, 2009
By Nhlanhla Gumede
Energy, which for some people might mean electricity, to most South Africans means the ability to earn a living - to buy meat in bulk, to cook, heat and have light, to learn.
It means the right to life and access to life-saving medication.
Access to affordable modern energy means development and progress. When one form of energy becomes unaffordable, most people switch to another, because at the end of the day people have to eat and keep their families warm.
Unfortunately, in some cases, this might mean a migration from a clean and modern energy carrier to an environmentally unsustainable one, resulting, in some cases, deforestation.
South Africa, like other global economies, especially developing ones, is dependent on sustainable and affordable energy. It is therefore important that when changes are made to energy policies, especially on pricing, due regard of this fact is considered.
Renewable energy protagonists have demanded a twelvefold rise in electricity tariffs to subsidise investments in renewable energy. The question is, can South Africa afford that increase, now?
Since 1994 real advances have been made in the restructuring of our fiscal and monetary framework, along with extensive progress in the restructuring of the energy sector, labour markets and environmental management.
With these necessary and welcome developments, major changes have been effected in the South African economy. Some of these were planned. Others, however, happened by default, as South Africa opened its doors to globalisation.
With the changes, it is important to note the words of leadership expert and author John C Maxwell: "Progress brings change, but not all change brings progress."
Some of the changes that have been made to the economy have not brought about progress.
One such change is in industrial policy. I am referring to changes that would have been premised ordinarily on an appropriate industrial policy but were made in its absence and therefore not properly effected - including the change to our electricity pricing strategy.
However, my focus on electricity should not be construed to mean I am ignoring other sectors such as synfuels production and energy intensive industries that rely on cheap coal and energy for survival.
The country's industrial policy, largely inherited from apartheid South Africa, was predicated, among other key economic elements, on import substitution, cheap energy and the export of commodities.
Driven by this policy, resource beneficiation was promoted to capture the value of "raw materials" for the economy.
Such beneficiation, which includes smelting and, to some extent, refining of base metals like chrome, zinc and aluminium, requires cheap electricity. This industrial policy was supported by a number of "strategic pillars", one of which was access to cheap electricity.
Breaking down these pillars of our industrial strategy without providing viable replacements is very problematic.
The pillar that has been the primary target in recent times is cheap energy, driven largely by concerns over climate change and the recent electricity outages.
Cleaning and preserving the environment are noble goals. However, they cannot be done at the expense of development.
Minister of Minerals and Energy Buyelwa Sonjica once said she would not sacrifice development at the altar of the environment, nor would she sacrifice the environment on the altar of development. The two have to be handled in tandem.
Do we want to make our economically disadvantaged people starve and perish today so that future wealthy generations can have a great life? Those who come from rich backgrounds and inherited wealth cannot perhaps empathise with what I am talking about.
Investigations have shown that without access to affordable energy, poverty cannot be eliminated. Associated social development programmes are often not sustainable if they are not linked to increased economic activity - which is generally enabled by access to affordable energy.
Consider the communities around mining towns, or the suppliers of goods and services to mines. What happens to them when coal mining stops? When chrome smelting ceases? When aluminium smelting is abolished from our shores?
If the cost of electricity were to rise to R1 a kilowatt-hour (kWh) - much lower than the R1.95/kWh renewable energy producers are seeking - it is safe to say most smelting of chrome, aluminium and zinc, as well as copper electrorefining, would cease - and so would thousands of South African jobs.
The effects of falling commodity production in this economic slowdown is a graphic illustration of this scenario. Perhaps towns like Phalaborwa and Rustenburg would become ghost towns.
This does not mean Eskom should not get a fair tariff that fully remunerates it for all its prudent investments and the costs it incurs as it delivers electricity to us.
Although the energy generation sector does create jobs, the jobs it helps create in other sectors are also of major importance.
What is needed is a South African solution to the energy crisis that enables the sustainability of the energy sector.
We need a strategy that retains the cheap electricity that underpins our industrial strategy but allows for recovery of costs associated with fresh investments and increasing input costs.
Moving to the marginal pricing approach might trigger investments in the electricity sector, but will result in the haemorrhaging of our economy.
We urgently need to find a balance between energy prices, energy efficiency, economic development and the environment, as captured in the government's definition of energy security:
"Energy security means ensuring that diverse energy resources, in sustainable quantities and at affordable prices, are available to the South African economy in support of economic growth and poverty alleviation."
Let's change what needs to be changed. Let's do what we can for our environment, but without destroying our economy and putting our people out of jobs.
Nhlanhla Gumede, a principal consultant on strategy and innovation at Deloitte Consulting, writes in his personal capacity.
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