Investing in renewables to replace ageing coal-fired po…


If post-Covid-19 economic recovery really is the number one goal, the stimulus that will have the best short- and long-term multiplier effects will be a massive investment programme in renewables.

There is a growing chorus of voices globally and domestically calling for a “green economic recovery” from our current global “pancession” (a pandemic-induced recession). The alternative is that tip into a global depression similar to what followed the 1929 economic crash. 

If the noises coming out of the ANC ETC and influential voices like Mcebisi Jonas are anything to go by, this chorus is starting to be heard. Both the ANC ETC and Jonas refer explicitly to the Just Energy Transition (JET). During the pre-pancession period, President Cyril Ramaphosa committed South Africa to a JET in his message to the UN Climate Summit in September 2019. 

The JET is also referred to in key policy documents, including the Integrated Resource Plan, Nationally Determined Contribution (NDC) document (that SA is required to submit as part of the UNFCCC process), National Planning Commission’s Just Transition Scenario (including a stakeholder consensus that SA must be net-zero carbon by 2050), South Africa’s 2nd National Biodiversity Strategy and Action Plan 2015 – 2020, Draft Climate Change Bill, National Climate Change Adaptation Strategy and the National Strategy for Sustainable Development. It is also explicitly referred to by the National Treasury in its draft Technical Paper entitled, Financing a Sustainable Economy and the Department of Public Enterprises’ Eskom Roadmap. The Presidential Economic Advisory Council has explicitly discussed this matter with special reference to the investment potential that could flow from an ambitious renewable energy build programme over 20 years. 

The trade unions have also reiterated their call for a JET. Indeed, it was Numsa who first called for a JET a decade ago in response to the implementation of the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) from 2011 onwards. 

At the time, Numsa questioned the delivery of renewables via multinational corporations in partnership with South African BEE companies. More recently, Cosatu has reiterated this call during the Nedlac negotiations and in its own policy documents. 

And the Climate Justice Coalition has initiated the #GreenNew-Eskom campaign that breathes new life into the demand for a “rapid and just transition to a more socially owned, renewable energy powered economy, providing clean, safe, and affordable energy for all, with no worker and community left behind in the transition”.

The game-changer, however, has been the publication of four interviews by the newly appointed Eskom CEO, Andre de Ruyter. Referring explicitly to the need for a JET, De Ruyter talked about repurposing power stations and fast-tracking renewables in a way no Eskom CEO has ever done before. 

Total annual investment in renewables has exceeded investment in fossil fuels every year since 2009. By 2019, total investment in renewables was nearly $300-billion. Renewables are now the fastest-growing energy sub-sector. 

If Eskom formulates its own strategic solutions to the twin challenges of debt reduction (to manage its mind-boggling R480-million debt) while ensuring the security of supply for South Africa instead of waiting for the government to come up with the answers, this could fundamentally change the ballgame. 

So why is this all coming together now? As discussed further below, what most South Africans do not realise is that there is an extraordinary alignment of global and domestic dynamics that affects South Africa in a particularly unique manner. The upshot is that a JET may be South Africa’s only option if it is really serious about an inclusive investment-led job-creating economic recovery. 

The JET is the only strategy that can deliver on the two most important goals of any decent post-recession recovery: Investments that put large numbers of unemployed people to work as quickly as possible (high short-term multiplier), and investments that create assets that meet essential productive long-term future needs (high long-term multiplier). Many economists around the world are recognising that renewable energy achieves both in ways that are unmatched by any other post-recession stimulus strategy available within the current global context. Let me explain. 

Three global dynamics are changing the ballgame: accelerating investments in renewable energy, dropping prices of renewable energy and divestment from fossil fuels. 

Investments in renewable energy have escalated dramatically since 2004. Total investments in renewable energy are nearly $300-billion, double total investments in fossil fuels and nuclear combined. Even in the US where the president is a pro-coal climate change denier, consumption of renewables in 2020 is expected to be higher than coal-based energy. Coal consumption in the US has dropped each year for 56 years, reaching levels last seen in 1964. It is now more expensive to keep an existing coal plant in operation than it is to build and operate new solar PV and onshore wind power.

Solar PV can now be procured in the United Arab Emirates, Chile, Ethiopia, Mexico, Peru and Saudi Arabia for $0.03/kWh. The International Renewable Energy Agency is forecasting that average solar PV prices in 2021 will be 42% below the 2019 average of $0.068/kWh and more than one-fifth less than the average cost of energy from coal-fired plants. Since 2010, utility-scale solar PV power costs have declined by 82%, followed by concentrating solar power at 47%, onshore wind at 39% and offshore wind at 29%. Similarly, the prices of battery storage have plummeted over the past five years. 

Over the past 24 months, the largest financial institutions in the world have announced that they are withdrawing from investments in coal. These include some of the most well-known brand names, such as World Bank, European Investment Bank, Asian Infrastructure Investment Bank, Asian Development Bank, International Finance Corporation, European Bank for Reconstruction and Development, KfW (Germany), FMO (Netherlands), AFD (France), Allianz, Lloyds, Swiss RE, Munich RE, Nippon Life, Morgan Stanley, Societe Generale, BNP Paribas, ING, Deutsche Bank, ABN Amro, HSBC, Barclays, Standard Chartered, Banco Santander, Rabobank and many others. 

The biggest asset managers are also withdrawing (including Black Rock and the Norwegian Sovereign Wealth Fund), as well as the biggest insurers/reinsurers and Export Credit Agencies. 

It follows that if South Africa wanted to replace its current coal-fired power stations that must be decommissioned with new ones, the funding required will be almost impossible to source. Phakamani Hadebe said as much before he resigned as Eskom CEO in 2019. This contrasts with renewables. 

 German policymakers have heard this message: recently, Germany announced a €130-billion post-Covid-19 economic recovery package, which includes €50-billion for climate change, innovation and digitisation.  

Total annual investment in renewables has exceeded investment in fossil fuels every year since 2009. By 2019, total investment in renewables was nearly $300-billion. Renewables are now the fastest-growing energy sub-sector. 

It is therefore unsurprising that these three global drivers are forcing economists to rethink the future. 

In a recent survey of 230 leading economists representing 53 countries (including the leading economies in the G20), all agreed that the most effective post-pancession stimulus would be green infrastructure investments. 

Initiated by the highly respected former chief economist of the World Bank, Nick Stern, these economists agreed that the following policies would be most effective: clean physical infrastructure investments (renewables, storage, grid modernisation); making buildings energy efficient; education and training for immediate employment in decarbonisation projects; natural capital investments (ecosystem resilience and sustainable farming); renewables-oriented research and development.

 German policymakers have heard this message: recently, Germany announced a €130-billion post-Covid-19 economic recovery package, which includes €50-billion for climate change, innovation and digitisation.  

These extraordinary global dynamics and resultant emerging policy consensus interact with another set of extraordinary domestic dynamics. South Africa is the only country that is simultaneously the most coal-dependent in the world (percentage of electricity generation from coal) that is also powered by an ageing fleet of coal-fired power stations that must be closed down over the next 20 years. 

This, in turn, must happen at exactly the moment when investment funds for building new coal-fired power stations have dried up and investments in renewables are skyrocketing as prices drop through the floor. Even more significantly, as global energy funds withdraw from coal and now even oil, there is an urgent search on by fund managers to place their investments in the only really viable alternative, namely renewables. 

Investing in renewables to replace the ageing coal-fired power stations is, therefore, a no-brainer. And everyone seems to get it – hence the policy alignments referred to at the start of this article across the board from the ANC, to unions, to civil society, business (via the NPC stakeholder consultation process and the NBI initiative), Eskom and key government departments. 

The outlier, of course, is the Department of Mineral Resources and Energy. The minister’s recent presentation to Parliament mentioned renewables once. His preferences are clean coal (which is commercially unproven), nuclear (which is now four times the cost of renewables if delivered on time and within budget, which never happens), and gas (cheap, yes, but only as back-up). Why the department is such an outlier remains a mystery. And why the department seems to be deviating from its own policy framework, the Integrated Resource Plan (IRP), is an even bigger mystery.   

Recent modelling work that will soon be published by Meridian Economics shows that if the National Treasury recommendation that the cap on renewables (as per the 2019 IRP) is lifted, this would result in a renewables build programme between 2020 and 2030 that would attract investments worth R480-billion, or R1-trillion over 20 years.

It follows that if post-Covid-19 economic recovery really is the number one goal, the stimulus that will have the best short- and long-term multiplier effects will be a massive investment programme in renewables. They get built quickly (short-term multiplier), and they replace the coal-fired power stations over the long-term (long-term multiplier). 

Furthermore, this is the lowest-cost way to ensure security of supply. And hey, this also happens to be policy – read the IRP which lays out a programme for decommissioning the power stations and massively increasing renewables (at least for the first few years until they get capped through to 2030). 

Renewables are the cheapest alternative to coal and there is almost unlimited funding at discounted rates available for investment in renewables from international and domestic sources. If Eskom steps up to the plate, this could trigger the biggest energy and industrialisation programme since 1994. This is not just wishful thinking –  many research groups in government (CSIR), Eskom, universities (e.g. ERC at UCT) and the private sector (e.g. Meridian Economics) have confirmed this via their respective models. 

Recent modelling work that will soon be published by Meridian Economics shows that if the National Treasury recommendation that the cap on renewables (as per the 2019 IRP) is lifted, this would result in a renewables build programme between 2020 and 2030 that would attract investments worth R480-billion, or R1-trillion over 20 years.

 This excludes the investments in an upstream (ideally, Mpumalanga-centred) industrialisation programme to manufacture the capital equipment, componentry and the switching gear needed to upgrade the wires. If decommissioning rates are aligned with the attrition rates of the ageing workforce in the coal mines (as argued elsewhere), this would eliminate retrenchments and create the foundation for a just energy transition.

Numerous experts from across the ideological spectrum have argued that President Cyril Ramaphosa is being handed a post-Covid-19 economic recovery package on a platter. The world’s leading economists agree that green infrastructure investments are the best stimulus available in today’s world. The world’s investors are desperately looking for major mega-projects to dump the funds they are extracting from the coal sector. The South African policy landscape is aligning around the JET (except for the Department of Mineral Resources and Energy). What is needed now is to focus on the details. We could be on the verge of launching the most ambitious industrialisation programme since 1994. DM

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