Why SA is so energy inefficient

This is a must read:

by Peet du Plooy

Mail & Guardian Online

24 November 2006 01:59

South Africa is energy inefficient because we don’t value our carbon resource sufficiently.

There are a number of perspectives that, together, make up the picture. One perspective deals with process efficiency -- a technological issue -- another with the structure of the economy -- how much of our economy is fundamentally energy-hungry.

Either way, improving energy efficiency will largely rely on energy becoming more expensive. It will allow us to improve our supply-side and demand-side technology, but also encourage us to shift our economy away from energy-intensive industries.

On the structural perspective: while resources are decreasing as a percentage of GDP contributor (mining contributes 7% and 5% of employment), it remains the largest contributor to energy consumption. The mining industry consumes only 6% of the country’s energy, but this compares to 3,8% of energy consumption by the services industry, which contributes 65% of GDP and 52% of employment. The big consumer is the industrial sector at 41% (18% of GDP, 15% of employment), much of which is in minerals processing (still resources, just downstream).

Twenty-seven percent of energy consumption is by transport and 16% by homes. For homes, water heating (a geyser takes about 40% of total home use) and cooking are the biggest consumers (so lightbulbs only account for a small percentage of 16%).

Leaving aside a discussion on technologies (Bush’s solution), here are the other perspectives: our resource-reliance is partly a colonial legacy that we can see repeated throughout Africa by resource- hungry superpowers, first by the old colonialists, then Americans and now Chinese and Indians.

In addition, apartheid left us hideously deformed spatial planning (sprawling townships), self-reliance projects such as Sasol and Iscor and a massive horde of giant low-grade coal power stations that have not been reinvested in in 20 years and 40-year coal contracts limiting the price of coal to Eskom.

Along with preferential rates from Eskom to massive industrial consumers, this leads to the world’s cheapest electricity. A byproduct of this was the cheap and abundant power coming on line in the Eighties, the local solar water heater industry collapsed and is only today reaching its old sales records again. Cheap energy means little incentive to save it.

Demilitarised nuclear expertise led to the pebble-bed modular reactor (PBMR), which this year gets R1,1-billion in funding with not a single megawatt (MW) generated compared to demand-side management’s R600-million budget.

Consider that one of the major differences between South Africa and Asian Tigers is that the tigers did not develop resource-based economies, but service and knowledge economies. Countries (especially in Africa) with much resource wealth continue to suffer human poverty -- the resource curse or Dutch disease.

We are consciously using our cheap energy to get foreign investment. Keeping our energy dirty (coal-based) keeps it cheap. China (the Forum on China-Africa Cooperation), Russia (Putin visit) and Canada (Alcan at Coega) are three countries that have closed deals on aluminium smelters (the most energy-hungry of operations) in South Africa this year. We have no trade strategy besides “we want FDI” and will do anything for it.

What we don’t count is the externality cost: the cost to society that government is not taxing. Sir Nick Stern sets the true cost of a ton of carbon dioxide at $85. At 1,8 tons of CO2 per ton of coal and a coal price of around R100 per ton (R37 or R55 per ton of CO2), the South African price for coal is less even than the current price of an equivalent carbon offset unit (€9 on the European market, according to Point Carbon).

Our economy breathes carbon. Oil is our number one import, coal our number two export. Car sales are growing along with prices and congestion, and the Motor Industry Development Programme is hailed as the government’s greatest success in sector development. We have to sell our carbon (coal and energy-intensive manufactures) to buy other products (oil and cars).

Besides the structural issues mentioned, we have little hydro power or gas that can be converted into electricity more efficiently than coal. Power stations are clustered around Mpumalanga mines and transmitted over thousands of kilometres to coastal cities, leading to significant transmission losses.

There is also little thermal interconnection between industrial processes.

Co-generation is an energy-saving technology that takes heat from one process and uses it in another, either as electricity or sold to a neighbour as steam or process gas. It is only starting to take off in South Africa.

Keeping the cost of energy down makes sense in the context of poverty, although a free basic tariff should address the basic access issues. Distributed energy solutions (bypassing transmission) are not socially acceptable (“if it’s not good enough for city people, it’s not good enough for us”).

The link between poverty and environment is seldom recognised, but instead seen as an area of compromise. Climate issues are seen as an opportunity for horse trading carbon savings for aid and investment.

In general in South Africa, social issues override environmental. To date, in the four years after the World Summit, the environment has not been mentioned in the State of the Nation or budget addresses (which together inform the national programme of action), except in the context of “the business environment” or with reference to tax breaks to environmental NGOs. In fact, even in the 2002 State of the Nation address, the World Summit on Sustainable Development was called a “summit on poverty” with no mention of the environment.

While efficiency makes economic sense, businesses often see it as a social responsibility project. Business spends only 4% of its CSI budget on the environment.

Eskom runs the nationally subsidised energy efficiency programme and is thus put in the conflicting position of increasing and decreasing its sales volume (but keeping prices steady according to present strategies). This is reflected in the fact that it gives a 100% subsidy for load shifting (which optimises capital use through peak management, but does not reduce emissions), but only a 50% subsidy for energy efficiency projects (which reduce overall consumption).

In the meantime, Eskom closed its own plant performance department, which optimised the efficiency of power stations, almost 10 years ago. The focus was on economic capital efficiency (sweating assets). It hived off the whole institution responsible for R&D as part of its partial privatisation effort (a decision now reversed).

Sasol has a perverse interest in a high oil price and greater coal use.

Government has a tax interest (as the windfall issue reminds us) in Eskom and Sasol. There is also an interest in selling supply solutions (such as the PBMR) rather than savings solutions, despite Thulani Gcabashe’s contention that new energy capacity costs R10-million per mW with savings of only R3-million per mW.

Peet du Plooy is trade and investment adviser (South Africa) for the World-wide Fund for Nature and author of the WWF’s SA Companies in the 21st Century report