Renewable energy: Good for the planet and the pockets of South Africans

This week, during the COP26 Climate Change Conference in Glasgow, Scotland, South Africa secured a historic R131 billion deal with various developed countries. 

The aim of the agreement is to help South Africa dramatically reduce greenhouse gas emissions.

The money is particularly intended to help Eskom speed up switching off its old coal-powered power stations and replacing them with renewable energy sources; this would also help support communities currently dependent on coal and the power stations.

Eskom group chief executive André de Ruyter declared the agreement a “breakthrough”, and explained to Moneyweb’s Ryk van Niekerk in an interview how the money forms part of Eskom’s and the country’s plan to remove CO2 more rapidly from the atmosphere.

Renewable energy is not just good news for the planet, consumers could have less expenses over the long term too. 

Currently, renewable energy figures are at 40 cents to 43 cents per kilowatt hour. Eskom’s costs for coal generation are in the region of 70 cents to 72 cents per kilowatt hour. 

“So, should one be able to speed up this transition, taking into account the need to also invest in storage capacity, batteries and pump stations, we think that renewable energy would indeed slow the rate at which electricity tariffs increase. 

“That would of course be good news for the economy.”

How will the cash be used? 

De Ruyter said a significant amount of money will need to be spent over the next 10 to 15 years to replace coal-fired power stations, especially those reaching the end of their lives. 

These old, ailing stations will be replaced with cleaner, green energy. 

But the cash also needs to be used to the 8,000km to 10,000km of new transmission lines, and a renewal of the country’s distribution network, to accommodate renewable energy. 

“In total, we expect this to cost in the order of R400 billion to R500 billion.”

The funding being made available to achieve SA’s green energy goals is currently the most sustainable option, de Ruyter said. 

“The cost of CO2 mitigation in South Africa is far lower than the cost for developed countries.

“Those countries are therefore prepared to make funds available to us at very low interest rates. Naturally the money has to be paid back, and guarantees from the state are of course required for taking out these loans,” de Ruyter explained. 

The money will be given in three to five years because there was uncertainty into who would be in power after this, he continued. So, a longer-term agreement could not be reached. 

However, de Ruyter said should the country demonstrate it can use the money responsibly, more cash will be made available. 

Who looks after the cash?

The billions pledged to be paid to South Africa is not only for Eskom, but also for “developmental work for electric vehicles”. 

It is not yet clear, however, if the private sector will enjoy the benefits of the incumbent billions. 

“The question one needs to ask as to why cheap money should be made available to the private sector is whether the benefit of lower interest rates will flow through to cheaper tariffs and accelerated projects, and whether the lower financing costs would find their way to the pockets of shareholders, which would not benefit the lenders in foreign countries with whom we are currently negotiating.”

But, de Ruyter said there would be independent oversight over the foreign funds. 

” I think proper oversight is absolutely essential, given Eskom’s history of state capture and corruption, and we are very comfortable with the lender retaining control of the money up to the point where payment should be made in a bona fide manner to contractors who have already first proved themselves successful on the ground and can be verified as having delivered.”

De Ruyter said the money will not be given to Eskom in a lump sum, “where someone will be licking their lips”, but will be “controlled very tightly by the lenders.” 

“We have all our eyes wide open to the cupidity staring us in the face.”

The ins and outs of switching to coal 

The just transition term is an important one, with South Africa relying on coal for so long. 

Should the country begin rolling out renewable energy to replace coal overnight, “ghost towns” would be left behind, and those working in the coal sector would be without work. 

Around 25,000 jobs are at risk over 10 to 15 years, which will have to be replaced. 

But, with proper industrial policy in place, especially in towns and cities such as Emalahleni and Middelburg, some 300,000 job opportunities can be created through clean energy, de Ruyter said.  

The current plan is to remove 225GW of Eskom’s coal-generated capacity from the system by 2035, and replace it with green energy. 

This will be done with a lot of help from the private, with Eskom only wishing to bring about eight of the approximately 50GW required on line. 

This major coal plant cut will mean turning off about nine power stations, with the plan to keep only six of the current coal-powered stations, until they reach their end of life, which will be around 2040 to 2045. 

Medupi and Kusile are projected to continue producing coal until around 2069. 

Older power stations are no longer reliable and must be replaced, but at this point, it is more affordable to replace them with renewable energy solutions than more coal power. 

“If one looks at the cost of available new technology per kWh [kilowatt hour], solar power costs one-tenth that of new coal capacity.

“What alternative do we have? We need new capacity. We have to reduce our CO2 footprint – also to make our exports more internationally competitive, and we thus have to make the best of a bad situation and obtain the funding as cheaply as possible to effect this transition.”

From 2023, a coal or CO2 import tax will be levied, and South Africa will be hit hard by this, because 87% of our electricity comes from coal. 

To remain internationally competitive, therefore, de Ruyter said it was imperative that we lower our CO2 intensity.

Listen to Ryk van Niekerk’s full interview with de Ruyter below.

By Ryk van Niekerk

This article first appeared on Moneyweb and was republished with permission. Read the original article here.