Session 9: Unpacking the water-energy-food nexus

Session 9: Unpacking the water-energy-food nexus

Renewable energy technologies have experienced an exponential growth in South Africa, thanks to the procurement of large-scale power plants. However, South Africa’s electricity sector still lacks a level playing field. Significant vested interests have maintained overwhelming support for centralised, coal-based electricity generation, preventing the development of renewable energy technologies to their optimal potential. Active efforts are required to enhance the transformation of electricity supply in the country by truly incorporating the low-carbon transition in electricity planning, opening the policy space for the development of embedded generation, and phasing out fossil fuel subsidies.

Session 9: Energy Utilisation

Responses to Eskom’s request for compensation for additional costs and for lower than expected sales in 2013/4 should be designed to support industrialisation. From this standpoint, the regulator’s response to Eskom’s proposals should take into account the following.

• Eskom should be guaranteed compensation for the cost of diesel and other measures to avoid loadshedding, since otherwise it would be effectively incentivised to loadshed rather than incur additional expenses.
• The multi-year price determination (MYPD) did not foresee the structural decline in electricity demand since around 2011, largely as a result of the end of the commodity boom combined with the rapid rise in electricity tariffs, and should therefore be revised to take it into account. That in turn would affect both the scale and nature of investment in new generation capacity.
• Efforts to hold down tariffs as a way to enforce greater efficiency at Eskom have had severe unintended consequences, fostering in particular inadequate investment and maintenance. Instead, tariffs should be managed to ensure responsiveness to shifts in supply and demand and to maintain a reasonable rate of return at Eskom, as the Act requires, while the state as shareholder should work with Eskom to develop specific and practical measures to address the obvious areas of inefficiency around staffing, coal procurement, subsidies to the aluminium refineries, planning for construction and debt management.

Session 6: A regional approach to energy resources

Session 6: A regional approach to energy resources

Energy and electricity issues in particular have been high on the South African agenda since the 2008 crisis, which saw the country’s national power utility Eskom implement rolling load shedding and cut supplies to a number of large customers, such as mines and minerals beneficiation plants. As South Africa experienced in 2014 the most stringent power cuts since 2008, reviewing the current electricity planning process is both a timely and necessary exercise. This review, based on an internationally - recognised framework, unpacks the key pillars of them Integrated Resource Plan (IRP) and reviews South Africa’s performance. The objective is to provide a comprehensive overview of the key elements of successful electricity planning and to use this framework to reflect on the country’s opportunities and challenges for optimal planning and implementation.

Policy Paper prepared for the Economic Development Department and the Department of Trade and Industry

The impact of electricity price increases on the competitiveness of selected mining sector and smelting value chains in South Africa: Has it incentivised mining-related companies to invest in renewable energy, cogeneration and energy efficiency?

This research project was jointly commissioned by the Economic Development Department (EDD) and the Department of Trade and Industry (the dti). The Global Green Growth Institute (GGGI) was tasked with implementing the project as part of a partnership to support the South African government's green growth planning efforts. TIPS was the primary research partner and service provider. This project is the result of the collaboration of all of these institutions.

The South African government's Inter-departmental Green Growth Committee, chaired by EDD, served as the project steering committee for this research. A multi-stakeholder Technical Reference Group was also established to offer inputs on various drafts of the report.

This policy paper represents a condensed version of an earlier report, which was the result of extensive fieldwork and interviews with stakeholders across the selected mining value chains. The research team comprised Reena Das Nair, Dinga Fatman, Evans Chinembiri, Gaylor Montmasson-Clair, Georgina Ryan and Wendy Nyakabawo of TIPS. Gaylor Montmasson-Clair and Georgina Ryan were the lead authors of the policy paper. Alison Goldstuck and Katlego Moilwa were GGGI contributing authors. 

Although not directly associated with the transition to a green growth path, recent trends in South Africa's electricity supply industry, which has been characterised by energy supply problems since a load shedding crisis in 2008 and drastic price increases (i.e. a trebling of the average electricity price from 2009/2010 to 2017/2018), provide an opportunity to investigate the shift to a greener path. Using these developments as an entry point, this paper investigates the impact of electricity price increases on the competitiveness of mining-related companies and the mitigation measures which have been implemented by various firms in the four most important mining value chains in South Africa, namely platinum, gold, iron ore and coal. Particular attention is paid to the role that electricity price increases and energy security concerns have played in fostering investments by mining-related firms in renewable energy and energy efficiency.

For any enquiries related to the report that are relevant to the dti and EDD, please contact Christian Prins, Economist (macro economic policy), EDD, at cprins@economic.gov.za.

The Renewable Energy Independent Power Producer Programme (REIPPP) was established to encourage new entry into the market.

The Regulatory Entities Capacity Building project review of the renewable energy sector includes:

• Assessing the problems and difficulties in implementing South Africa's first option for the expansion of renewable energy through feed-in tariffs (REFITs), initiated by the Department of Energy, and its abandonment by the government.
• Assessing, with the assistance of the National Treasury's Public-Private Partnership Unit, the motivations for opting to pursue competitive bids tenders through the REIPPP instead of the REFIT system.
• Assessing the outcomes of the competitive bidding process as a regulatory mechanism with reference to its impact on market entry, expansion of capacity, investment, pricing and linkages to industrial policy and job creation.
• Explore NESRA's role in this process.

The National Energy Regulator of South Africa (NERSA) is the regulatory authority established in terms of the National Energy Regulator Act, 2004. 

The Regulatory Entities Capacity Building project will provide a comprehensive review of the regulators' role, linked with the policy framework and powers. 

The review includes:

• Examining the linkages with economic development in a number of areas including links with industrial policy.
• Assessing the key issues at each level of the Electricity Supply Industry value chain.
• Examining electricity pricing and the process of setting prices by NERSA.
• Evaluating the regulatory and institutional framework.
• Looking at the role of Independent Power Producers and municipalities.
• Undertaking case studies that highlight how actions by Eskom and the regulator have implications for industrial policy.
• Identifying specific areas of capacity building to inform short learning programmes (SLPs).

Session 2A: Scarce Skills

Trade patterns change as a result of the international specialisation of production and the increased integration of world markets. This is especially evident in small open economies such as the countries that make up the SADC region. In 2000, the share of SADC industrial production that was exported stood at 12%; by 2005, this share stood at 17%. A similar yet more pronounced trend applies to the share of domestic final demand for industrial goods imported. For 2000, the share of domestic final demand imported was 13%; this increased to 20% in 2005. The change in trade patterns reflected in these numbers has important implications for the use of resources in the economies of the region. This study focuses on the implications of changes in SADC industry trade patterns on the energy use patterns of the countries within the region.

South Africa's energy system has been, and still is, one of the key contributing factors to the social and economic development of the nation. By international standards, the South African economy is very energy-intensive, meaning that the country uses a large amount of energy for every rand of economic output. Historically world economic and political factors have had a profound effect on international oil prices which in turn have impacted heavily on individual nation's energy policies.

The focus of this research centres on issues concerning industrial energy use. The theoretical background to this research is well grounded in traditional trade theory, with trade patterns and the international competitiveness of countries explained as a function of both supply and demand side factors. The empirical work undertaken seeks to verify such explanations by determining the extent to which changes in the energy intensity of the South African manufacturing sector are due to changes in the types of goods produced domestically versus changes in the types of goods internationally traded.

South Africa is in the grip of an electricity crisis marked by a euphemism known as load shedding. The demand for electricity has grown to the point that the supply reserve margin is often under threat, necessitating the electricity supplier to cut supply to some areas, or to shed load. This is a condition unknown to South Africa since the country enjoyed electricity security from the mid-1950s. Are we, however, heading in the same direction when considering water? Is water shedding inevitable?

We ask these questions since South Africa is a country classified has having chronic water shortages, a condition exacerbated by climate change and the rapidly increasing demand for water. Can we avert a load-shedding crisis by being pro-active? In this paper we address this issue by applying a Computable General Equilibrium (CGE) model using an integrated database comprising South Africa's Social Accounting Matrix (SAM) and sectoral water use balances. We refer to ASGISA, the governments' Accelerated and Shared Growth Initiative in South Africa, and conclude that business as usual will indeed dump the country into a situation where water shedding will be inevitable.

Unlike electricity, however, water security is much more serious from a livelihoods and health perspective since there are no substitutes for it. The need for pro-active measures is therefore essential.

Since 1994 the South African government has identified poverty alleviation as a key policy goal. This objective was formulated under the auspices of the Growth, Employment and Redistribution (GEAR) policy which has arguably had limited success (Hassan, 2001). In 2004 the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) was formed to build on previous economic growth initiatives and it set a target of 4.5% mean growth over the 2004-2009 period (AsgiSA, 2007). AsgiSA also has the task of meeting the government’s pledged target of halving both unemployment and poverty by 2014 (HSRC, 2008). The Johannesburg Plan of Implementation’ (JPOI) adopted at the Johannesburg World Summit on Sustainable Development in 2002 (GSSD, 2006) has set its goals in alignment with AsgiSA. The JPOI was tasked with helping developing countries face the challenges of sustainable development, namely poverty, inequality and environmental degradation (JPOI Response Strategy, 2003). It also, “highlights access to energy as central to facilitating poverty eradication.” (Vera, et al., 2005: 156).

The achievement of equity within a generation rather than across generations is an ambitious, but vital component of sustainable development (Hanley, et al., 1997: 425) and Winkler (2006: 9) states that, ‘ecological sustainability [can] not be achieved if poverty was not addressed.’ Although there is no consensus on how to define sustainable development or on how to apply it, there is general agreement that sustainable development has three broad dimensions – economic, social and environmental (Winkler, 2006: 9). Poverty eradication becomes central to sustainable development policies and developing useful and reliable poverty indicators is part of this process.

The lack of energy provision pervades all aspects of poverty: shelter, food, health and health services, education and security, and many other elements of well-being also rely heavily on energy provision (Pauchari, et al., 2004; Kemmler and Spreng, 2007). And whilst, “low energy consumption is not the cause of poverty...it is an indicator for many of its elements, such as poor education, bad health care, the hardship imposed on women and children” (Goldemberg and Johansson, 1995).

The link between poverty and energy provision seems indisputable as evidence emerges repeatedly from much of the current economic development literature. Amongst others, Toman and Jemelkova (2002) describe, how “…energy availability can augment the productivity of industrial labor in the formal and informal sectors.” (Winkler, et al., 2007: 11).

The Millennium Development Goals (MDGs) as laid out in the United Nation’s Millennium Declaration echoes the same sentiments. However, despite the strong link between energy provision and poverty eradication the United Nation’s Millennium Declaration, does not stipulate specific targets for energy services. Yet it is recognised that “modern energy services are an essential element enabling a country to meet these goals, [although] it has been difficult to establish quantitative causal relationships between energy and progress toward the MDGs.” (Modi, et al., 2006: 38)

The International Energy Agency (IEA) highlights that with prosperity comes demand not only for more, but also for better quality energy (IEA, 2004). It asserts that the absolute amount of energy used per capita and the share of modern energy services (especially electricity) are key contributors to human development and the target of halving the number of people living on less than $1 a day by 2015 is unlikely to be achieved unless access to electricity can be provided to another half-a-billion people. IEA maintains that developing countries need to improve the availability and affordability of commercial energy to especially rural communities in order to alleviate energy poverty and human underdevelopment.

There are a number of reasons for considering commercial energy. Unless the use of natural resources for energy purposes is monitored and curtailed, “there is danger of these resources getting rapidly depleted leading to grave long term consequences” WWF (2003: 2).

Another important aspect regarding the relationship between energy use and poverty is that the real per unit costs of alternative fuels used by poorer households are higher relative to those used in wealthier households that are linked to the national grid (Brook & BesantJones, 2000: 2). Collecting fuel wood generates high opportunity costs through lost education, the high toll on the environment and the health of the poor. “Energy services such as lighting, cooking, refrigeration, and power for electronics and motive force are provided most cheaply and conveniently, and with the least local pollution, when they are derived from electricity or gas delivered through networks. Moving from traditional to modern fuels can thus dramatically raise the effective incomes of low-income households.” (Brook & Besant-Jones, 2000: 3).

South Africa faces similar challenges to many developing countries and given that poverty alleviation is one of the most pressing goals for South Africa, the link between poverty and energy use must be made clearly. Indeed, attention to energy provision, not just in rural communities but also in poverty stricken urban areas is paramount (Parnell, 2004) and results below demonstrate this. Clear and reliable indicators of energy-poverty will facilitate the formulation of energy provision strategies.

In section one we review the current state of poverty measurement in South Africa and the extent to which the authorities acknowledge (or not) the importance of energy provision as a poverty alleviation strategy. This includes examining trends in social development and some notable South African studies on poverty and poverty alleviation. Section two attempts to define good poverty indicators and to pose energy based poverty indicators against these criteria. Section three identifies some of the weaknesses of current money-metric indicators of poverty and examines the case in favour of using energy-based indicators, not necessarily as a replacement but as a complement to current usage and research. Section four outlines our methodology, and section five presents our results.

No-one can dispute that electricity is an essential input to production and economic growth in South-Africa.

Eskom, a wholly state-owned utility dominates electricity generation, it supplies approximately 95% of South Africa's electricity. The Electricity Supply Industry (ESI) has been facing numerous uncertainties during the past decade. This included aspects such as the restructuring of the industry, the regulatory environment (specifically the methodologies used to approve prices and tariff structures), potential of new market players as well as other issues, including environmental and social objectives.

This paper is essentially a scoping exercise to explore the type of issues that might arise for South Africa in WTO energy service negotiations. The background to the current round of negotiations in energy services is explained, including the uncertainties that remain in classifying energy services.

The extent and diversity of the energy industry (coal, oil, gas, electricity, nuclear and renewable energy) is described in order to develop an understanding of the issues that will arise around trade in energy services in South Africa or by South African companies. Current and potential energy service exports are mapped. The regulatory framework and liberalisation process in each energy sector is also described.

While there are some market access issues in the petroleum industry, the main questions will arise in the electricity sector. This is the fastest growing area for exports of South African energy services. It is also the sector that faces the most fundamental market restructuring and liberalisation.

South Africa might wish to make a number of requests for the removal of limitations on market access and national treatment in services related to electricity transmission and distribution, in marketing and supply, facilities management and other related services including installation, repair and maintenance. It may also wish to make additional requests in terms of more transparent and justiciable regulatory systems that would not disadvantage South African companies. The immediate potential market is Africa, but it is feasible for some of South Africa's energy service companies to make headway in other emerging markets.

With regard to the liberalization of South Africa's electricity market, the creation of a power exchange and electricity trading market would create new opportunities for foreign providers of energy services. A new regulatory framework would need to be put in place. Transmission, distribution and supply for small consumers are likely to remain monopolies until significant progress has been made towards universal access to electricity.

The paper provides an introduction to the South African energy sector for those involved in trade issues, and an introduction to WTO trade negotiation opportunities for those involved in energy services.

In the early 1990s, about two-thirds of South Africans were without electricity, relying on dirtier and less convenient fuel such as coal. As a result, urban air is severely degraded, with health guidelines for concentration of particulate materials being exceeded. Eskom dominates the electricity market of sub-Saharan Africa generates about 95% of South Africa's electricity. Electricity generation has been showing an upward trend in South Africa, with an increase of approximately 40% between 1990 and 2000. More than 85% of the coal produced in the country is used to generate electricity. Energy prices in the country do not reflect the impact of pollution and other externalities, and hence undermine investment decisions that could favour less polluting technologies. The study will investigate factors determining the demand of energy in the electricity sub-sector and evaluate the main environmental issues associated with electricity production in the country. The research will also investigate possible long run shifts in production technology.