Abstract
Despite 2020’s record fall in carbon dioxide emissions—largely due to extensive and repeated “lockdowns” of cities, plus dramatic decreases in air travel and the use of motor vehicles 1 —the world is far from making the changes necessary to avert climate catastrophe. The fact that the shutdowns over periods of last year had a marginal effect in the fight against climate catastrophe at best illustrates the enormity of the task that lies ahead. According to a 2019 report from the World Meteorological Organization, “time is fast running out,” 2 while Fatih Birol, head of the International Energy Agency (IEA), observes “The pandemic and its aftermath can suppress emissions, but low economic growth is not a low-emissions strategy. Only an acceleration in structural changes to the way the world produces and consumes energy can break the emissions trend for good.” 3
In addition to ravaging health systems, the Covid-19 pandemic has exacerbated food and housing insecurity, deepened unemployment, and put a spotlight on existing inequalities. In South Africa, growing awareness of these problems has brought renewed hope in the possibility of a response to the pandemic crisis that could aim for a “just transition” to a low-carbon economy. Like other countries, South Africa is in desperate need of an energy transition. The South African economy remains disproportionately energy intensive 4 (although it is becoming less so), per capita emissions remain high, 5 and the country is the fourteenth largest contributor to global carbon emissions. 6 This energy and emissions profile reflects the historical and continuing dominance of the country’s “minerals-energy complex” (“MEC”) 7 which is supported by cheap electricity generated mostly from low-quality coal, while higher quality coal is exported.
Beyond its detrimental ecological impacts, South Africa’s MEC is deeply intertwined with the legacy of cheap Black labor in the mines and the formation of racialized capitalism. This structure of South Africa’s economy underpins the country’s massive inequality, serious health impacts for many thousands of people in mining-affected communities, and the country’s disproportionate contribution to global emissions. This is why the shift to renewable energy (RE) in South Africa must include measures to ensure a just transition that leaves no worker or community behind while working to reverse the legacy of mass unemployment and deep socio-economic inequalities.
The Political Economy of South Africa’s Energy Crisis
Since coming to power in 1994, South Africa’s government has promised “electricity for all” as a critical component in undoing the gross disparities of apartheid. This commitment has produced a dramatic rise in grid connections, such that more than 80 percent of households were connected to the grid by 2015, up from only 30 percent in 1994. Harder to shift have been the persistent levels of poverty and inequality. South Africa’s “Gini co-efficient”—a global measure of inequality—today places the country as the world’s second most unequal, after neighboring Lesotho. With current unemployment at over 40 percent, many households cannot afford electricity, even when they are connected to the grid. The introduction of a provision for free basic electricity in 2004 was a step in the right direction, but at just 50 kWh per month for poor households that is insufficient to meet even basic requirements.
Making matters worse, South Africa’s state-owned power utility, Eskom—which generates over 90 percent of energy consumed in the country—is in deep crisis. Eskom’s crisis has multiple dimensions and various causes, both internal and external, including (1) the 1980s era commercialization of Eskom; (2) post-apartheid commitments to provide electricity to the majority of the country previously excluded, under the full cost recovery (FCR) model where the excluded majority are unable to afford rising electricity prices; (3) underinvestment in the utility’s infrastructure, particularly in building new capacity to meet increased demand; (4) conversion of the utility in 2002 to a public corporation, forcing it to pay taxes as well as dividends for the first time since its establishment almost a century earlier; (5) Eskom’s rising debt, dominated by foreign currency borrowed against the weak rand (R); (6) expensive coal contracts with windfall profits, signed in the name of promoting Black ownership in the coal industry; and (7) dramatic increases in the price of low-quality coal, upon which Eskom depends to generate electricity. 8
Corruption at Eskom has only exacerbated the utility’s structural crisis. The extent of this corruption is only starting to be exposed following various investigations. One of these investigations, undertaken by the Special Investigative Unit (SIU), has revealed that 5,452 officials failed to submit their declarations of interest—more than 10 percent of employees at the group. The report also found that 135 Eskom officials are linked to Eskom vendors, which have conducted business with Eskom worth at least R6 billion ($412 million)—an average of around R45 million ($3 million) each.
These structural problems and entrenched corruption have led to rising tariffs for users, to make up for falling revenues and Eskom’s rising debt service costs. Most recently, a further 15 percent tariff increase was approved for 2021/2022. 9 But rising tariffs also lead affluent customers and some companies increasingly to go “off grid,” further eroding revenues from users in what has been the “utility death spiral.” The situation is exacerbated by the fact that, even before the pandemic, South Africa’s demand for electricity was flat or even falling.
Liberalization, a False Solution for the South African Energy Crisis
Many critics blame the crisis in the country’s power sector on Eskom’s status as a publicly owned monopoly, routinely taking for granted that this means corruption, mismanagement, and maladministration. 10 But these arguments fail to consider the political-economic factors that are undermining public utilities around the world, 11 especially as they have become increasingly commercialized under neoliberalism and the World Bank’s FCR model.
The FCR model is based on the notion that the full cost of providing electricity should be covered by charges to end users. The validity of this model is rarely if ever questioned, despite the World Bank’s own 2019 report acknowledging that the commitment of public utilities to a mission of providing universal service and 100 percent electrification will result in a failure to reach the “FCR” benchmark. 12 Compounded by the other factors described above, this model lies at the core of Eskom’s financial problems. Flowing from this combination of factors, the distance between Eskom’s revenue and outlays has widened in recent years, leading to neglected maintenance, outsourcing for skills and services, and other issues.
It is in this context that some are promoting the “unbundling” of Eskom, a measure initially imposed by the World Bank as a condition of debt relief. In South Africa this has entailed a partial privatization of the energy sector, where Eskom has remained a vertically integrated public utility alongside a new, private RE program—the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). 13 Under REIPPPP, several auction “bidding windows” have been opened, with private contractors competing to win lucrative, guaranteed twenty-year “power purchase agreements” (PPAs). Despite auction opportunities for a total of 14,725 MW of renewable generation capacity, 14 to date less than 6,400 MW of capacity has been procured, 15 with just 3,000 MW operational as of 2017. 16
But the limited deployment of renewables is a global phenomenon, with its causes to be found in the profit logic of the private market. Central to this logic has been that investments in RE will inevitably rise as the cost of RE continues to fall. The idea buys into the misconception that the falling costs of RE will reach a “tipping-point” where the cost of renewables will fall below the costs of energy from fossil fuels, inevitably leading to a shift in investment with increased levels of investment being directed to renewables, and in this way, decarbonization is inevitable. Lessons from international energy trends indicate that this may not be the case, and that contrary to perceptions, the world is not on the path to decarbonization.
It is true globally that the “Levelized Cost of Electricity” (LCOE)—which reflects project costs, and not bidding prices, over the lifetime of the wind farm or solar array—has fallen dramatically since 2009. In the case of solar photovoltaics (PV), prices have dropped by 88 17 and 69 percent for wind. There are, however, several problems with “tipping point” or “least cost option” arguments. The fundamental problem is that the bidding prices or the LCOE does not reflect all the costs associated with RE. There are additional “system costs” that may include balancing costs (adjustments of dispatchable power plants that respond to short-term variability) and collector stations and other grid costs (that can include additional transmission). These could add 10-15 percent over and above the costs of a unit of installed wind and solar capacity. 18
Perhaps most importantly for private investors, lower bidding prices also mean narrower profit margins. The anticipated falling level of profits reduces profitability, and thereby disincentivizes private sector investment in renewables. This is how to make sense of reports like the one from Bloomberg New Energy Finance (BNEF) in mid-2018 that indicated investment in renewables had fallen to a four-year low, followed by a report a year later by the United Nations Environment Programme (UNEP) and BNEF that indicated that investment in renewables had fallen 11 percent in 2018, to $188.3 billion. 19 Therefore, statements such as this one from the IEA should come as no surprise: “As things stand, the world is not set for a decisive downward turn in emissions . . .” 20
When looking at changes to fossil fuels compared to wind and solar as percentage of primary energy production, it is evident that there is little change in relation to the global energy mix—see Figure 1. Instead, based on current trends, there is an expansion in global energy production with an expansion in energy generated both from fossil fuels (particularly gas) and from renewables coming from solar PV and wind. This indicates that solar PV and wind are not displacing fossil fuels in the global energy mix, corroborating the trends taking place in investment. 21
Changes to the global energy mix of primary energy production (1950-2017).a
Similarly, for all the hype around the rise in RE and the unfolding transition, it is astonishing that RE made up less than 5 percent of total energy consumed in 2019. 22 While most people around the world agree that a dramatic shift in the global energy mix from fossil fuels to RE is more urgent than ever, this transition is stalled. At the core of the failure internationally are the limits of a for-profit model for developing an RE industry. State subsidies for the private sector renewable companies may be a way to ensure high enough returns on investment but at the expense of undermining the arguments related to the lowest cost.
Can Private RE and a State-Owned Eskom Coexist?
Just as the private RE sector internationally has reached an impasse in terms of its contribution to the global energy mix, the REIPPPP could face a similar fate. A clearer look at the roots of Eskom’s fiscal crisis and international energy trends indicates that Eskom’s unbundling and the related expansion of the REIPPPP will potentially exacerbate South Africa’s energy crisis rather than help to resolve it, and deepen the country’s already dire unemployment rate. Given long-lasting impacts of trade liberalization, independent power producers (IPPs) will tend to rely on importing the infrastructure and technology required to reduce input costs associated with developing an RE industry locally. This is already happening. In 2019, a locally owned solar panel manufacturing company filed a petition with South Africa’s International Trade Administration Commission demanding a 10 percent customs tariff be placed on all imports of crystalline silicon PV modules. The general manager of the company “alleged that the fourth round of South Africa’s Renewable Energy Independent Power Producer Programme (REIPPP) has been completely sourced from Chinese equipment suppliers,” and that these interventions are needed “as cheap imports are crippling the local industry and has seen many manufacturers and installers close down,.” 23 This is a rational decision if private RE producers using locally manufactured equipment are to remain competitive with other companies which rely on imports. Given that most of the potential jobs in RE development are in the manufacturing of the infrastructure, the notion that the REIPPPP will dramatically alleviate the unemployment crisis is misguided at best.
Critically, the trade union movement has been vociferous in its rejection of unbundling 24 and the issue has been seen as so crucial that it has culminated in “rival” unions, organized at Eskom, uniting in their opposition to the privatization and unbundling of the state-owned company. 25 The National Union of Metal Workers of South Africa (NUMSA) 26 and other trade union formations are not only interested in protecting the over forty-four thousand Eskom jobs, they are in support of the need for a just transition to a low-carbon economy and continue to stand by their almost decade-long demand for socially owned RE. 27 To realize these goals, the entire system must remain public and the REIPPPP must be ended or, at the very least, not be renewed in any way to enable a planned and orderly energy transition.
What Would a Just Transition for South Africa Look Like?
In South Africa, besides technical constraints, the transition to an affordable, equitable, and low-carbon energy system will require facing major political and economic challenges that are rooted in the country’s history of socio-economic and racial inequality, as well as in its heavy dependence on coal-fired power. Another fundamental challenge is the South African government’s longstanding and unwavering commitment to a macroeconomic policy aimed at attracting foreign direct investment to support an export-led growth model—primarily the export of commodities and cash crops, despite the fact that these industries have detrimental ecological impacts. This macroeconomic framework is a major obstacle that needs to be overcome if we are to free up the necessary resources required for a state-led low-carbon re-industrialization program. Winning this sort of system change will require sustained burgeoning struggles from below adept at connecting economic and ecological justice.
Many movements, including trade union organizations have begun to offer imaginative ways of dealing with the intersecting economic and ecological crises. Some examples include the following:
Inyanda Land Rights Movement—campaigns for land rights, food sovereignty, sustainable agriculture, and access to water by defending the rights of rural women, farm workers, and small-scale farmers; 28
South African Food Sovereignty Campaign—one of the campaign’s objectives is to tackle the systemic roots of hunger and the climate crisis. It recognizes, that with fourteen million people in South Africa hungry, we need to advance food sovereignty alternatives from below to sustain life and survive the climate crisis; 29
Cry of the Xcluded, a movement of trade unions and social movement organizations, who argue that we need a just transition to a radical Green New Deal. Central to that, they want government to hire three million new workers, to be employed directly, working for central and local government.
The Alternative Information & Development Centre (AIDC) launched the One Million Climate Jobs Campaign in 2011 which argued that we are simultaneously facing a global environmental crisis and a global economic crisis. We need solutions to both—now. 30 Follow-up research published in 2017 showed where the jobs can be created 31 —see Table 1.
Total Job Estimates
Source. “One Million Climate Jobs: Moving South Africa Forward on a Low-Carbon, Wage-Led, and Sustainable Path,” Alternative Information and Development Centre, Cape Town, South Africa. http://aidc.org.za/download/climate-change/OMCJ-booklet-AIDC-electronic-version.pdf.
All these proposals require large levels of resources, and in the first instance, will need an immediate solution to Eskom’s debt crisis. One of the key proposals in this regard is to utilize the power of the public pension fund, with assets worth 1.8 trillion rand, redirecting large levels of accumulated reserves, currently oversubscribed to the South African (Johannesburg) stock exchange. 32 The plan would involve freeing up a portion of pension fund investments to transform Eskom—including the takeover of its debt on condition that it becomes a fully public RE utility. In addition, these pension funds can purchase large levels of domestic bonds to allow government to also invest in other key socio-economic programs, such as mass housing, and the overhaul of the public transport system. Given that domestic bonds guarantee good and stable returns on investment, and that these programs could lead to the bolstering of the public sector, these investments are likely to strengthen the public pension fund over the long run. For this strategy to be effective, it is essential for the entire energy system to remain public, opening the possibility for socially owned RE as a viable means to decarbonize, and avoiding the imperatives of maximizing profits. South Africa’s energy transition should be guided by ecological and socio-economic priorities, rather than on the basis of the market.
On a final note, I leave the last words to Joseph Mathunjwa—President of the Association of Mineworkers and Construction Union (AMCU): we need a just transition to a wage-led, low carbon economy; a negotiated transition that is the outcome of careful planning by government, business and labour; a transition that guarantees affected workers a decent, alternative job and wage. It is only on this basis that you can reasonably expect any worker to be won to the fight against global warming and of doing something to halt the climate crisis.
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Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
