SOUTH AFRICA S REAL ELECTRICITY GENERATING CHOICES. November 2017 SAEEC Conference. Rob Jeffrey Economic Risk Consultant

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1 SOUTH AFRICA S REAL ELECTRICITY GENERATING CHOICES November 2017 SAEEC Conference Rob Jeffrey

2 Discussion SA s economic growth and electricity generating requirements Alternative electricity generating sources available to SA Impacts of higher electricity prices on the SA economy Implications of the IRP 2016 Energy sources & poverty The environment The role of various energy sources in the energy mix The way forward

Global financial risks and three future scenarios Slowdown and debt bubble in China Improving commodity prices Brexit, Europe and geopolitical risks Rejection of free trade & increased protectionism

3 Global financial risks and three future scenarios Slowdown and debt bubble in China Improving commodity prices Brexit, Europe and geopolitical risks Rejection of free trade & increased protectionism Rising inequality due to ultra-loose monetary policy Potential fallout from tightening of global monetary policy Increased terrorism Major Decline (China crash, falling commodity prices, US monetary tightening, geopolitical factors) Strong Recovery (low oil prices, population growth and urbanisation, technological progress, structural reforms) Slow growth with Volatility (the "new normal)

4 AFRICAN ECONOMIC AND DEVELOPMENT PROBLEMS

5 Infrastructure in Sub-Saharan Africa remains not well developed

6 Population estimates per region

7 The Inequity In Global Energy Consumption

8 Stage of industrialization and per Capita Income & Consumption

9 SOUTH AFRICA S ECONOMIC DEVELOPMENT PROBLEMS

10 Changing structure of SA economy (%GDP)

11 Poor goods producing sector growth increasing imports insufficient exports increasing unemployment

12 Unemployment Trends Growth in services Decline in Goods producing sectors Jan-Mar 2008 Jul-Sep years Thousand Thousand Thousand Analysis Labour Force All population Groups Both sexes Population yrs Labour Force Employed Formal sector (Nonagricultural) Informal sector (Nonagricultural) Agriculture Private households Unemployed Not economically active Discouraged work-seekers Other(not economically active) Rates (%) Jan-Mar 2008 Jul-Sep years Thousand Thousand Thousand Normal definition of unemployment Unemployment rate Employed / population ratio (Absorption) Labour force participation rate Rates (%) Expanded definition of unemployment Unemployment rate Employed / population ratio (Absorption) Labour force participation rate Exp def of unemployment Rates (%) years old Unemployment rate Employed / population ratio (Absorption) Labour force participation rate

13 Real Gross Domestic Investment

14 QES Total employment vs Real GDP growth % Electricity Consumption vs Production Index

15 Increasing unemployment means Increasing Social Costs

16 Fall in FDI to Africa and South Africa

17 Lack of Confidence and Lack of Global Competitiveness Lack of confidence caused by political and economic policy uncertainty. State capture and corruption Potential implementation of the mining charter Threat of interference to the independence of the SA Reserve Bank Attacks on white capitalism Well-meaning but damaging regulatory laws hampering market efficiency Domestic confidence at lowest level for 30 years AT Kearney Foreign Direct Investment (FDI) Confidence index S A occupied 11th position in 2012, it dropped to the 25th position in Fragile States Index. Ten years ago, SA was ranked in the stable category. SA now falls in the elevated warning category S&P, Moody s and Fitch have all downgraded South Africa and have it on a negative watch

18 Global Competitiveness

19 Summary Economic Development Problems Slow economic growth Lack of growth in the goods producing industries Rising unemployment Structural balance of payment difficulties Increasing electricity price Economic and energy policy uncertainty Educational and vocational mismatch Increasing social costs Lack of domestic and foreign investment to drive growth

20 SOUTH AFRICA S ECONOMIC GROWTH REQUIREMENTS

21 Key issues facing emerging economies There are only three major policy objectives. Poverty alleviation, Reducing inequality and Reducing unemployment Economic growth is of paramount importance in their goodsproducing sectors. This requires electricity growth Emerging economies require electricity energy sources that offer security of supply at the lowest possible cost. Poverty is the single highest social cost to society

22 The real externality is a social problem- Poverty Global In 1981: 44.0% of the world s population lived below the poverty line. In 2015: An estimated 935 million people (12.7% of the world s population) living below the poverty line of $1.90/day. China 1981: 88.2% of its population lived in extreme poverty. 2011: Only 11.2% of China s population lived in extreme poverty. Direct consequence of faster growth South Africa Number of South Africans living on less than $1.25 a day 39%. It would cost the government R 79 billion per year. Plus investment

23 Low growth means rising unemployment lost prosperity

24 Electricity, GDP and employment growth Base case Required Assumed Electricity Growth Associated GDP Growth Balance of payments Growth Associated Real Exports Associated Real Imports *Associated Employment Growth Additional jobs created by 2035 million 7 12 Additional jobs created by 2050 million Effective MW required by Effective megawatts required

25 ALTERNATIVE ENERGY SOURCES THE IRP 2016 AND THE REAL CHOICES

26 Comparison of the IRP 2016 Base case and Recommended Systems mix Energy Source IRP Base case Recommended IRP Base Case Recommended Nominal MWh Nominal MWh Real MWh Real MWh Nuclear Coal Wind SolarPV Gas OCGT Inga Total

27 Risk related True economic LCOE by Technology Potential Dispatchable Cost Nuclear New Coal Wind SolarPV Apparent LCOE R/kWh R1.30 R 1.05 R 0.62 R 0.62 Average capacity Load factor 90% 82% 35% 26% Effective LCOE based on load factor R/kWh R1.44 R1.28 R1.77 R2.38 True LCOE based COUE at IRP rates R77.30/kWh R/kWh R1.33 R1.10 R2.02 R2.83 Average 24-hours LCOE R/kWh R1.36 R1.15 R1.90 R2.56

28 Risk related LCOE by system: Base case unconstrained and recommended Potential Dispatchable Cost IRP Base Case Recommended Mix IRP Unconstrained Recommended increased mix Apparent LCOE R1.09 R 1.16 R 0.87 R 1.16 Average capacity Load factor 48.6% 63.4% 35.6% 64.9% True LCOE COUE IRP rates R77.30/kWh R1.36 R1.20 R1.74 R1.18

29 - 315, , , , ,935 88, , ,490 1,648,413 1,648,413 1,514,746 3,653,576 3,692,001 Overnight costs Base Case compared to recommended Comparison of overnight costs nominal and real Base case Rbn Recommended Rbn NUCLEAR COAL WIND SOLARPV GAS OCGT TOTAL

30 Energy returned from energy invested D. Weißbach et al (2013)

31 Electricity average real annual price South Africa S Australia

32 Human Development Index and per capita primary power consumption

33 World Total Primary Energy Consumption

34 WORLD EXPERIENCE OF RENEWABLES

generation system Renewables are uneconomic & lead to economic stagnation Increased grid difficulties and grid costs Renewables are

35 Fundamental Weaknesses Of Renewables For Base Load Electricity Wind & solar power require full equivalent back up Low Load Factors average between solar 26% and wind 35% Unreliable intermittent and unpredictable Storage extremely expensive One of the most inefficient electricity generation system Renewables are uneconomic & lead to economic stagnation Increased grid difficulties and grid costs Renewables are environmentally disastrous Other technologies effectively subsidise renewables Renewables raise electricity prices are a tax on the poor & increase energy poverty

Renewables security of supply and cost There is increasing evidence that renewables (wind and Solar) are not suitable for power in industrialised or industrialising countries Energiewende in Germany

36 Renewables security of supply and cost There is increasing evidence that renewables (wind and Solar) are not suitable for power in industrialised or industrialising countries Energiewende in Germany have driven up electricity prices to uneconomic levels. Prices paid by industry in Germany were 52% higher than France (nuclear) and 86% higher than Poland (coal). Ireland, prices were 34% higher Than France and 64% higher than Poland Fritz Vahrenholt in his study entitled Germany s Energiewende: A Disaster in the Making sums up: It will take a long time to repair the severe damage caused by misled energy policy German government have capped wind & in the process of withdrawing subsidies. South Australia s Lessons for the World: Wind Power the Fastest Route to Social & Economic Disaster. Intermittent & unreliable renewable energy in South Australia is leading to the deindustrialisation and for its citizens a substantial reduction living standards.

37 Energy poverty a new issue in industrialised countries 54 million people in Europe are affected by rising energy poverty, around 1.5 million people could be dying prematurely UK household electricity prices have increased of over 80% since The number of households affected by energy poverty in the UK, increased from 2 million to 5 million. Green-energy policies in California have resulted in as many as 15 percent of households falling into energy poverty. In the EU coal-fired power plants generate electricity at half the price of wind turbines and a quarter of the price of solar PVs Comparative advantage of Fossil fuels in terms of non-intermittent energy supply not requiring back-up generation capacity.

38 Electricity generation in developing economies Many countries are increasing the use of High Efficiency Low Emissions (HELE) or clean coal power plants Clean coal has been determined as the cheapest and most reliable sources of electricity to achieve their economic growth objectives. Replacement of aging inefficient power stations is a major objective. ASEAN countries: Coal-based electricity capacity is projected to increase from about 47 GW in 2013 to 261 GW in 2035, average growth rate 8.1% Vietnam: GDP growth is expected to average 6.0 % per annum. Coal generation will increase from 36% in 2015 to 56% by 2030 increasing at 7.2% per annum Plans for utilising cleaner coal were effectively approved by Pres O Bama as to essential to raise economic growth rates and reduce poverty in emerging nations

39 Relative costs of energy sources in China

40 Electricity generation in India India is among the lowest per capita consumers of electricity in the world hampers economic and social development. Real economic development providing employment and reducing poverty comes from growth in business and industry. Modi government has a major effort to expand India s manufacturing sector, through the Make in India campaign. Piyush Goyal, India s power minister, told the Indian parliament recently coal will remain and continue to remain our mainstay and there was no such agreement in Paris that will stop us from continuing to encourage coalbased generation of power. India s coal fleet forecast to more than double by 2040, from approx 166 GW to more than 400 GW. Once India implements the 175 GW renewable less than a one third is available on a continuous basis

41 HELE Coal is no longer a major pollutant Eskom India

42 THE LOOMING MAJOR POLICY CATASTROPHE FOR SOUTH AFRICA

43 Two major policy implications of the energy decision S.A. could decide to substantially expand its renewable energy sources particularly wind S.A could cease using increasing its coal generated electricity. The major implications of this Increase dependence on imported gas which would be uneconomic and create balance of payments problems Drastically reduce South Africa s coal mining industry and have a major detrimental effect on mining and economic confidence Cause major environmental damage Raise costs of electricity and reduce economic growth rate

44 The value of Coal in South Africa South Africa is the 7 th largest producer of coal in the world 7 th largest exporter of coal Coal in SA accounts for 1 st highest foreign exchange earnings in the country 1 st highest minerals income earner, beating gold, pgms >72% of SA energy production >90% of carbon reductants in the metallurgical industry >30% of petrol and diesel requirements >200 major chemicals for thousands of carbon-based products

45 Importance of coal industry to SA economy

Many economic benefits of utilizing gas Ample Plentiful global gas resources, growing and geographically diverse Potential supply >250 years of current global gas production Increasing economic

46 Many economic benefits of utilizing gas Ample Plentiful global gas resources, growing and geographically diverse Potential supply >250 years of current global gas production Increasing economic volumes with new technology & rising gas price. Satisfactory Gas-fired power compared to coal: 30% more energy efficient Quickest economic way to meet CO 2 reduction targets Emit around 50% of the CO 2 Affordable Gas-fired (CCGT) cheapest to build Far cheaper than other renewables. Similar total cost to coal and nuclear

47 The True Value of Coal Carbon via coal is the most abundant, cost-effective, reliable source, secure element for heat and power Western world enjoys the luxuries of flicking on a switch to light homes and offices, heating food on an electric or gas stove or simply having a hot shower every morning. There are 1.3 billion who don t. Therefore, by 2040, Asia is projected to account for four out of every five tons of coal consumed globally to meet the demand. In Many don t realise that metallurgical coal and iron ore are required to make products of coal while the foundation is made from concrete, which is made using

48 The catastrophic economic cost on the economy The gas import bill would detrimentally effect the SA balance of payments by R30 billion per annum The coal sector would shrink 46%. Annual sales of coal would fall from billion to approximately R60 billion per annum. There would be a substantial direct and indirect cost to the economy. It would reduce GDP of South Africa by over 2.5% or R75.2. billion Compensation to employees by R25.1 billion Investment by R3.8bn per annum Government taxes by R16.2 billion Direct employment of in the coal industry by jobs General employment in the economy by jobs affecting 1 million dependents It would be cataclysmic blow to the coal mining sector and possibly the final nail in the coffin for the mining industry

49 The catastrophic economic cost on the economy South Africa s coal reserves are estimated at around 53 billion tons Coal mining accounted for 26.7% of the total value of mining production in 2015 making it the most valuable in terms of sales of the 14 main mining commodities tracked by Stats SA. Mining, manufacturing and industry need security of supply of electricity at competitive prices. The only two electricity generation sources of energy that can achieve these objectives in this country are clean or HELE coal and nuclear. The discounted value of coal reserves is more than One Trillion Rand. The value of Uranium reserves is probably also 0ne Trillion Rand. The drive for wind would deprive South African citizens of these benefits

50 ENVIRONMENTAL ISSUES CLIMATE CHANGE THE IPCC AND COP21

51 Concerns in the EU Climate change is a non issue

52 Cop 21: Paris Outcome The outcome of COP21 was an excellent agreement. What was important was not what was agreed but was not agreed. The agreement gave a set of sound long term global objectives. It asked for no commitments by any country. Major countries either could not get agreement internally e.g. the USA Countries were not going to make commitments ASEAN countries, China, Russia, India, Vietnam, Korea Poland They were embarking on major expansions of coal and fossil fuels In summary countries were expected to do what was in their best economic interests

53 The cost of adhering to COP 21 Bjorn Lomborg, President, Copenhagen Consensus Centre and a visiting professor at Copenhagen Business School estimates Global economic cost of $1 trillion to $2 trillion every year from 2030 due to slow growth and high energy costs. It will reduce global temperatures by just 0.17 C. The cost for the US, would be $154/172 billion every year in lost GDP. Support to disadvantaged countries of $100 billion per annum in climate aid. Carbon tax & renewables would cost SA between R35 to R 51 billion pa SA s sacrifices will reduce temperature increases by about C by The Anti-Development Bank: The World Bank's Regressive Energy Policies by the London-based Global Warming Policy Foundation (GWPF) finds that the World Bank has abdicated its primary mission of tackling poverty in the developing world. Former Treasury adviser Rupert Darwall, By embracing high-cost, low-reliability renewables and restricting clean coal financing, the World Bank is guilty of an inhumane and senseless attempt to try and save the planet on the backs of the world s poor,

54 The massive environmental cost to the economy The impact of CO2 is not disastrous but beneficial to the planet South Africa only emits 1% of the GHG in the world Wind energy s major impact on birds in South Africa, Strategic environmental assessment for the wind and solar photovoltaic energy in south Africa (2015) (SEA). Nine game reserves and nature reserves and were party to this submission. Birdlife South Africa, Vulpro and others environmental groups have also objected to illconsidered windfarm developments and their effects on birdlife. Objection to Environmental Application for The Spitskop West Wind Energy Facility, Eastern Cape Prepared by ADS Environmental Consultants. The Effect of Wind Turbines on Bird Mortality Maeve White November 24, 2016 In the USA killed 4 birds per MW in USA and 16+ birds per MW in in California. Confirmation of an earlier study by Scott R. Loss, Tom Will, Peter P. Marra entitled Estimates of bird collision mortality at wind facilities in the contiguous United States. Aggregated over the full area affected in SA of over square kilometres by MW multiplied by years then the number of birds lost would be at least pa & over 8 million over the 20-year life of these windfarms.

55 Environmental damage

56 Total World Carbon Emissions

57 Hydro Dam and Rain Forests burning Water and River Pollution

58 Carbon is a key element on earth and carbon dioxide is critical for life Carbon is one of the Most Valuable Element On Earth Carbon Dioxide is the oxygen of most life on the planet Carbon Human body consists of 18% Carbon: Essential for life Carbon Dioxide is an odourless colourless non toxic gas The most abundant and biodiverse periods on earth were when temperatures and carbon dioxide levels were higher The levels of carbon dioxide on the planet 150 years ago were at a potentially dangerously low level The planet has greened since carbon dioxide levels have risen.

59 Historic Temperature and carbon dioxide levels

60 Does it really matter

61 CLIMATE ISSUES

62 Carbon dioxide and temperature and the 30 year cycle Source IEA - Top 20 CO2 Country emitters, 2008

63 Predicted and observed temperatures Source IEA - Top 20 CO2 Country emitters, 2008

64 5000 years of climate change

65 CO2 levels and temperature Trend years

66 Zharkova SBMF analysis link to Cosmic rays and cooling

67 Solar irradiance & cosmic ray activity and forecasts

68 Long term climate cycles: Milankovitch

69 SUMMARY OF WAY FORWARD

70 The necessity for fossil fuels India China Bangladesh Indonesia Russia have major coal and Fossil Fuel expansion programmes COP 21 deliberately requires no commitments so that countries can decide to do what is in their best interests Unless emerging countries that have Fossil Fuels use those FF resources it will heavily prejudice their future growth and result in increased unemployment and poverty This will detrimentally effect the economic political and social structures of many emerging nations

71 Impact of carbon tax renewables and policies All are taxes on the poor Cumulative reduction in potential growth & employment by 2035 Impact of Carbon Tax GDP Growth: -4.4% -R200 billion Employment: -1.1 million jobs Impact of Renewables GDP growth: -4.4% R200 billion Employment: -1.1 millions Impact on Fixed Investment GDP growth: -10.0% -R500 billion Employment: -2.5 million Impact on coal industry GDP growth: -2.5% -R28 billion Employment: Total impact on GDP and employment GDP growth: R930 billion trillion Employment: -4.7 million

72 Renewables and carbon tax are contrary to objectives They are both taxes on the poor. Contrary to political and social objectives Increases Unemployment Increases Poverty Increases Inequity Reduces Standard of living Contrary to stated development policy Reduces mineral beneficiation objectives Contrary to stated NGP or NDP Reduces economic growth particularly in goods producing sectors They are both Taxes on the poor Energy, Electricity & Employment Growth are the keys to South Africa s Future Economic, Social and Political Prosperity, Sustainability, Stability and Individual Economic Freedom

73 CONCLUSIONS

74 Conclusions Energy, Electricity & Employment Growth are the keys to South and Southern Africa s Future Economic, Social Political Prosperity Sustainability, Stability and Individual Economic Freedom Requires security of supply at the lowest prices Politics Vested Interests

75 Poverty and proven technologies Economic growth reduces poverty Proven FF and nuclear reliable technologies New cleaner FF (HELE) technologies available Significantly lower LCOE Focus has been on negative Impacts Huge positive benefits Higher economic growth, Improved standard of living Better medical care Better housing Reduced poverty Poverty is the single highest social cost to society It is the major externality to consider.

76 Energy and electricity the way forward The objective: Security of supply at competitive costs. Multilevel approach Efficiency programmes at industrial and domestic levels Developing energy resources with major competitive advantage namely HELE clean coal and now potentially gas Exploration of shale gas and gas as a matter of urgency Build gas fired power stations initially LNG based with a view to potential future domestic development of shale and other gas deposits Building gas fired power stations 8000MW and refurbished or new 37000MW coal fired power stations based on HELE technology. Proceeding with 6000MW nuclear power stations by MWW by 2050 Major PV Solar usage on all houses and office buildings Possible major use of PVsolar and solarcsp if economic Limited but selected usage of renewables: Limited Waste Bio mass, Pump storage and hydropower where economic Very limited wind at a very few carefully selected sites

77 THANK YOU Rob Jeffrey Telephone:

78 Disclaimer Disclaimer Rob Jeffrey obtains information for analyses from sources, which he considers reliable, but does not guarantee the accuracy or completeness of the analyses or any information contained therein. He makes no warranties, expressed or implied, as to the results obtained by any person or entity from use of its information and analysis, and makes no warranties or merchantability or fitness for a particular purpose. In no event shall he be liable for direct, indirect or incidental, special or consequential damages, regardless of whether such damages were foreseen or unforeseen. Rob Jeffrey shall be indemnified and held harmless from any actions, claims, proceedings, or liabilities with respect to his information and analysis. Copyright Copyright 2017, Rob Jeffrey, Sandton. No portions of any reports, publications or information produced by the author in whatever form (Electronic, Hardcopy or otherwise), may be reproduced or published in any manner without their prior written approval.

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