The road to building a robust home for green power in Africa is a tough one littered with potholes. Investors faced taking a hit on $3.8 billion in investment in South Africa as unions went to court and threatened to block the streets against… windmills and solar panels? You heard right.
The High Court case, in Pretoria on March 27, saw the full gamut of human emotions: anger; frustration and folly, followed by joy.
The latter emotion came from the long-suffering 27 independent power producers who won the case against an interdict to pave the way for the signing of the Power Purchase Agreements (PPAs) with the Department of Energy – the 20-year agreements that give them a chance to claw back $3.8 billion in investment.
The deal will add 2,300MW of green power to the estimated 40,000MW in installed capacity. Despite this, green power will make up 5% of South Africa’s power.
Outside the court, the thwarted National Union of Metalworkers of South Africa (Numsa) members and pressure group Transform SA weighed in with the anger and frustration coupled with a threat to block the streets in protest. As the union licked its wounds, the court poured on salt by ordering it to pay costs as it stuck the application from the roll.
“We got it from Eskom that if they introduce these renewables, they’ve done calculations on power station by power station on how many jobs will be lost. When we did this study last year it was found that 30,000 to 40,000 jobs are likely to be lost and there seems to be no interest about that,” says Numsa Secretary Irvin Jim.
“We are prepared to block the streets to achieve this.”
This claim despite the fact that Eskom will have to close down a number of its ageing and crumbling coal-fired power stations.
“The South African population is being taken for a ride. Our fiscus is being looted because these companies, IPPs are only producing 5% power and taking 30% of Eskom’s profits,” says Transform SA’s Adil Chabeleng outside the court.
The mighty National Union of Mineworkers (NUM) – the biggest union in Africa with more than 300,000 members – agrees with Numsa that the unions don’t want private money generating the people’s electricity. They also feel that capitalists have benefited from public money ploughed into kick-starting green energy with preferential tariffs.
“We view this capitalist IPPs deal as a backdoor privatization of Eskom. The plan is to privatize 42% of Eskom by 2030 masquerading as the implementation of clean energy,” the NUM said in an angry statement.
“We are going to mobilize all our members and society to revolt against this planned madness called IPPs.”
Days after this fire and fury, Energy Minister Jeff Radebe shocked many by putting pen-to-paper for the PPAs to end the years of waiting.
The big problem now is to revive the dormant green power industry in South Africa.
“We have to resuscitate the industry to generate this power. Supply chains have to be rebuilt and manufacturing restarted. The whole supply chain has lain dormant for nearly three years,” says Brenda Martin, a board member of the South African Renewable Energy Council that represents most of the 27 IPPS.
Martin also refutes one of the claims of the unions that green power will see billions leaving South Africa and into the pockets of foreign investors. Numsa’s legal counsel Advocate Nazeer Cassim had argued in court that the signing of the IPPs could be viewed as a form of economic looting.
“Only 25% of this deal is owned by foreign investors and the rules of the game is that most of the money must stay in the country.”
Whatever the fall-out over the signing of the PPAs, just weeks before, this unsteady progress was a pipe dream after many months of dithering and a court case.
Picture this: multi-millionaire, suited and booted, investors leave air-conditioned airport lounges to fly thousands of miles to Africa to accept a government invitation to finally sign up for a return on their investment; only to arrive to, amid confusion, a court case, disappointment and a union that they’d never heard of, threatening to block the streets in protest against the deal. Confused? Most of them were.
“Excuse me,” a fresh-off-the-plane Italian investor, who looked like a clown lost in a circus, at the Department of Energy, asked one of the many young journalists at the press briefing, in Pretoria, on March 13.
“What is happening?”
The confused man from Milan was one of a number of foreign investors, from Spain to the United States, who flew in to sign PPA contracts. Investors expect it will take them a decade to claw back their money.
There was chaos before the investors landed that morning. Overnight, the militant Numsa – a union that appears to have forgotten that the Berlin wall came down – claimed it had won a late-night court interdict against the signing.
When it came to the signing later that day, in Pretoria, Energy Minister Radebe told investors that the courts had in fact not issued an interdict, as Numsa had claimed; it rather postponed the next hearing until March 27. You can understand the confusion of the man from Milan.
“It’s a banana republic,” chirped one of the South African investors in the wake of a day to forget in the course of renewable energy.
More inexplicable for investors was how these IPP contracts raised the ire of the unions almost overnight; there was hardly a peep from them in the years of government foot-dragging over signing them that has left many of the green power producers; at least 14 of the 27, according to industry, sources – on the brink of bankruptcy.
The coal-fired power stations of South Africa, built in the 1970s, are ramshackle and inefficient. Last year, the government said it was going to shut down the 3,000MW Kriel, 1,000MW Komati, 2,000MW Hendrina and the 1,600MW Camden power stations, all in Mpumalanga, anyway.
In any case, renewable energy generates a mere 5% of South Africa’s total power so the chances of green energy elbowing out coal, which produces nearly 80%, are unlikely in the extreme. It is more likely that South Africa’s coal-fired power stations will perish under the weight of repair bills and the cost of compliance with environmental regulations on account of the vast amount of acrid black smoke they belch into the African sky every year.
Other energy experts put down the government lethargy over signing the PPAs to ill-advised complacency. Low growth leading to low demand for electricity, plus a 500% increase in cost since 2007, has seen a cessation of power cuts in South Africa, for the time being.
Under the current energy scenario, South Africa will have more than 60GW of capacity by 2022, against a flagging demand of below 30GW, Ted Blom, a partner at Mining & Energy Advisory, said.
All in all, South Africa, which once dreamed of building the continent’s leading green power industry, creating thousands of jobs, has done quite a lot to destroy that dream. As well as the near three-year delay over signing the IPP contracts – the government has been penny-pinching, that is, trying to negotiate down tariffs with the argument that the country doesn’t really need energy right now.
What it means is that South African renewable energy producers are now looking across the continent for projects in favour of trusting the backed-up process in their own country. One of the unintended consequences of this whole controversy is likely to be that a score of African nations – who once lagged behind in renewable energy – could find themselves at the cutting edge of the industry thanks to South African technology and knowhow fostered by South African tax money and exported thanks to foot-dragging over contracts in Pretoria. Now, for hard-pressed South African taxpayers, that is an issue worth blocking the streets over.