BLSA CEO’s letter – 03 May

POSTED ON: May 3, 2021 IN , , , , by BLSA

By Busi Mavuso
It’s hard to quantify the economic cost of 15 years of energy insecurity in this country, writes @BusiMavuso2 in her weekly newsletter.

We have lived with almost 15 years of energy insecurity. It is difficult to calculate what the cost has been to our economy. Figures can tell only part of the story, like the 400,000 jobs lost in manufacturing, or the private sector’s weak profitability since the first load-shedding began back in 2007. Much of the damage done to our economy is deep and invisible – the many decisions not to invest because companies couldn’t be confident that electricity would be stable.

Last week the Department of Minerals and Energy (DMRE) called for public comment on its proposal to lift the license exemption threshold for own generation from 1MW to 10MW. This is an opportunity to make a material shift in companies’ ability to secure their own energy, but 10MW does not go far enough.

Energy security is one of the most important and foundational issues for us at BLSA. Business literally cannot be done without it. It is crippling to all businesses whose production is disrupted. Some can divert their capital into investing in generators and other measures, but that leaves them less efficient than competitors in countries with reliable, low-cost energy on tap. Even once they secure their own energy access, energy availability disrupts their supply chains, rippling across the economy.

There is little doubt about what needs to be done, though it is remarkable that we have had 15 years to fix the problems and still have not. Indeed, things have deteriorated, with 2020 having been the worst yet, with almost 10% of the year subject to some level of load-shedding. We need to reform the entire energy supply system. That has been on the cards for a long time – the fact that it hasn’t happened comes down to weak political will and vested interests.

We spend a great deal of time and effort debating various economic development interventions and plans. But energy security is the one single measure that would have the greatest impact on the economy’s ability to grow. If we got that right, the cost of doing business would fall, our producers would become more efficient and we’d be more competitive in the global marketplace.

That would allow us to sell more, driving demand for jobs, improving earnings and the tax take for the government. But how serious are we actually being about resolving the issue?

There have been some successes. The Renewable Energy Independent Power Producers Programme, which began in 2010, very quickly procured 6,422MW of electricity most of which is already on grid. It was a remarkably successful procurement strategy, reducing prices as it went while not facing a single legal challenge despite many losing bidders along the way.

However, for whatever reason it came to a sudden halt after its last bidding round in 2015. There were years of delays until finalisation for those successful bidders and we have not completed another round since. That is even though the Integrated Resource Plan, updated after much delay last year, makes clear that we need a considerable amount of additional renewable energy to be procured. Round 5 is now finally under way, but already there have been delays and confusion over the request for proposals. It does not augur well.

Embedded generation is another opportunity to make a big difference. Currently, companies must obtain a licence for a generating facility of anything over 1MW, even for their own consumption. This is a complex, expensive and time-consuming process so few companies do it. While DMRE has proposed lifting the cap to 10MW, the call has been made by both the president and Eskom for this cap to increase to 50MW, which would enable companies to set up utility-scale generating capacity on their own premises. However, the DMRE is resisting these calls with its 10MW proposal. This is short-sighted and prolongs energy insecurity for so many companies. Embedded generators could also contribute excess electricity back into the grid, helping to relieve energy insecurity for the whole country.

Then there is the need to restructure and stabilise Eskom. It has long been policy that Eskom should be restructured to separate its energy generation, distribution, and transmission arms. Out of that, an independent system operator needs to be established that can purchase electricity from the cheapest suppliers, whoever they may be. Transmission should include wheeling so that energy producers can sell to specific clients over the grid.

All of this is largely already policy, though a license exemption to 50MW would be a good improvement. BLSA is committed to supporting the government in implementing what is already agreed. We recognise the obstacles that must be overcome and the transition process that must be followed. But most of all, we understand the consequences of the status quo and see the potential upside if we get it right. We cannot waste more time.

The story of our inflation rate speaks to more than just an economic data point: it highlights the importance of the independence of our institutions, I wrote in Business Day after CPI came in at 3.5%. The relentless calls to nationalise the SA Reserve Bank’s nationalisation, which would be expensive and unnecessary, are aimed at reigning in its independence. Turkey has seen its central bank lose credibility as its president has largely dictated monetary policy. Inflation in that country is at 16%.

This is a weekly newsletter from BLSA CEO Busi Mavuso.

BLSA is a business organisation that believes in South Africa’s future and shares the values set out in the Constitution. In 2017, BLSA signed a contract with South Africa, committing business to playing its part in creating a South Africa of increasing prosperity for all by harnessing the resources and capabilities of business in partnership with government and civil society to deliver economic growth, transformation and inclusion.

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