Tilting at windmills: Power politics and Wind farms in South Africa

This is a long article, a very long article. It needs to be long because it addresses a critical issue that affects us all, be it as concerned environmentalist, tax payer, business owner or civic minded individual. The earth is heating up, polar bears are falling through the pack ice and Cape Town may soon be under water. On the other hand, energy generation is critical to a country’s development and the creation of employment. How we balance those two priorities will determine our quality of living for generations to come. In this article we try to understand the issues at stake, with special reference to the burgeoning wind farm industry in South Africa.

Mention the words ‘global warming’ and ‘renewable energy’ in polite company and you are bound to elicit a variety of shrugs, grunts and sighs. The subject matter has become so politicised and entangled in vested interests that a fatigued public seem to merely nod its head at whatever dogma of the day is shouting the loudest. And who can blame them? Sophisticated (and at times mephistophelian) spin doctors have created elaborate fear factories representing the truth as they want the masses to see it. The word ‘green’, has gone from being used in figures of speech to denote envy, money or nausea to, well the same things, albeit in one handy, marketable concept. Retail chains and consumer goods manufacturers trumpet their often flimsy ‘green’ credentials as if that magically erase the environmentally deleterious effects of their business practices. That’s all well and good, business advertising has forever been using words like ‘free’, ‘sale’ and ‘value’ to attract customers. It’s their marketing budget after all, and it is up to the consumer to distinguish between cynical marketing practices and the real thing.

Things get a bit more worrying when it is public money being used to enrich a few at dubious benefit to the general citizenry. That chunky champion of the environment, ex US vice-president, Al Gore, has made millions of dollars by investing in alternative energy and energy-efficient technology. In 2009, the New York Times reported that a $75 million investment in a small California based solutions provider for smart grid energy networks, by the venture capital firm in which Gore is a partner, was about to pay off handsomely. The US government had just awarded more than $560 million in smart grid grants to utilities with which the company, Silver Spring Networks, had contracts. Nothing wrong with smart, forward thinking investment, but you would be naïve to think Gore does not have any influence on government policy as an ex vice-president and as a high profile supporter of alternative energy resources. His defence that he puts his money where his mouth is, when it comes to supporting renewable energy, did sound quite hollow after he reportedly made $100 million from the sale of cable network, Current TV, to Al Jazeera, the Qatar-based news network funded largely by oil money.

The reason for pointing out the above is that renewable/clean/green energy has become a handy construct for companies that have spotted a gap in the market to make money in. They have two factors on their side: a global public that has become increasingly concerned with the damage done to the environment by human activity, and governments that have painted themselves into a corner by signing international carbon emission treaties, like the Kyoto Protocol. Politicians want to look good in the public eye, therefore most will pay lip service to any popular meme, especially if it avoids being branded as ‘climate change deniers’. The real cost to tax payers, actual benefits of certain environmental policies and who really stands to gain from such initiatives are often hidden from the casual observer.

For those who have been living off the grid for the past two decades (by the way, your low carbon footprint is appreciated): the Kyoto Protocol is an international treaty that governs the emissions of greenhouse gases and sets out legally binding targets for developed countries that are parties to it. The US, currently the second largest emitter of green house gases, participated in the negotiation of the Protocol, but did not ratify the Protocol, mainly due to the impact it would have on its economy. The other top polluters either withdrew from the Protocol (Canada), decided not to take on any new targets in the second round of negotiations (Japan and Russia), or as developing countries do not have legally binding targets (China, India and Brazil).

South Africa is a Non-Annex I party to the Kyoto Protocol, and is one of the largest developing country emitters. In a fit of environmental fervour the country’s government committed to a reduction of 34% in greenhouse gases by 2020 at the second round of climate talks held in 2009 in Copenhagen, on condition that it received the necessary finance, technology and support from the international community. Developing countries, including SA, do not have binding targets under the Kyoto Protocol, but are still committed under the treaty to reduce their emissions and may participate in the Kyoto Protocol through the Clean Development Mechanism. More about that later on in this article.

In 2012, carbon dioxide emissions from energy use rose to record levels according to the International Energy Agency. So much for the Kyoto Protocol. Of even more concern is that although some countries have reduced their carbon dioxide emissions by switching to natural gas, including shale gas, they have little to be proud of. Natural gas is often sited as a cleaner energy option than coal, but it consists mostly of methane, which has 72 times more global warming potential over a 20 year period than carbon dioxide. Add that to the methane farted into the atmosphere by the cows that supply your Mac burger and it makes for a combustible situation.

Since carbon dioxide (CO2) is still the primary greenhouse gas emitted through human activities (between 70 and 80 percent, depending on who is writing the researcher’s pay cheque), let’s take a closer look at global CO2 emissions in relation to economic performance. In the below data visualizations we compared CO2 emissions from the consumption of energy (petroleum, natural gas, and coal) with gross domestic product and economic growth rates per country. 

From the above we can conclude that:

  • most high carbon emitting countries either have high economic growth rates or high wealth levels. The fact that some wealthy (high GDP) countries are low carbon emitters usually means that they are exporting polluting activities to developing countries, import most of their fossil fuel generated electricity or derive most of their income from less energy intensive sectors such as financial and retail.
  • South Africa is one of the bigger carbon dioxide emitters in the world with a fairly low GDP and growth rate for a middle income developing country.

Which are all important factors when you look at some of the challenges facing the country: high unemployment (25%) and very high income inequality.
The bottom line: while power generation accounts for the biggest portion of global carbon emissions it is obvious that a sustainable, efficient and sufficient electricity supply is crucial to economic development.

Electricity in South Africa
Eskom, South Africa’s electricity public utility, generates approximately 92% of the electricity consumed in South Africa and 45% of the electricity used in Africa, making it the 7th largest electricity generator in the world. Its current maximum self-generated capacity is just under 42,000 MW. Not only does Eskom generate almost all of the electricity in the country, it also has a virtual monopoly on its transmission and most of its distribution.

SA’s high carbon emissions are mostly due to the fact that Eskom relies on coal fired power stations to produce about 90% of its electricity. That in turn is due to the relatively low local cost of coal mining and the fact that SA has the 9th largest recoverable coal reserves in the world. Enough for the next 200 years at present production rates.
The bad news about all that electricity from coal is that except for the release of CO2 into the atmosphere, coal fired power stations also adversely affect the environment through the release of waste products (mercury, uranium, thorium, arsenic, and other heavy metals), acid rain from high sulphur coal, and the extensive use of scarce freshwater resources.

Energy intensive mining and industry consume over 40% of the electricity produced. This is further illustrated by the fact that a mere 146 customers (mostly mining and industry related) account for 34% of Eskom’s total revenues. A contentious issue is that those large corporate customers generally pay much less than what the majority of customers pay. In 2011, mining and industry customers paid an average of 50c/kWh and 42c/kWh respectively, while 4.5 million direct residential customers paid on average 80c/kWh. Recently it was revealed that the Australian multinational, BHP Billiton, buys 9% of Eskom’s electricity at only 22.65 cents per kWh, far below the generated cost. A lengthy court battle was needed before the details were released which did not not do either party’s public image much good. The long term contracts were part of previous governments’ desperate attempts to lure big industry, in this case aluminium smelters, with rock bottom electricity prices.

A lack of planning (a euphemism if ever there was one) for growth in electricity consumption led to widespread rolling blackouts in 2007, with resultant adverse effects on the economy. It could not have occurred at a more inopportune time, as the global financial crisis added its own brand of havoc to the mix. By 2009 the country had shed 900,000 jobs and the power outages alone were estimated to have cost 1.3% in economic growth. In order to rectify the situation Eskom implemented a capacity expansion programme, the largest in its history, which will increase its generation capacity by 17 000 MW at an estimated cost of R340 billion (excluding interest). Most of the increased capacity will be obtained through new coal fired power stations, gas turbine stations and hydro-electric (pumped storage) schemes. In order to fund the expansion programme Eskom had to institute massive price increases since 2008. The graph below compares South Africa’s growth rate with inflation and electricity price increases over the past 12 years. 

Electricity price increases, GDP growth and inflation in SA

Obliged under a condition of the World Bank loan obtained for its capacity expansion, Eskom has also started construction on the Sere wind farm in the Western Cape. The R2.4 billion project will be funded by a group of development finance institutions, including the World Bank, African Development Bank, Clean Technology Fund and Agence Francaise de Developpement. The Sere wind farm will comprise of 46 Siemens wind turbine generators and is expected to add 100 MW to the national grid by 2014. Compare that to the current cost of R105 billion for one of the new coal fired power stations under construction, Medupi, which when finished will add 4 800 MW to the national power grid. About R24 million per megawatt for wind versus R22 million per megawatt for coal, if you can believe Eskom’s figures. Work stoppages at the Medupi site due to strike action, a weakening currency and interest have already added a few extra billion rand to the cost of construction.

Medupi Coal Fired Power Station

Medupi Coal Fired Power Station under construction

The vast amounts of public money at stake in South Africa’s power generating expansion programme should be scrutinized against the backdrop of widespread criticism of insufficient regulatory oversight and control over large capital expenditure programmes in South Africa. Criticism has already been levied against the ruling African National Congress when it was discovered that its investment arm, Chancellor House, obtained 25% shares in Hitachi Power Africa, which then tendered successfully to build boilers for the new power stations. The fact that Valli Moosa, an ex-cabinet minister, was the chair of the tender committee illustrates the point both clearly and tragically.
The arms deal scandal of the nineties comes to mind, but that was a paltry R30 billion compared to the massive R340 billion plus investment in new electricity capacity, which holds far more serious consequences for the country if all aspects of the programme are not dealt with in a transparent and competent manner. That includes the panacea of unproven and possibly inefficient renewable white elephants.

Since diversification of the power grid through renewable resources has been the stated policy of the SA government, the Department of Energy has set an initial goal of 3 725 MW to be generated from renewable energy sources by 2016, of which 1 850 MW from onshore wind farms. Finance for the projects will be derived from private sector investment and development finance institutions such as the state owned Industrial Development Corporation, with Eskom as national electricity distributor purchasing electricity from the independent power producers. The first bidding round of 28 projects drew R47 billion in investments, including eight wind farms with a total allocation of 634 MW. Successful bidders for round 2 of the Renewable Energy Independent Power Producer Programme were announced last year and included seven wind projects representing 563 MW. The government has also set a long term goal of a further 6 550 MW wind generated electricity by 2030.

So within the space of 2-3 years SA will move from almost zero wind energy to the 15th place on the global log. Nothing wrong with that, wind generated power is environmentally friendly, it does not consume scarce resources to generate electricity and most of it will be financed by the private sector. In general that statement rings true and no sane person would argue against any initiative that promotes a sustainable environment, but as usual in South Africa, things are not that simple. The purpose of this article is not to criticize the renewable energy sector as a whole but to put the spotlight on one segment thereof in order to highlight the lack of transparency and public accountability from both government and private enterprise. It is after all we who will be paying for it. We deserve to know what we are paying for, the particulars of the government agreements with the individual independent suppliers and who the players are (read: who makes the money).

Well, first of all Eskom has decided that we do not need to know any particulars of the individual contracts. It has stated categorically that the details of the power purchase agreements are confidential and will not be made public. Now keep in mind that Eskom is a public enterprise, its sole shareholder is the state, therefore the people of SA. Surely withholding details of commercial contracts is a contravention of statutory regulations? What is there to hide? Is the secrecy on request of the project owners or is it merely intransigence from Eskom’s side? Maybe it is time for a court application under the Promotion of Access to Information Act à la the BHP Billiton saga.

Fortunately there is enough public information available to paint a fairly accurate picture of the basic details, though several questions remain.

  1. All agreements will be twenty year fixed price agreements
  2. Average tariffs for wind power projects already given the go ahead:
  • Round 1: 114c/kWh (8 wind farms)
  • Round 2: 90c/kWh (7 wind farms)

These are the prices at which the wind farms will sell their electricity to Eskom, who then on-sells to the public, business and municipalities. Interestingly enough both rounds achieved exactly the same amounts as the caps put in place for the bidding process by NERSA (National Energy Regulator of South Africa). Although bidding prices were capped for each technology Eskom has admitted that round one of the bidding process contained no real competition, which led to high prices. Compared to Eskom’s 2013/2014 average selling price of 65c/kWh both rounds’ prices seem quite high, but assurances have been given that with Eskom’s yearly increases price parity would be reached soon. Which begs the question, what costs are those prices based on? Some factors to take into consideration:

1. Eskom has substantial expenses outside of generating electricity. It is responsible for transmission and distribution of electricity as well, all of which entail high maintenance and capital outlay costs. What are the independent power producers paying in terms of their transmission or distribution agreements with Eskom? Is it market related, and if so, based on which one? Since there is not much of an independent market in SA.

2. What are the terms of the finance agreements with local development finance institutions? An important question since they have not exactly covered themselves in glory in the past. As an example, three of the government’s development finance institutions, the Industrial Development Corporation (IDC), the National Empowerment Fund (NEF) and the Development Bank of Southern Africa (DBSA) recently lost almost R1.2 billion through a failed investment in pay TV venture, Top TV. What assurances do tax payers and consumers have that due diligence has been applied when funding was awarded to the renewable energy projects? Was there coercion from government side to part finance some of the projects at all cost?

3. What are the details of land lease agreements where and if government land is involved? I think that question speaks for itself.

4. There is already a form of subsidising involved via the Clean Development Mechanism (CDM) established through the Kyoto Protocol. The CDM allows emission-reduction projects in developing countries to earn Certified Emission Reduction (CER) credits, each equivalent to one tonne of CO2. These CERs can then be traded and sold. Although the current CER price is at an all time low of €0.5/tCO2e, South Africa’s weak rand means that local renewable projects can still get R6.42 per tonne of CO2 emissions reduction. A 138 MW wind project could claim over 300,000 tonnes in CO2 emission reduction per year.
The additionality clause to qualify for CERs may lead to fraud, as the applicant has to prove that the project would not be viable without its support. This often means that a project’s expenses are inflated in order to qualify. As it stands most of the current SA wind projects have applied for approval under the CDM. A squizz at the application form of one of the first round wind farm projects revealed that it was based on a selling rate of 66c/kWh, which without CER credits would give it a return of 9,9%. As mentioned above the first round bidders will receive 114c/kWh. That is a 72% increase in pure profit, before adding any revenue from selling CER credits.

5. As a state owned public enterprise, Eskom pays income tax of about 28% on operating profit. Taxes that have lately been running in the billions due to the steep price hikes necessary to fund their capacity expansion programme. How clever it is to fund capital projects from profit in stead of the accepted practice of using share capital, loans or bonds is a subject for a whole new article. The new renewable power producers will be able to claim tax allowances for machinery, plant, implements and articles used in the production of renewable energy. Since those make up most of the huge capital outlay of the individual projects, the deductions could be equally large. In effect another subsidy and more profit for the project owners.

6. The huge decline in the European solar and wind markets, mostly due to reduced or rescinded subsidies and an oversupply of wind and solar equipment, would explain why many European companies are so eager to be involved in the South African projects. Denmark’s Vestas, one of the world’s largest makers of wind turbines, reported a net loss of €963 million last year and are in the process of retrenching 6,000 employees. Coincidentally Vestas is the supplier of turbines to many of the new South African wind projects. Earlier this year, Suzlon, an Indian wind turbine manufacturer that is also a supplier to some of the SA projects posted a fourth consecutive yearly loss of $783 million.

7. How much are the directors and managers of the projects earning? What level of hidden profit taking is there in developer/manager salaries?

8. Economic development criteria comprise 30% of the final score for the evaluation of a project in the bidding process. That includes a minimum community ownership of 10% as a licence condition which is obviously already discounted in the price. With regards to the other 20%, research by the WWF-SA and the University of Cape Town’s Energy Research Centre revealed that most project leaders/owners have retained the final say in how funding should flow and the projects to which the funding should flow. Developers tend to view their community engagement and obligations as part of normal corporate social responsibility because there is no incentive to do more. In many cases the government’s Investment Development Corporation provided funds for the community stake which is then repaid through their own dividends. That means no exposure or real involvement by the project developers. Why are those funds not used to invest in local business and educational infrastructure, where the local community has the final say? It is a travesty that South African money is used to facilitate foreign owned projects just so they may comply with the governments BEE principles.

South African taxpayers and consumers are also paying for environmentally sustainable electricity in a broader sense:

There is already an environmental premium built into current electricity prices. In 2009 an environmental levy was declared by the government on all electricity generated from non-renewable sources. That means 90% in SA’s coal centric electricity industry. A quick calculation based on Eskom’s 2012/2013 results (216 561GWh sold) and the current environmental levy of 3.5c/kWh gives a us a total of R6,821,671,500. Eskom utilises 1c/kWh of the levy for its own energy-efficiency initiatives, and the Department of Environmental Affairs has received R800 million to establish the Green Fund to provide catalytic finance for investment in environmentally friendly initiatives. That still leaves R3 billion unaccounted for and that is just for one year. Has it indeed been used for environmental purposes? Which ones? To date no straight answer or accountability has been forthcoming.

But wait there is more …
Earlier this year the minister of finance, Pravin Gordhan announced the introduction of a carbon tax in 2015. At R120 per tonne of CO2 equivalent it would add about 12c per kWh to the cost of electricity, which will inevitably be passed through to customers via the electricity tariff. SA will thus be the first developing nation to introduce a carbon tax, which is quite bizarre considering the low domestic growth rate compared to other developing countries. A further irony was apparent earlier this year when the European Union decided to scale back carbon taxes in order to stimulate their own economies.
I suppose SA doesn’t really need a competitive advantage, as long as consumers keep on paying. And once again the revenue will not be ring fenced for specific environmental projects. So basically it is just another tax for our super efficient government to mess around with.

There are also environmental questions with regards to wind farms:

Wind power is an intermittent power supply, generating electricity only when the wind blows, and as such has a much lower capacity factor than fossil fuel power. (The ratio of actual productivity in a year to the theoretical maximum is called the capacity factor.) Estimates of capacity factors range between 15% and 50% depending on the quality of the site and the level of technology of the wind turbines. Scottish wind farms averaged 24% between 2008 and 2010. In Germany the nationwide wind power capacity factor averaged just under 17.5% in 2012. Without an extensive network of turbines, back up is needed, usually via coal or gas plants, which negates the CO2 emissions saved.

Many of the newer wind turbines use permanent magnets that require the use of rare earth elements such as neodymium, praseodymium, and dysprosium in their manufacturing process. The use of rare earth elements enables the magnets to be made substantially smaller or significantly more powerful which dramatically reduces the weight of wind turbines. A top capacity wind turbine could use up to two tonnes of neodymium-based permanent magnet material. Danish turbine manufacturer, Vestas state that they use 82kg of neodymium as well as 7kg of dysprosium in one 3MW turbine.

Reprobate has written extensively about the use of rare earth elements in modern technology and the harmful effects of mining and processing them in an article titled, Rare Earth Elements: the rise of technology and the demise of the environment?
In summary: The chemical separation of neodymium from the ore results in hazardous toxic waste and radioactive uranium and thorium are released as by-products by the mining process, often finding their way into ground water. Much has been written about the environmental disaster in Baotou, China, where most of the world’s rare earth elements are mined and processed. It has been described as an apocalyptic scene, with hissing cauldrons of chemicals in vast tailing lakes and evidence of serious health problems among the local population.

Since last year thousands of people have been protesting in Malaysia against Lynas, the Australian mining company that has just built a new refinery in their country to process rare earth ores imported from Australia. Lynas and Siemens, which is supplying some of the South African wind farm projects with turbines, have a joint venture to produce permanent magnets for wind turbines. Although rare earth elements are used in many other hi-tech products such as smart phones, tablets etc, what is at issue is the hypocritical claim to be almost 100% environmentally friendly.

A closer look at some of the wind farm projects already under way:

Cookhouse Wind Farm
Location: Eastern Cape
Capacity: 138.6MW
66 x Suzlon S88 V3A-2.1 turbines
The investors include African Clean Energy Developments, a joint venture between African Infrastructure Investment Managers (a company held by Old Mutual Investment Group and Macquarie Capital) and AFPOC Limited.
Macquarie Capital, part of Australian investment banking group, Macquarie, has been involved in a few scandals over the years. In 2013 some employees were implicated in an interest-rate rigging scandal in Singapore. In 2011 the Australian Securities and Investments Commission announced legal action against Macquarie and other financial institutions for “alleged breach of contract, contravention of the statutory prohibitions against unconscionable conduct and liability.” The company has been criticized in the past for very high margins and profits, and excessive remuneration for its executives and shareholders. Macquarie also provides extensive amounts of financing and equity capital to producers of coal, iron ore, uranium, oil and gas across the globe.
Customers of Suzlon, the turbine supplier, in both the United States and India have reported that Suzlon’s wind turbines cracked in high winds and failed to deliver the power outputs stated in sales contracts.

Jeffreys Bay Wind Farm
Location: Eastern Cape
Capacity: 138MW
60 x Siemens SWT 2.3 MW wind turbines
Developed by a consortium that includes Globeleq, Mainstream Renewable Power, Genesis Eco-Energy, Old Mutual, Thebe Investment Corporation, engineering firms Enzani Technologies and Usizo Engineering and a local community trust.
The chairman of Mainstream, Dr Eddie O’Connor, has been reported to have demanded R1.25/kWh as a fixed price tariff with what can only be described as offensive arrogance.
Globeleq, an emerging markets power company, has investments in solar, wind, natural gas and fuel oil projects across Africa and South America. It was set up as part of the UK’s development finance institution, the Commonwealth Development Corporation (now called CDC Group). A report by the NGO, War on Want, has criticised it for pouring aid money into the pockets of multinational power companies to take over power supply in developing countries, and in the process driving up the price of electricity.
In 2012, the Siemens/Nareva windpark project sought to obtain carbon credits through the United Nations’ Clean Development Mechanism. Nareva is a Moroccan industrial and financial group that will own and operate the wind farm. The application was refused for being located outside of Morocco’s national borders – in occupied Western Sahara. Nareva is said to belong to the Moroccan royal family.
In 2008 US authorities fined Siemens a record $800 million to settle a long running bribery and corruption scandal. At the same time it was also fined €395 million in Germany, after an earlier €201 million fine, on the same type of charges.
Construction of the site will be handled by a joint venture between Murray & Roberts Construction and Consolidated Power Projects. The same Murray & Roberts that was recently implicated in collusive practices (bid rigging) with other construction companies by the Competition Commission and fined ZAR309 million.

Red Cap Kouga Wind Farm
Location: Eastern Cape
Capacity: 80MW
32 x Nordex 2.5 MW N90 wind turbines
The managing director, Mark Stanton used to be the CEO and a director of CEF Sustainability (now called ETA energy), a subsidiary of CEF(SOC)Ltd, a state owned company incorporated in terms of the Central Energy Fund Act, that reports to the Department of Energy, the same department that houses the National Energy Regulator of South Africa (NERSA), which awarded the licence to Red Cap Kouga to run a wind farm. At CEF, Stanton oversaw the implementation of renewable energy projects in the Eastern Cape. The technical director, David Nicol also worked for CEF Sustainability, where part of his role was to identify appropriate renewable energy investment opportunities. So basically we have two ex-employees who occupied senior positions in a government owned subsidiary responsible for identifying and implementing renewable energy projects in the Eastern Cape, the same area where they are now running their own commercial renewable energy enterprise. Shaky or not? You decide.

It is clear that wind power investors are not investing in local projects for altruistic reasons, but because there is money to be made if naïve governments are coerced into their demands. The proliferation of wind farm projects in South Africa is not unique. Across Africa there are multitudes of wind energy projects under way. One shudders at the implications of weak fiscal oversight combined with corrupt officials and unscrupulous renewable energy pedlars. There is a reason why they have set their sights on Africa. Furthermore, there is enough historical evidence to support caution with regards to aggressively marketed ‘green’ technology. Look at the massive damage done by ethanol subsidies, once touted as the new green energy. It devastated global food production security and chased up food prices.

An alternative approach:

At the heart of the South African electricity dilemma lies the government’s atrocious record in regulatory oversight and accountability. The proliferation of government agencies involved in energy and electricity matters is a blatant deployment of cadres and costing tax payers hundreds of millions every year. Massive salaries and bonuses are paid to officials with often overlapping responsibilities, and the list seems to grow by the year. The National Energy Regulator , CEF, Green Fund, Industrial Development Corporation, Development Bank of South Africa, South African National Energy Development Institute, National Energy Efficiency Agency and of course Eskom are all involved in electricity matters in some way or the other. It seems to be a deliberate or just haphazard strategy that obfuscates how government funds are used in the energy sector.

Eskom’s monopoly on generating and distributing electricity has contributed to inefficiencies and escalating electricity prices. There may be some hope on the horizon in the form of the Department of Energy’s draft bill for the establishment of an Independent Systems and Market Operator(ISMO). The ISMO would be responsible for planning generation capacity, power purchase agreements with generators, transmission of power generated and coordinating the wholesale market for electricity generation. The passing of this bill is crucial to opening up the market for independent power producers. The proviso of course being that it is a truly independent entity that is run at break even level to ensure that a new form of profiteering monopoly does not evolve and that barriers to entry are kept as low as possible.

One of the biggest causes of high residential electricity tariffs is the extra mark ups levied by individual municipalities on top of Eskom’s price increases. Under the current Energy Regulation Act, Nersa can regulate what additional electricity charges municipalities may levy on customers, but that is often ignored. More often than not mark ups are sky high in order to finance municipal budget deficits due to incompetence, negligence and corruption. That the government has not clamped down on this practice is indicative of an atrocious culture of accountability avoidance. We will see escalating riots and protests if this cancer is not addressed immediately.

Government investment should be in localised smart energy networks with incentives for municipalities, communities and individuals to invest in clean energy. For example, a system of net metering from solar panels, under which consumers generate electricity and on sell to the grid, coupled with tax breaks and finance assistance.
The advantage of small scale community driven projects are numerous. Excessive profit taking by middlemen and investment banks will be alleviated for one. Democratising renewable energy will increase consumer ownership and produce higher levels of accountability. Personally I believe that community owned wind turbines dotted through out the leafy suburbs of Constantia and Houghton would be an excellent idea. Then the section of the population which professes the biggest support for clean energy can rest assured that they did their bit.

Big players in the electricity market will always be necessary though to provide sufficient power for industry and large metropolitan areas. Therefore, a pragmatic approach to affordable electricity and its impact on the environment is needed. It is very important to understand that the European Union market is in the first instance a captive market due to legally binding targets set under the Kyoto Protocol and EU regulations. In the second instance the EU is mostly comprised of countries far wealthier than SA, and thus able to absorb the higher costs of renewable energy much better. Thirdly, SA faces a very different set of challenges compared to the average European country. An over ambitious focus on renewable energy may not be the correct priority, when small to medium enterprises are starved for start-up capital. Investment and finance from local development finance institutions should be targeting those businesses and deliver on the government’s stated promise to encourage SMEs.

That means that coal fired power stations are a reality of the South African power generating landscape. There are however ways to lessen the impact on the environment.

The development of CCS has been declared a national research priority and the government was instrumental in setting up the South African Centre for Carbon Capture and Storage in March 2009. Carbon dioxide capture and sequestration (CCS) is a process through which CO2 emissions from coal- and gas-fired power plants and large industrial sources are captured and injected into deep underground rock formations. According the US Environmental Protection Agency current CCS technologies can reduce CO2 emissions from fossil fuel power plants by 80-90%.

Carbon emissions from deforestation represent 18-25% of all emissions. Proper management of forests and non-agricultural land can increase carbon sinks, which means that more CO2 is removed from the atmosphere, and stored in plants and trees. (The main natural sinks are the oceans, plants and other organisms that use photosynthesis to remove carbon from the atmosphere by incorporating it into biomass.) Forcing carbon emitters to rehabilitate grasslands and forests may be more cost effective than investing in expensive capital intensive wind turbines.

One of the factors hampering a lucid dialogue about South Africa’s electricity challenges is what I like to call the Bono–effect. Pompous privileged NIMBYs pontificating about subject matter that they rarely have a cohesive idea about, have ulterior motives for and of course they demand that the rest of the world follows suit. There is the grave danger of third world countries with weak government structures being bullied and/or bribed into accepting policy from overzealous and cynical foreign interests. It is irresponsible and criminal to expect countries with huge challenges in housing, education and employment to spend billions of dollars on more expensive and less reliable forms of energy when the real culprits are sitting in first world countries. The average African citizen has more important things to worry about than trying to keep an eye on corrupt politicians doing dodgy deals with European wind turbine salesmen.

Civil society in South Africa already has enough egg on its face due to apathy, wilful ignorance and rampant consumerism among the haves on one hand and mindless violence, blind loyalties and entitlement among the have nots on the other hand. The government’s blasé and obtuse handling of tax payers’ and consumers’ money must come to an end. The cynical business practices of both domestic and foreign companies that exploit weak government oversight and a gullible public should be thoroughly investigated and appropriate sanctions instituted against them. Otherwise we will forever be known as a nation that tilts against windmills and achieves far below what it is truly capable of.

9 thoughts on “Tilting at windmills: Power politics and Wind farms in South Africa

  1. Great article. Puts a lot of issues surrounding renewable energy into perspective.

  2. You wrote that the wind tariffs are “fixed price” tariffs which is true in the sense that it is not market driven.
    The tariffs this year are however “fully indexed”. What they are indexed to is the question.
    One consultant claims they are indexed to the CPI i.e. about 5.7% pa
    One IPP project in a presentation to an international bank for a loan claimed it was indexed to bank lending rate + 3% i.e. about 11.5% per annum.

    Another point is that Eskom must buy all renewable electricity that is produced, therefore it is for Eskoms cost to adjust to the peaks and troughs that are supplied. Coal power stations may have to be run much less efficiently and be idled (30% power) on standby to accommodate renewable energy fluctuations.

    • Thanks for the comment Andrew. I am aware that REIPP 3 tariffs are supposed to be ‘fully indexed’. The article was written before finalisation of round 3 of the REIPP. The main purpose of the article was to highlight the fact that slapping a ‘green’ or ‘renewable’ label on something does not necessarily make it above board. If we are going to promote renewable energy sources the process and implementation has to be transparent and not based on spin doctoring.
      Agreed on the coal power stations on stand by issue – it is a historical gripe against wind power in particular.
      We believe that a devolved smart energy grid is potentially the best way forward. If it is currently logistically possible in SA is a different question.

  3. Bravo! The most erudite, well researched and objective commentary I have read since acquiring and digesting Etherington’s “The Wind Farm Scam”!
    Even the most diehard red greenie cannot afford to ignore the facts.

    Sancho Panza

    • Thanks for the kind words Robin. Hopefully our article does a little to wake people up to the dangers of a lack of oversight and transparency in the alternative energy market.

  4. Thank you for a deeply researched and brilliantly written article. I have a much better understanding than from anything else I have read on the subject/s. So refreshing as opposed to the drivel we are fed from Media 24. Would Reprobate be demanding answers from the government to the very pertinent and important questions raised? Please!

  5. It is refreshing to see how reprobate managed to take a fairly intense subject and make it approachable to most. With regards to the civil society… It is apathy and ignorance, also lack of leadership, forward thinking and it’s so much easier to stick with the crowd, isn’t it?

    • I agree! We should demand Media 24 and the SABC to feature writings and programs researched by Reprobate – it will lead to less sheeple and grow an informed civil society…one can dream : )

  6. Interestingly enough, Australia also recently abandoned it’s carbon tax plan. Despite being a much poorer country, SA though seems intent on ‘steaming’ ahead. Anyway, brilliant article from reprobate. Probably the most complete analysis I have seen on the topic thus far.

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