Jaya Josie, Adviser, Zhejiang University International Business School (ZIBS), Adjunct Professor University of the Western Cape (UWC) and University of Venda
During the final State of the Nation address to Parliament on February 8th 2024, the President of South Africa Cyril Ramaphosa, presented an assessment of the thirty years of democracy under the government of the ruling party. The final state of the nation address is a prelude to the forthcoming elections in South Africa amidst many socio-economic challenges in South Africa’s failing logistics and infrastructure for electricity, transport, roads, freight rail services that negatively impact manufacturing and exports.
In his address the President characterised challenges as a crisis placing the most important constraints on economic growth. However, in an election year these same constraints also impact negatively on the country as a whole creating a mood of disillusionment and despondency in the general population as the electorate deals with unemployment, poverty and inequality and, electricity power cuts and water shortages. All these challenges are compounded by increasing levels of crime, public and private sector corruption and inefficiencies in the delivery of basic services such as education, health and local government services.
In his response to questions following his state of the nation address the President admitted the high level of unemployment and poverty as the cost of living increases. He also acknowledged the negative effect of load shedding, corruption, violent crime and, inefficient delivery of municipal services on the economy and the lives of ordinary people. The President also talked about starting an Infrastructure Fund to deal with the backlogs in essential infrastructure.
One of the key issues that requires investment is the transition to a sustainable energy and the supply, maintenance and distribution of electricity to the economy and the population as a whole. The current electricity power cuts or load shedding has had devastating effects on the economy and the population. This problem has been compounded by the requirement for South Africa to meet its climate change carbon emission targets.
South Africa has an abundance of solar and wind energy and this should provide the basis for moving towards less dependence on fossil fuels and a transition towards renewable energy for the production of electricity. The big problem with this option has been a poor investment response from national and foreign investors. In recent years this reticence from investors has begun to change as they see the potential for making renewable energy a viable alternative option to dependence on fossil fuels.
The President admitted that many people cannot find jobs and even those with jobs wonder if they will be able to provide for their families, as the cost of living increases. Meanwhile, load shedding continues to have a devastating impact on every aspect of everyone’s lives. To assist in dealing with the challenges Government has established the Infrastructure Fund that brings together financing from the state, private investors, development banks and other financing institutions.
Meanwhile, Infrastructure South Africa was established to coordinate a massive public infrastructure build. Through these efforts, projects worth over R230 billion are currently in construction, including in energy, water infrastructure and rural roads projects. With the relaxing of licensing regulations in 2021 independent power producers will be enabled to generate up to 100MW each and are likely to add up to 5000MW to the grid by the end of 2024.
On 20 April 2023 I wrote an article relating how China was able to use renewable energy to address the electricity problems in rural China as part of its poverty reduction programme. In this initiative China set up solar power stations with 26.36million kilowatts of installed capacity that benefited 4.15 million households in 60,000 villages across the country. (https://energycentral.com/news/electricity-power-crisis-south-africa-). With the easing of regulations for the introduction of independent power producers many foreign direct foreign investment companies have entered the South African power producing market. Among them are companies from China and Europe.
Significant entrants from Europe is the Norwegian renewable energy firm SCATEC ASA and, the Oya Energy Hybrid Project using lithium ion batteries for a power station. Both companies are have started operating in the Northern Cape province. From China we have POWERCHINA, a multinational that has built the largest clean energy power station in South Africa also in the Northern Cape.
The power station is a100MW Redstone concentrated solar thermal plant. On 17 November 2023 ESG News (https://esgnews.com/powerchina-powers-up-south-africas-largest-clean-energy) reported that the energy plant will likely be the largest renewable energy plant in South Africa. Furthermore it is projected to generate 480GWh of electricity annually for the grid once it becomes operational, and will meet the peak power demand for 200 000 local households.
The economic impact for trade, investment and economic development will receive a major boost. The Cape Town based Oya Energy Hybrid Project will be developed on a site that spans Western and Northern Cape provinces. It will produce 155MW solar photovoltaic and 86MW wind with 92MW/242Mh lithium ion-ion battery storage system that will produce the dispatchable electricity required under the Power Purchasing Agreement (PPA).
It seems as if the South African government finally decided to move away from fossil fuel generated electricity and adopt a renewable approach to electricity generation. PowerChina was at the forefront of the move towards renewable electricity generation in in rural China. PowerChina introduces a sense of urgency into South Africa’s energy mix for the generation of electricity in the country.
Private investment in the renewable energy sector will grow further as PowerChina is added to other companies from China that played an important role in the country’s thirty-year poverty reduction program. Companies such as SinoHydro Corporation, China Yangtze Power, Xinjiang Goldwind Science Technology and JinkoSolar Holdings all have renewable energy power projects in their South African portfolios. All these companies are required to identify and collaborate with South African partners.
Already other Chinese companies like Sinohydro Corporation, China Yangtze Power, Xinjiang Goldwind Science Technology and JinkoSolar Holdings have some solar power projects in South Africa and gives them an edge in the country’s renewables sector. These investments will contribute towards meeting South Africa’s 41% renewable energy generation target by 2030. In this sense the cooperation agreements between South Africa and China will play a crucial role in providing technical assistance and links to providers of renewables and engineering, procurement and construction services.
A significant offshoot of these investments will be the expected effect on job creation and training opportunities to address the growing increase in youth unemployment in South Africa. An important by-product of ChinaPower’s investment on the Redstone 100MW CSP project was the high level engineering and its capacity for training local technicians and boosting local development. So far vocational training was conducted in circuit analysis, circuit theory and electronic technology. Some trainee technicians have already developed the skills of electrical engineers.
Such skills and qualifications will ensure household incomes and improved living standards for families. In 2022 Redstone employed about 1000 employees and the company is giving priority to locally based enterprises for procurement and local resources. The company has also established partnerships with 50 South African sub-contractors. PowerChina’s long-term goal is to eventually develop a high-level training program with South African universities and technical institutions.
The load shedding and electricity power cuts are causing much distress to households and business and will have long lasting negative impacts on the economy. South Africa needs an innovative approach towards generating electricity while at the same time reducing dependence on fossil fuels. Coal has been the source of electricity generation in South Africa and, it has been key to employment creation in certain localities in South Africa. The country also has a commitment to reducing carbon emissions as part of its just transition towards meeting its targets for reducing carbon emissions.
China has a similar conundrum and used innovation as a means to produce clean energy for local communities helping them to change their lives and provide a more sustainable environment. The Government of South Africa has made financing pledges for the country’s Just Energy Transition Investment Plan that promises to increase the current allocation from R170bn to almost R240bn. In addition Government announced the establishment of a Climate Change Response Fund for resilience and to respond to climate change. However, none of these initiatives will amount to anything if the investments do not address the fundamental challenges of unemployment, poverty and inequality.