DA energy policy is politically correct but economically irrational
John Kane-Berman |
28 February 2022
John Kane-Berman says Kevin Mileham mistakenly puts all his faith in renewables
It is reassuring to know that Kevin Mileham, shadow minister of mineral resources and energy in the Democratic Alliance (DA), is not opposed to extending the life of South Africa’s nuclear station at Koeberg.
He said this in his reply last week on BizNews and the Daily Friend to my earlier article arguing that he was off the mark in his criticism of the energy policy of Gwede Mantashe, minister of mineral resources and energy.
Mr Mileham also said that he was “not calling for all coal power stations to be shut down tomorrow.” This might also be reassuring, except that all it really tells us is that Mr Mileham is trying to have the best of both worlds. Mr Mantashe has made it clear that he does not favour the premature closing of this county’s coal-fired power stations, even though various rich countries are offering us a rather niggardly bribe of $8.5 billion to do just that. It would be interesting to know where, exactly, Mr Mileham and his party stand.
Last month Mr Mantashe said with regard to coal-fired power stations that “you don’t destroy what you have on the basis of hope that something better is coming”. Rushing to shut down coal plants would lead to costlier electricity and fewer jobs and also damage the economy. Coal had made a huge contribution to the economy and South Africa should benefit from it as long as it can.
This is a statement that the DA should unequivocally endorse.
Let us, however, cut to the chase, as the saying goes. Mr Mileham says his party would not support any extension of South Africa’s nuclear and coal ambitions. But he fails to make a case against doing so. He also contradicts himself.
In the first place, what his party should support is the privatisation of South Africa’s coal-fired power stations. Sell them to the highest bidder and use the proceeds to pay off Eskom debt. The new owners (no more than three stations per buyer to avoid replacing a public with a private monopoly) would have to provide the capital necessary to keep these stations in operation as long as possible.
Secondly, new coal-fired plants. Mr Mileham says the 2019 integrated resource plan allows for only 1 000 megawatts (against the 1 500 I quoted Mr Mantashe as specifying). But the difference is irrelevant. What matters is why new coal should have any limit imposed upon it.
Strip out the transmission grid from Eskom altogether, as the government, at long last, says it will do. Mr Mileham says it is necessary to “incentivise efficiency”. He also favours opening up the grid to all power producers as South Africa needs “a steady and diverse energy mix”. So far so good.
But then Mr Mileham contradicts himself by saying he would not wait for “new vanity [sic] nuclear and coal projects” to benefit from the newly opened grid. His grid would be opened up only to those producing electricity from renewables. This is a closed market, not an open one.
A free market based on a level playing field would allow anyone (including Eskom) to produce electricity by whatever means they choose. They would then sell it to an independent grid at whatever price they are able to negotiate. This would tend to keep prices down, whereas Mr Mileham’s closed grid would keep them high.
Mr Mileham may or may not be correct in his view that “there is no appetite for financing new coal generation”. If he is, then it won’t matter whether the quota is 1 000 or 1 500 or anything else.
But capitalists are a wily bunch. If they knew they had a fair chance of selling coal-fired electricity to the new grid, they would find the money to build their plants.
Thirdly, nuclear. South Africa, says Mr Mileham, cannot afford a new nuclear plant in the short term. A 2 500 MW plant would cost $15 billion and more. “Does [Mr Kane-Berman] really believe that South Africa under an ANC government can keep costs in check, and prevent the wide-scale looting and corruption such a mega-project would engender?”
Well, no, Mr Kane-Berman doesn’t believe that. But this is a red herring, in fact quite a few red herrings. Mr Mileham seems to think “South Africa” means the government. But we also have a large private sector, including foreign and local companies. Some of these are involved in the provision of renewables.
Moreover, in the article to which Mr Mileham objected, I referred to investment by various countries and companies in “small modular reactors” (SMRs) that could be “produced in factories much more quickly and cheaply than nuclear power stations can be built”. A whole series could be built and then installed alongside one another.
South Africans have been among the pioneers in the design of such SMRs. Kelvin Kemm, former chairman of the South African Nuclear Energy Corporation and currently CEO of Stratek Business Strategy, recently described their history in an article published on Wattsupwiththat. The first such reactor was the Pebble Bed Modular Reactor, production of which was put on hold following the 2008 global financial crisis just as the first prototype was due for construction.
But scientists, engineers, and private investors spent the next decade developing a derivative, the HTMR-100. This also uses gas and not water for cooling and can be built almost anywhere. As long ago as 2019 Mr Mantashe said that South Africa was planning to install not large nuclear plants, but smaller modular ones. Mr Mileham’s assertion that a “nuclear build” would take 15 years is accordingly another of his red herrings. Dr Kemm says smaller plants could become operational in a third of that time. Andrew Kenny, another South African expert in this field, states that “if we began contracting in early 2024, the first unit should be online about 2031”.
The output of SMRs ranges between 100 MW and 300 MW, and, as my article pointed out, there is growing interest in this technology in many countries. According to Dr Kemm, there is also growing international interest in the technology that has been developed in South Africa.
Despite all of this, and despite his belief in a “steady and diverse energy mix”, Mileham puts all his faith in renewables, whose intermittency means that they cannot supply the “steady” power he wants.
What his party should be doing is calling for the integrated resource plan to be scrapped. The idea of allowing independent producers to sell energy to a national grid, or to anyone else, is excellent - provided that they sell into a free market and not one which the government rigs by fixing the price and then forcing Eskom to pay it.
But the idea of a government (or anyone else) laying down quotas for various types of energy is absurd. The reasons for limiting coal to 1 500 or whatever or nuclear to 2 500 are not economic but ideological, as are the reasons for allowing very much higher quotas for renewables.
What the DA should be doing is to call for the deregulation of the electricity market. Let the producers of the various types of electricity then compete for market share.
To get there, however, the DA would need to sort out its priorities. Mr Mileham agrees that South Africa has “an abundance of coal resources”. He also says that this country is “uniquely positioned to capitalise on solar and wind”. But he then wants to stifle further use of coal and promote only solar and wind.
The reason, you guessed it, is his party’s commitment to “combating climate change”. This, obviously, is more important for the DA than the “efficient”, “steady”, and “diverse energy” in which Mr Mileham professes to believe.
* John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom. Readers are invited to take a stand with the IRR by clicking here or sending an SMS with your name to 32823. Each SMS costs R1. Ts and Cs apply.