The Great Policy Disconnect - Climate Change

A New Approach to Electricity Planning

Since 2008, Eskom has been developing ambitious new plans to double installed electricity generation capacity. However, regulations governing new electricity generation capacity, promulgated by the Department of Energy in August 2009 under the Electricity Regulation Act, stripped NERSA and Eskom of their respective planning functions. It proposed, instead, a new Integrated Resource Planning (IRP) process, which would provide a blueprint for licensing new electricity generation infrastructure. This decision seemed to presage a move to emulate successful coordinated electricity planning in other developed and developing countries. 

Indeed, the various planning processes undertaken by Eskom through its confidential internal Integrated Strategic Energy Plan (ISEP), and NERSA through its National Integrated Resource Plans (NIRP), had not been well aligned.  Attention to environmental and social considerations in the various NIRPs had been uneven. Better coordination could have supported a more transparent and deliberative process for long-term decision-making regarding electricity needs.

In practice, the core elements of Eskom’s “new build” aspirations became the Department of Energy‘s first draft of an integrated resource plan for the electricity sector. Following minor modifications, this plan was proposed as the national IRP, enabling NERSA to move forward with considering Eskom’s request for a 45% per year price increase from 2010–2012. The primary purpose of Eskom’s request for a price increase was to finance new investments in electricity infrastructure, particularly the Medupi and Kusile coal-fired power plants. In addition, the proposed IRP would bring three more large-scale coal-fired power plants online by 2028.

A review of this plan by government departments made it clear that it was inconsistent with efforts to reduce greenhouse gas emissions, as outlined in the Cabinet-mandated Long Term Mitigation Strategy (LTMS). President Zuma was, after all, preparing to go to Copenhagen with a commitment to reduce emissions by 34% by 2020 relative to business as usual, coupled with a request to the international community for the necessary finance, technology and capacity support. Furthermore, government was seriously concerned with the implications of the proposed tariff increases and electricity delivery modes for the poor, as well as the impact on the National Treasury of expanding electricity infrastructure.

The Department of Energy’s Policy Programmes  

The National Energy Act of 2008 requires that South Africa’s energy plan consider the country’s overarching energy needs. Yet the IRP for the electricity sector is being developed in advance of a more holistic Integrated Energy Plan (IEP). The department has recognised that this sequence is not ideal, as the role that electricity plays in the economy is of course intertwined with other aspects of energy supply and production. For example, if the availability of liquid fuels for cooking were to increase as a result of decisions made in the IEP, it is possible that household consumption of electricity might decrease. However, the department has decided to prioritise planning for South Africa’s largest energy sector, citing its concern about the economic risks associated with the narrowing electricity reserve margin.

Since February 2010, the Department of Energy has also begun work to revise its 2003 Renewable Energy White Paper. While assurances have been offered that this process will align with the IRP, the operational modalities of such an alignment have not yet been made clear.

NERSA’s role

A major reason for the country’s shrunken electricity reserves has been the cheap sale of what used to be a plentiful electricity supply. Indeed, in the 1980s South Africa had excess electricity capacity: prices were therefore reduced significantly to encourage energy intensive industries to expand operations in South Africa. Since then, however, growing demand for electricity has eaten into electricity reserves. Eskom’s balance sheet has not subsequently been able to accommodate the urgent need for additional generation capacity.

Eskom’s resulting request for a substantial price increase was reviewed by NERSA, through a process that included closely-watched public hearings in nine cities across South Africa. In February 2010, NERSA approved a 25% per year price increase. But the decision to increase electricity tariffs in order to finance new investments in electricity generation infrastructure, without clarity on exactly what those longer-term investments will be, raises problematic issues.

NERSA’s approval of additional costs to South African consumers in the absence of a robustly developed planning framework has raised questions about the role and scope of regulatory oversight over Eskom. Depending on one’s perspective, the second Multi-Year Price Determination (MYPD2) could be seen as a blank cheque for Eskom’s new build programme, since its full scope is still to be determined.

On the other hand, the approved increase is 20% lower than Eskom had originally requested. Therefore, it could be argued that the increased revenues will likely fall short of the funding required for the anticipated investments emerging from the IRP process. Although Eskom has reported financial profits over the past quarters as a result of the tariff increase, many observers estimate that the utility’s MYPD2 will barely cover the costs of Medupi, Kusile and the first phase of the renewable energy feed-in tariff (REFIT). Indeed, Eskom recently announced its intention to apply to NERSA for a further interim tariff increase.

In addition, while NERSA continues to work with the Department of Energy to operationalise the much-anticipated REFIT, it has also been tasked with developing implementing regulations for a new set of energy efficiency and demand-side management programmes. These include a “standard offer” programme to incentivise the uptake of energy efficiency projects. NERSA has also recently released for public comment a draft set of implementing regulations for the IRP, though the release of this document was not well publicised. 

Interim IRP1 and the Inter-Ministerial Committee on Energy

Through its internal processes, government realised that it needed a much more deliberative approach to developing a long-term strategy for the electricity sector. It chose to approve an abbreviated five-year IRP1, in order to meet the legal requirements for reviewing the Eskom tariff increase request. The Department of Energy committed to develop a longer-term IRP in consultation with interested stakeholders in 2010.

The Inter-Ministerial Committee on Energy was established to facilitate inter-governmental consultation on the crucial issues at hand in the electricity sector. It would be chaired by the Minister of Public Enterprises, and co-led with the Department of Energy and the National Treasury. The Department of Environmental Affairs, the Department of Economic Development and the National Planning Commission would be amongst the ten ministries included in the committee.

It was envisioned that the inter-ministerial committee would coordinate nine work streams, particularly the development of the IRP2. It would also consider the funding model for Eskom; renewable energy; the macro-economic impact of the price increases on competitiveness; demand-side management and energy efficiency; nuclear strategy and implementation; private sector participation in power generation; and coal haulage logistics for road and rail.

The decision to engage in a more integrated process to develop the IRP2 was a most positive development, indicating that government has taken South Africa’s commitments to combat climate change more seriously than many had feared. Nevertheless, the processes the Department of Energy has employed to develop energy policy have been out of sequence, and fraught with conflicts of interest.

Stakeholder Engagement in the IRP2

Business has been proactive in stepping up to engage with the IRP2 process. In a special meeting with Business Unity South Africa in February 2010, Minister of Energy Dipuo Peters briefed business stakeholders on the proposed approach to the IRP2. More controversial has been the appointment of a group of “technical advisors” to the Department of Energy, who have been guiding the process for developing the IRP2.

Independent media were the first to report on the existence of this group, which was dominated by representatives of minerals- and energy-intensive industries, and to question its influence on the decision-making process. Civil society groups then took up this issue, with the support of some parliamentarians. A formal request for information on the composition of the IRP2 advisory group  was lodged, and as a result the details of this group were officially disclosed for the first time. The disclosure confirmed reports that individuals employed by BHP Billiton, Exxaro, Xstrata and other energy-intensive users were advising the process, although the Department of Energy stated that these persons were serving in their “individual” capacities.

Requests for details of this group’s deliberations lodged in terms of the Promotion of Access to Information Act (PAIA) have, however, been denied. Civil society groups, for their part, have raised serious concerns about the associations of the advisors on the IRP2 modelling exercise, and have questioned the dearth of qualified advisors on the social, environmental and gender aspects of decision-making.

Access to the IRP2 process has been difficult for stakeholders from civil society, particularly environmental groups. The Department of Energy initially accepted invitations to engage with the Energy Caucus, the largest grouping of civil society and labour organisations engaged on energy policy in South Africa. The Department also agreed to participate in a series of workshops organised by Idasa in partnership with other civil society organizations, including the South African Faith Communities Environment Institute and the World Wildlife Fund (WWF) South Africa. Yet despite its professed intention to take the perspectives of all stakeholders seriously, the Department of Energy has not engaged deeply with these processes. It has not followed through on commitments to participate in meetings, nor to provide supplementary information in response to questions from civil society stakeholders. 

The National Economic Development and Labour Council (NEDLAC) has become an important forum for deliberation on energy issues across some stakeholder groups. The participation of civil society and consumer and community groups in this body, however, is not well organised, and limited information has been available to the public about the content of deliberations within its Energy Task Team.

More recently, the National Stakeholder Advisory Committee for Energy in South Africa, originally established in response to the 2008 electricity crisis, has re-emerged as a relatively pluralistic platform for high-level government engagement with stakeholders around electricity choice. Its areas of focus have included the IRP2, the associated Medium Term Risk Mitigation Plan to “keep the lights on” in the immediate term, and issues around demand-side management and protecting the poor from the impacts of tariff increases. However, in terms of resources, organisation, and access to additional informal channels of engagement, civil society remains the weakest grouping within these multi-stakeholder processes.

Labour, for its part, has been proactively engaged by government, but seems also to have lacked the preparation and capacity to take informed positions on the issues at hand. More strategic collaboration between labour and civil society groups around issues of common interest may hold the potential to enhance the effectiveness of both parties. Nevertheless, the views of civil society on energy issues are hardly uniform, and important areas of divergence may be arising within labour’s evolving positions as well. 

The Formal Process of Consultation on the IRP

In response to sustained requests from stakeholders, including civil society and private sector companies from the emergent clean technology sector in South Africa, efforts have been made to engage stakeholders in a formal public process for developing the IRP2. In February 2010, the Department of Energy believed that the IRP2 would be completed by June 2010; since then, it has made noteworthy efforts to extend timelines and improve the scope for public participation in this process. Nevertheless, there have been many problems with the structure and approach taken.

Public comments were solicited on the draft assumptions underpinning the first round of IRP2 modelling. Public hearings were held in June 2010, although only in Pretoria, which significantly constrained the participation of interested stakeholders from other regions.

The comparative life-cycle costs of conventional and renewable energy technologies are arguably the most important input into the IRP2 modelling process, as the emergent scenarios are largely being assessed on the basis of expected costs. Accordingly, a detailed cost analysis of South Africa’s energy technology potentials was commissioned from the Electricity Policy Research Institute (EPRI), a think tank for the utility industry based in the United States; however, the full text was released only the day before the hearings.

A detailed review of the EPRI analysis suggests that the estimated costs of nuclear power are quite low relative to the costs of nuclear facilities recently brought online in other, particularly Western, countries. The problems with approaches EPRI used to estimate technology costs were not apparent until it was too late for most stakeholders to point this out in either of their submissions. A subsequent analysis of the modelled scenarios suggests that this imbalanced input on technology costs has strongly influenced the Department of Energy’s preferences and recommendations. 

The department, when announcing the final assumptions underlying the Draft IRP2 scenarios, took the important step of including in its modelling a list of comments received on the draft assumptions, and its responses. An independent civil society analysis of those responses, however, suggests that many of the substantive issues raised by stakeholders did not actually receive a correspondingly substantive response.

The Department of Energy’s omission to post on its IRP2 website any of the written public submissions represents a missed opportunity to inform interested and affected parties of the views of a wide range of stakeholders. This would have provided a valuable educative/information-sharing intervention, and important context and additional explanation for the Department of Energy’s subsequent ‘comment and response’ document. It would also have shed light on the Department of Energy’s non-/adoption of various proposals. On the other hand, the Department has posted on its website the oral submissions made during its recent public hearings held in three cities. However, even if the more detailed written submissions due shortly are posted, while they will offer an important informative and educational opportunity, their immediate utility and impact will be limited, as the Department’s schedule indicates that this will be the final opportunity for the public to influence the decision-making process.

Some stakeholders have questioned the department’s commitment to transparent and meaningful stakeholder engagement that can substantively and substantially impact decisions to be taken. Such concerns are exacerbated by the myriad concurrent informal processes, described above, that seem to be shaping proposed decisions. Public government statements to the effect that nuclear energy is the preferred base load alternative to coal, and that a fleet of nuclear power stations is required - apparently pre-empting the outcomes of a truly comprehensive and objective IRP2 modelling process - have further called into question the value of the consultation process.

The Department’s publication in the past week of extensively revised draft New Generation Capacity regulations, intended to replace those promulgated barely a year ago – and just as the IRP2 process culminates – has raised more questions about policy coherence, and planning and contractual predictability.

The Role of Parliament

The pervasive impacts of current decisions in the electricity sector, and their far-reaching and long-term implications for all South Africans, point to a crucial necessity for the South African Parliament to promote more transparent, inclusive and accountable processes for reconciling divergent responses to these many challenges. Opportunities for parliamentary engagement with these processes to date have been limited: Parliament received its first briefing on the IRP development process in early August, when modelling of the IRP2 scenarios was well underway. When it has been able to engage with departmental officials, however, Parliament has been able to draw attention to important questions and to demand accountability from the Department of Energy.

Yet to fully meet their oversight responsibilities, parliamentarians will need to be proactive in seeking opportunities to inform key policy processes. The issues at hand are both highly technical and deeply political, with widely divergent perspectives on the appropriate course of action. Hence, Parliament has tended to rely heavily on government departments for information, rather than seeking independent information that might illuminate impacts on the public interest.  

The Draft IRP2

In October 2010 the Department of Energy released a proposed IRP2 scenario that, in its view, balanced various policy objectives, including environmental quality, greenhouse gas reduction and social welfare. This draft scenario anticipates a huge increase in South Africa’s installed generation capacity, from 259 685 GWh to at least 454 367 GWh. The assumption seems to be that energy demand will grow strongly—despite disincentives deriving from a history of significant price increases—and that energy intensity will continue to increase proportionately to the country’s economic growth.

A plan based on these assumptions seems inadequately grounded in the new green economy aspirations of the second Industrial Policy Action Plan and other Department of Economic Development initiatives, including its recently released New Growth Path. Even the proposed enhanced energy efficiency scenario appears excessively conservative about the potential for reducing energy consumption and transitioning to a less energy-intensive economic model. Indeed, it represents an unexplained withdrawal from the Department of Energy’s own higher estimates of South Africa’s energy reduction potential.

Renewable energy technologies do play a significantly larger role than observed in previous iterations of the IRP. In fact, a significant volume of renewable energy is proposed to come online in the immediate term. By many accounts, however, the envisioned deployment of renewable energy technologies is still quite conservative.

The prominent role of nuclear power in the Draft IRP2 has also been controversial, although that would only come online from 2023 - long after additional capacity is required to meet what we are told is an urgent need for additional generation capacity. In theory, this could allow time for further deliberation over the desirability and viability of the nuclear option.

Reports have recently surfaced that the Department of Energy’s preferred Revised Balanced Scenario is inconsistent with the emission reduction commitments that South Africa made in the Copenhagen Accord. It is also reported that a scenario proposed by the Department of Environmental Affairs would have substantially reduced the environmental footprint of the IRP2, at a relatively modest additional 3% of the estimated cost of the Department of Energy’s proposed balanced scenario. 

The emergence of the Inter-Ministerial Committee on Energy seems to have provided an important platform for inter-governmental coordination on electricity policy. Yet while attempts have been made to reflect various government and policy objectives in the plan, its effectiveness in aligning these considerations remains unclear.

Meanwhile, the role of NERSA in governance of the electricity sector remains far less clear. In theory, NERSA’s role is to translate policy into regulations that guide operations in the electricity sector. The regulations on new generation stripped NERSA of some of its previous responsibilities, though stated that the IRP would be developed in consultation with NERSA. Yet it is not clear that NERSA has really been centrally involved in the development of the IRP.

While business and labour stakeholders have advanced their positions by making use of informal channels, such as appointments as technical advisors to the Department of Energy, such opportunities have not been open to stakeholders from civil society. Yet civil society and social groups have demonstrated significant interest and commitment to engaging on electricity policy in a sustained, meaningful and well-capacitated manner. Indeed, such engagement seems essential to help counter the many powerful stakeholders whose vested interest in business as usual has dominated the process thus far.

Conclusion

The dominance of a narrow set of perspectives in energy planning may, at least in part, explain the ongoing disconnect between the choices proposed in the electricity sector and government’s stated objectives—including, in particular, environmental and climate change policies. Civil society may have an important role to play in helping draw attention to the disconnect, and in seeking accountability for more inclusive and cohesive approaches to meeting energy needs. Yet many within government may perceive civil society groups, particularly environmental groups, as representing special or “narrow” interests, rather than as offering important perspectives.

Civil society groups seeking to influence electricity policy face three key challenges. First, they must raise general awareness of the complex issues involved across a wide cross-section of social stakeholders and citizens. Such awareness is a prerequisite for building broad-based political support for ambitious solutions that offer real environmental and social benefits. Second, such groups must demonstrate that their contributions, in the form of independent research, inputs and perspectives, can add value to planning processes and substantively strengthen outcomes. Third, they must sustain such engagement through the details of the policy implementation process, to ensure accountability for delivering in the long-term public interest.

Gary Pienaar is a senior researcher on public governance and ethics, with Idasa’s Political Information and Monitoring Service, and with Idasa’s Economic Governance Programme, where he is project manager for the Electricity Governance Initiative of South Africa. Smita Nakhooda is a senior research associate of Idasa, and a fellow of the World Resources Institute, where her work focuses on governance, energy, and climate change.