x Abu Dhabi, UAEFriday 21 July 2017

South Africa has power to lead with electricity station

In a proud moment for the nation, South Africa begins its FIFA World Cup campaign against Mexico in Johannesburg on June 11.

In a proud moment for the nation, South Africa begins its FIFA World Cup campaign against Mexico in Johannesburg on June 11. About 300km to the north another contest is taking place, pitting environmentalists and social activists against the World Bank, the government and electricity consumers. Africa's largest economy has been suffering a power crisis since January 2007. There was plenty of warning: a 1998 report predicted trouble ahead but nothing was done. As the joke goes, what did South Africa have before candles? Electricity.

The country has among the lowest electricity prices in the world, about half the level needed to attract investment. Just as in the Gulf, years of solid economic growth ate away at once healthy levels of spare capacity. Electrifying poor neighbourhoods and a relaxed attitude to non-payment put a heavy burden on the state utility Eskom. Blackouts are particularly serious for the mines that power South Africa's economy. Workers stuck underground when the giant cooling systems stop are rapidly threatened by dehydration and death. The giant mining company Rio Tinto put some operations on hold and delayed new investments until reliable electricity was assured.

In the short term, the World Cup should have enough power. The economic crisis has cut demand while Eskom has introduced emergency conservation measures and brought in power from independent suppliers. The long-term solution to the problem seemed simple. South Africa, despite being the world's sixth-largest coal producer, has not built a new coal-fired power station for 15 years. So it was time to put a new plant in place.

Thus it was proposed to build a new facility at Medupi, in the northern Limpopo province, which would be the seventh-largest coal-fired station in the world. The first unit could be online by 2012. In April this year, the World Bank approved a loan of US$3.75 billion (Dh13.77bn) towards the total cost of about $17bn. The loan was immediately controversial, mainly because coal-fired stations emit high levels of carbon dioxide, adding to global warming. Environmental groups blasted the decision.

The US, UK, Netherlands, Norway and Italy all abstained from voting on the loan, signalling their disapproval without taking the undiplomatic step of blocking it entirely. Some criticisms border on the economically illiterate. Michael Stulman, from the Africa Action group, complained "the decision really shifts the burden on to the poor communities", partly because they would have to contribute to paying the loan.

But someone has to pay for new supplies. Some comments by anti-poverty campaigners, laudable though their aims are, seem to suggest they expect electricity to appear for the poor without anyone paying for it. World Bank loans are cheaper than those from purely commercial lenders, while renewable energy, advocated by Mr Stulman, would have been far more costly. Electricity prices will have to rise sharply anyway, by about 25 per cent this year and in the next two, to bring them into line with generation costs. Innovative tariff structures are needed to protect the poor while creating realistic prices and discouraging wasteful consumption.

There are real concerns that big industries are obtaining cheap power under secret agreements, while low-income consumers pay more. On the other hand, these corporations are also major employers. The correct policy is not to reduce electricity prices but to increase incomes through economic growth. The loan includes $260 million for wind and solar power projects and $485m to be spent on reducing carbon dioxide emissions.

Medupi will be one of the new generation of highly-efficient "supercritical" plants. The eventual implementation of carbon capture and storage technology has been floated but plans are still hazy. Without the World Bank's involvement, Eskom would have built the plant anyway. Not only would tariffs have been higher, it is unlikely that any environmental improvements would have been included. There are some valid criticisms of Medupi: it will only be required to fit "scrubbers" to remove sulphur dioxide, responsible for acid rain, by 2018 but these should have been included from the outset; the country's coal mining industry needs more stringent environmental and safety standards; and the ruling African National Congress party is also an investor in one of the plant's major contractors, raising accusations of political favouritism.

Yet these objections have been secondary to the controversy over greenhouse gas emissions. It is hypocritical of those in rich countries to deny affordable energy to developing countries unless they are prepared first to close down their own coal-burning facilities, especially while they continue to buy South Africa's minerals. And South Africa has been one of the most constructive developing countries in climate change negotiations.

As a success story, South Africa deserves international support. Only one in four Africans has access to electricity, and Ivory Coast, the oil-rich Nigeria, the new oil producer Ghana and the mining powerhouses Tanzania, Zimbabwe and Zambia are all suffering electricity crises. Without economic growth, such countries remain trapped: developed enough to cause pollution but not rich enough to clean it up.

Coal-fired power stations are a necessary evil. Medupi can be judged an environmental and economic success, though, if it helps to establish renewable energy in Africa's largest economy, acts as the country's first steps towards truly clean coal, brings about a rational and socially fair electricity market and supplies badly needed power to the poor and to industry alike. Like next Friday's opening World Cup clash, Medupi is only a first-round game, not the final match.

Robin Mills is a Dubai-based energy economist and the author of 'The Myth of the Oil Crisis' (Praeger, 2008) @Email:business@thenational.ae