Why is cheap electricity so expensive? - Politicsweb

7 December 2020 - So now we know. One of the reasons for retaining South African exchange controls is to ensure that enough money is available for investment in “a green economy and the move from coal to renewables and gas”.

John Kane-Berman 
So now we know. One of the reasons for retaining South African exchange controls is to ensure that enough money is available for investment in “a green economy and the move from coal to renewables and gas”.

That is the view of Leon Campher, chief executive of the Association for Savings and Investment South Africa (Asisa). He expressed it in a BizNews radio interview with Alec Hogg following the outrage when his association queried the recent announcement by the South African Reserve Bank that would have allowed 100% of certain retirement assets to be invested offshore, instead of the current limit of 30%. The proposals have been put on hold pending further investigation.

Defending his organisation’s support for [only] “gradual” relaxation of exchange controls, Mr Campher worried that 100% “externalisation” would leave the “green economy” and “renewables” short of investment.

Mr Campher might simply be scraping the barrel for arguments in favour of retaining exchange controls: there are few causes more fashionable nowadays than renewables, in the form of solar and wind energy. Which makes it odd that they need to be buttressed by exchange controls.

There is, indeed, plenty that is odd about renewables. The price of renewable energy is supposedly plunging, plummeting, and hitting rock bottom, yet renewables still require subsidies, while these plunging and plummeting prices somehow also manage to push up the price of electricity, even as it becomes less reliable.

In September this year the British high commissioner in South Africa, Nigel Casey, wrote that the clock was “ticking” in “our common climate emergency”. In an article headlined “how renewables can help SA’s economy recover from Covid”, he said “renewable energy costs have plummeted”. Mark Swilling, a Stellenbosch academic, wrote that renewables were the “cheapest and most reliable energy”, and that their “rock-bottom prices” “are expected to continue to drop”.

If renewables are so cheap, it is odd that the French government, for example, has been handing out two billion euros annually to solar investors. It is also odd that one of China’s major solar companies recently said “solar power plant profits will drop below acceptable levels without government subsidies if glass makers go on to push up costs” in the face of glass shortages. According to Bloomberg, solar developers in China are rushing to finish projects by the end of the year to secure state subsidies.

A recent IMF report, moreover, proposed a package that included 80% subsidies to “trigger” renewable energy investment to help stave off the “potentially catastrophic” implications of global temperatures “not seen in millions of years”. Mr Casey is worried that more than 100 million people along the West African coast will be displaced by rising sea-levels.

Here in South Africa, a manager at the Rosa Luxemburg Foundation last week argued on Daily Maverick that the cost of renewables had dropped by up to 80% since 2008, yet he favours tax breaks and cash incentives to encourage rooftop solar installation.

Not to be outdone by the Rosa Luxemburgs of this world, Boris Johnson is planning twelve billion pounds in “government investment” (that is, taxpayer subsidies) in his “green industrial revolution”, one of whose objectives is to “make the UK the Saudi Arabia of wind with enough offshore capacity to power every home by 2030”. Good luck with that. According to Andrew Montford of the Global Warming Policy Forum, two separate reviews of the accounts of the UK’s offshore wind fleet have shown that costs have been rising for the last ten years.

Renewables can easily be made to look cheap if the costs of only the wind or solar plants are taken into account, other costs being ignored. Because the electricity produced by wind and solar is inherently unreliable, unpredictable, and unstable, the true costs include all the back-up system which must be on standby all the time to keep the power on when the wind and the sun are being disobliging, as they often are – very often, in fact. These extra, unavoidable, costs are usually omitted from assertions as to how cheap renewables are, rendering such assertions misleading if not meaningless.

Don Mingay, former professor of nuclear physics at Wits, recently pointed out that the “load factors” of fossil fuels and nuclear were between 80% and 90%, whereas those of renewables were realistically between 20% and 30%. In other words, fossil fuels and nuclear are three times as reliable as renewables. It is thus misleading to claim that renewables are cheaper than fossils and nuclear when you need fossil fuels and/or nuclear to kick in when renewables kick out.

According to Andrew Kenny, a South African energy specialist, all the additional system costs are in fact “by far the most important costs for solar and wind”. In an article on Daily Friend in June, Mr Kenny pointed out that “the more wind and solar, the more expensive your electricity”. Germany and Denmark, he noted, “with a big fraction of renewables, have the most expensive electricity in Europe”.

Other places which have seen substantial rises in electricity prices following shifts towards more and more renewables include Ontario and California. Several nuclear, gas, and coal plants having been shut down to promote wind and solar instead, California suffered rolling blackouts a few months back and had to import power from other American states.

In South Africa, Eskom is not only forced to buy the intermittent output generated by renewables, but must also bear the costs of providing the back-up, mainly from reliable coal, as best it can when the renewables conk out. For the producers of inefficient renewables, this is win-win. For Eskom and its customers, as well as taxpayers, it is lose-lose.

The only advantage of solar and wind is that they can be relatively quickly installed by the private sector. But it would be disastrous if South Africa were to regard these fair-weather friends as substitutes for fossil fuels and nuclear power.

* 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.