24 August 2018

Delivered by Martin Kingston: BUSA Vice President; Chair of BUSA’s Standing Committee on Economic and Trade Policy and Chair of BUSA’s Energy Subcommittee.

INTRODUCTION

• Business welcomes the imminent release of the Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP) for electricity for public comment. Business has been lobbying for some time for the release of these two documents.  It is of particular importance that, given the fundamental importance of energy in the economy, they are tabled ahead of the Jobs Summit and the Investment Summit to be held in the next months.
• Business would like to register its concern that substantive engagement with social partners on energy policy has been neglected despite previous commitments by government to formally engage with the Nedlac social partners. The Nedlac Annual Summit held on 11 September 2015 had as its theme, “Powering the Economy for Job Creation and Job Security”, and the Summit acknowledged that energy plays a critical role in boosting the country’s economy. It was, therefore, agreed as an outcome of the Summit that social partners needed to work together to ensure that the country has a reliable energy supply.
• This culminated in the establishment of a Nedlac Management Committee Task Team on Energy which developed Terms of Reference that committed government to tabling the updated versions of the IEP & IRP for formal engagement at Nedlac, as well as committing government to consulting social partners on critical policies such as the Gas Utilisation Master Plan (GUMP), and the Renewable Energy Independent Power Producer Procurement (REIPPP).
• Regrettably these engagements, intended to be kickstarted by the tabling of the updated IEP and IRP, have yet to commence. In this process, valuable time has been lost alongside the  opportunity to build consensus around energy policy as well as to provide certainty on energy policy for the economy more broadly. As a consequence, we thank the Minister for this opportunity to engage and look forward to further substantive engagement once we have properly evaluated the IEP and IRP.
• Business views the IEP and IRP as critical planning tools that will enable decision makers in the private and public sectors to make fundamental energy related decisions. The energy sector plays a central role in ensuring viable and sustainable inclusive economic growth. Business does, however, recognise that they cannot alone address the challenges facing the sector but must be implemented alongside other aligned and consistent policies.
• Among the challenges that are not expected to be addressed in these plans, and which Business believes also need urgent attention include the structure of the electricity sector and, particularly, the role of Eskom. Municipal indebtedness to Eskom which is proving a significant threat to the viability of a wide range of industries. The increasing tendency of businesses having to seek relief from the courts is a disincentive to the very investors that South Africa is seeking to attract.
• Although Business recognises the significant challenges inherent in developing energy plans and understands the need for policy certainty, we are concerned at media reports that the opportunity for public comment will be “short”. Documents of this technical complexity take time to analyse to prepare meaningful comment. We therefore urge that at least 60 days be allowed for this purpose to ensure substantive engagement.
• Nedlac has historically engaged constructively on a number of energy policy documents including the 2010 IRP and is currently preparing to engage on the Gas Amendment Bill (2016). We therefore look forward to the engagement process in Nedlac as soon as possible after today’s discussions.

EXPECTATIONS ON THE IEP and IRP

• We trust that the extensive comments made to date by Business on the Base Case of the draft IRP2016 and the draft IEP have already been considered in these revised versions.
• From our perspective the cost of implementing these plans needs to be clearly understood. The negative impact of the high cost of electricity on the economy is well known.  The importance of the IRP being developed from the starting point of a least cost base case can therefore not be overestimated. Policy adjustments, which are required to address other national imperatives, like increasing access to electricity and achieving the country’s carbon emission reduction commitments must be imposed on a least cost base case so that the costs of achieving these imperatives is fully understood.
• Meaningful review of any policy requires that the document under review provides sufficient information and underlying assumptions to undertake the necessary analysis. The updated Base Case released in 2016 did not provide adequate  information for a meaningful assessment to be conducted and did not provide an explicit articulation of the strategy required to deliver on Government’s stated intention to encourage investment in the electricity sector.
• Similar concerns were raised on the IEP, which did not provide a link between the potential primary energy sources and electricity generation technologies. In general, we found a lack of consistency between the IEP and the IRP. For example, transmission and distribution was not covered in the IRP despite recommendations in the IEP that this be done. Given the current challenges of municipal indebtedness to Eskom noted previously, it is essential to deal with distribution.  Similarly, the failure to link investment in transmission to potential renewable energy sources has consistently presented challenges for Eskom in establishing access to the grid for such projects.
• Business would wish to see a number of elements in  the final draft of the IRP, including:
• Detailed costs to be published for all technologies selected
• A complete explanation of all assumptions underlying the base case Clarity on the impact of existing ministerial determinations, which is necessary for licencing purposes.
• A full explanation of the policy adjustments and the assumptions used to model them
• Comprehensive explanation of any carbon constraint
• Clear description of the penetration rate of embedded generation
• Details of all scenarios that have been modelled
• Review of any constraints on renewable energy, as the original motivation is no longer valid.
• That all technologies are treated equally in terms of access to the grid. No reason exists to discriminate on this basis against renewables.
• In respect of the IEP, business would wish to see that all issues relating to energy supply and the associated energy infrastructure investments and appropriate technology to meet demand, are included, as required in terms of the National Energy Act.

CONCLUSION

• In conclusion, policy uncertainty and inconsistency continues to be the biggest factor cited for the low levels of domestic and foreign investment. Moody’s Investor Services, Fitch Ratings and S&P Global Ratings have equally noted how this has undermined South Africa’s efforts to attract investment. Indeed existing investment and jobs are put at risk and new investment is compromised.
• As mentioned, energy is a critical input to the economy, and there is significant scope in this sector to create new skills and viable job opportunities. The urgent finalisation of the energy blueprint is a key consideration.
• Business looks forward to the tabling of the revised versions of the IEP & IRP, inclusive of a least cost scenario in the IRP. We anticipate a substantive engagement on the content, with a view to securing high-level consensus with our social partners at Nedlac on these critical documents for the energy sector.