By Dr Robert Jeffrey and Olivia Vaughan
The Nelson Mandela Bay hub in the Eastern Cape is a region plagued by underdevelopment and it grapples furiously with an unemployment crisis, well above the disconcertingly high national average.
The essential solution is to increase regional economic growth through securing dispatchable electricity at competitive prices, which has been a necessary condition for attaining the levels of prosperity enjoyed by developed nations globally.
A nuclear power station at Thyspunt will meet all of the requirements, and catapult the region into a national economic hub at a pace and short period that is achievable.
Dispatchable electricity is defined as electricity that can be supplied immediately on demand. This is called base-load energy, because it comes from generation sources that are constantly available, and not reliant on externally uncontrollable factors such as weather, or inconsistent feed-stock as fuel.
The Thyspunt Nuclear Power Station is a long-term project that can start almost immediately when approved, and it would lead to employment and substantial growth in the regions infrastructure through the stimulus it creates.
It would increase the supply of reliable electricity, not just regionally but also nationally by reducing demand from the grid, bringing about economic transformation by creating opportunities for growth for existing and new businesses.
In the Eastern Cape, electricity generation has a substantial impact on gross domestic product (GDP) and employment. The resulting surge in GDP and employment, underscores the crucial role of electricity generation in fostering economic development and providing employment opportunities. The growth will immediately increase employment and reduce unemployment in the Eastern Cape and South Africa as a whole.
Megaprojects
Megaprojects, including nuclear and High Efficiency Low Emissions Coal (Hele) power projects, meet most of the economic development policy needs of South Africa and southern Africa.
The development of megaprojects promote upstream and downstream domestic labour-intensive manufacturing suppliers and exporters, as well as supporting primary industries in achieving growth and profitability targets. Ultimately, South Africa’s economic, agricultural and industrial growth would increase, positively impacting living standards and long-term employment growth.
The country’s economic development would be dramatically enhanced by increasing dispatchable electricity supply, not just through the added energy but through the process of planning, constructing and bringing the power station on-stream.
New investment opportunities would understandably arise from medium to large-scale commercially viable power station developments, attracting direct investment, both foreign and domestic, into upstream and downstream business opportunities.
The link between electricity generation and economic growth
Our statistical analysis has revealed that an increase in electricity generation capacity from 4 000 megawatts to 8 600MW, corresponds to significant economic growth, reflected in the rise of GDP from R300 billion to R645bn, in the context of the economy of South Africa.
The expansion in electricity production contributes to the substantial creation of jobs, with employment figures increasing from 800 000 to 1 720 000 in our model, marking a substantial benefit to communities and social development as a whole.
There are an estimated three, even four, dependants for every one job created, who would have food, housing and access to create a prosperous future. If we aim to create 1.2 million jobs, it would translate into support to between 3.6 million and 4.8 million other people.
Build it and they will come
Only two energy sources in the country meet the demand requirements for reliable base-load dispatchable electricity. At this stage of technological development, they are nuclear energy and Hele coal.
Some say the country cannot manage megaprojects, nor are they affordable, yet South Africa has proved time and time again that it can run megaprojects, which ultimately have long economically productive lives; examples include many large power stations, Sasol, Richards Bay Coal Terminal and Industrial Port, Saldanha Bay fuel storage and Port, to name a few.
South African engineering and project management skills are in demand globally, and many prominent companies, like X Energy, Space X and many others, employ South Africans to run and work on their megaprojects.
The projects have long planning horizons and site preparation costs before such projects come on stream, and the costs are usually spread over several years, providing a steady stream of opportunities within the economy. The country should be doing this right away, to ensure the reliable supply sources of energy can start coming on-stream and supplying electricity by 2028/29.
In the meantime, integrated resource plans should be focused on the repair and optimisation of older plants, thus providing enough realistic runway for new builds to come on-stream.
That is where South Africa should be spending its money right now, instead of buying short-term, renewable energy. Renewable energy is unsuitable for the country’s long-term economic demand growth, particularly for mining, manufacturing, industrial and agribusiness growth.
It certainly does not offer reliable back-up power and the costs associated with installing the 100% back-up required to provide power to an industrial economy through renewable energy generation methods are often overlooked when calculating the total cost passed on to the consumer.
In addition, South Africa would lose its energy sovereignty and face the balance of payment problems as hydrocarbon imports rise and coal exports diminish.
The reality of providing steady electricity to an industrial base is vastly different to embedded solar installations. That is, installations that provide residential or commercial energy systems, that provide back-up power in the event that the larger utility providers are off-line. This is also efficient for reducing the costs of purchasing grid-scale energy for more affluent consumers, who can afford the installation fees and the related financing costs associated therewith.
Embedded solar and Battery Energy Storage Systems, while convenient and efficient for supplying low-consumption power at certain times of the day and when the sun is shining, are unable to supply the energy needs of large energy consumers, such as mines, smelters and manufacturing facilities.
These are the industries that provide employment and service the economy with goods and exports. It then stands to reason that the country, whether private or government, should focus on solutions that capacitate economic growth that service under-served sectors of the economy, expanding employment through industry.
By bringing unemployment down and providing people with well-paying jobs that provide long-term financial stability, the country could increase its tax base and also stimulate downstream spending into various industries, who would also benefit from the economic stimulus afforded to them through megaproject builds and the dispatchable energy they ultimately provide.
Some economic truths need to be considered
Many energy experts and economists debunk megaprojects because they are too complicated, capital intensive and take far too long to build. Their argument centres on the premise that focus should be on short-term labour-intensive businesses or projects.
Nothing could be further from the truth. Major projects or megaprojects are the lifeblood of long-term economic growth providing upstream and downstream opportunities for employment and skills development.
South Africa’s economic growth is forecast to remain below 2% per annum, at least until 2040 and commodity prices are expected to remain subdued for the foreseeable future. There is a great onus to lift growth and create employment. The growth would have to be stimulated internally, as political and currency risks increase and global economic conditions see capital flight into historical inflation hedges such as gold. Which just this month has breached the $2 000 (R37 722) per ounce mark.
Nuclear and Hele coal power stations will mitigate the economic depression and stimulate national productive activity by contributing substantially to GDP growth. Most importantly, their development would result in significant job opportunities and contribute billions of rand to the GDP each year, particularly regionally.
It is the government’s role to give priority to the engine rooms of existing and future growth and employment in the economy. Electricity is undoubtedly a necessity for business and associated development required for future economic growth and it is essential that the government repair the considerable damage the electricity disruption has caused to investor confidence. This has recently been confirmed by the courts, who ruled that the state of load shedding was unconstitutional.
Their priority duty must be that adequate future supplies of competitively priced dispatchable electricity must be introduced to support future economic growth. Unless this is done, investors, foreign and domestic, in many key industries, will seriously question the economic management of the economy.
This cannot be achieved by closing electricity intensive industries or by charging excessive and effectively globally uncompetitive electricity prices that slow down the development of important major industries and economic growth generally. Nor will it be achieved by building intermittent renewable electricity generation.
It most certainly will not be achieved by shutting coal stations. If this were done, the impact on investors, foreign and domestic, across many industries would be the same. They would seriously question the economic management of the economy. Something they are doing.
What we need to do as a country, is stimulate investment into shovel-ready megaprojects, like the Thyspunt Nuclear Power Station.
Anything short of that is akin to short-term rent seeking and a catastrophic failure to cater for the needs of the citizens of South Africa.
Robert Jeffrey, PhD Engineering Management and Olivia Vaughan, Bcom Law, MBA in circular economy innovation through her company Westman Vaughan.
BUSINESS REPORT