Renewable energy’s impact on economic growth

South Africa’s immense potential for a Green Economy and renewable energy – particularly solar, wind and hydro energy – can help secure the country’s energy supply, boost foreign direct investment and improve our credit rating. Fostering a Green Economy also means creating employment opportunities and helping the country meet its future climate commitments, writes Patrick Grant McLennan, Transfer pricing economist and Associate Director at BDO South Africa.

Energy – renewable or non-renewable – is a substantial part of the global economy. As the global population grows and new energy-intensive industries emerge, we need to think about meeting these needs in a more sustainable, holistic, and affordable way.

To put it into perspective, doubling the share of renewables in the global energy within the next decade would see the global GDP increase by around 1.1% or $1.3 trillion, according to The International Renewable Energy Agency (IRENA).

The rapidly decreasing cost of renewable energy production, alongside more favourable policies for solar and onshore wind generation have made a strong business case for alternative energy sources in South Africa, especially in light of the beneficial long-term impact of sustainable energy in terms of climate change, human welfare, and future global green trading agreements.

South Africa has immense potential to expand into renewable energy production when compared with other regions. The country boasts some of the most sustained sunlight in the world and an abundance of water along its 2 800-kilometre coastline. The Planning and prospects for the renewable power: Eastern and Southern Africa report, published by IRENA in April, found that South Africa’s largest wind zone, an area of 792 km2 in the southern region the country, has projected 5 808 GWh of wind energy by 2030. This represents a significant investment opportunity to diversify the power infrastructure of the country and the region.

Diversifying the country’s energy mix to supply consistent power will provide opportunities for the public and private sector to catapult beyond current projections, while creating new job opportunities, even if the renewable energy supply is largely deployed using Eskom’s existing infrastructure and municipal power grid.

Yet despite the significant opportunity, South Africa’s Integrated Resource Plan continues to prioritise the ongoing use of coal in the future – not surprising given that the mining sector is a substantial employer. Additionally, as ongoing media reports have outlined, many in senior positions (both public and private) have benefited (for years) from over-inflated tender deals, and are unwilling to release their clutches from the parastatal just yet. This is despite debt investigations amounting to R411 billion (and questionable tenders to the tune of R178 billion). Even the National Treasury admits that Eskom is the largest threat to our country’s future economic development.

Though reality cannot be denied. The IRENA report goes on to say: “In South Africa, over the last 20 years, underlying coal production costs have risen significantly, rendering coal increasingly uncompetitive against other fuel sources. At the same time, the deployment costs of renewable energy have decreased by over 50% for both solar PV and onshore wind since 2011.”

If Eskom were to source, and subsequently, supply a steady flow of renewable energy via Independent Power Producers (IPPs) as part of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), this would create more investment certainty within the private sector, including from coveted foreign investors.

The dire state of energy in South Africa hits closer to home than just the revolving door of coal tenders. Nowhere is this more evident than seeing the value of the rand. The rand is infamously one of the world’s most politicised currencies, and has devalued substantially in the last decade. Each time South Africa is hit with another series of blackouts (or “load shedding”) or the government makes yet another faux pas, the rand takes a hit. This translates to rating agency downgrades, making investing in South Africa a riskier bet. Turning to a more renewable energy future can propel South Africa forward.

At a macroeconomic level, renewable energy deployment has near boundless potential to stimulate the economy and attract further investment. Establishing new renewable energy projects across the country will involve industries outside of the energy sector, in terms of the construction of infrastructure, the supply of basic necessities and access to retail, housing, schooling as well as a variety of other secondary and tertiary products and services. While at a micro-economic level, we’ll see the knock-on effect of increased consumer spending across various sectors and industries. The more people have jobs, the more money they're likely to spend.

The question, of course, remains as to whether the renewable energy sector will be as people-intensive, namely - will the coal jobs lost be replaced? Either way, replacing non-renewable energy sources with renewable ones requires transparency from our political leaders. A green transition needs to be guided by thorough planning and prospecting. Readying tertiary education institutions and the labour force for this transition needs to be accompanied with private sector support – meaning the public sector must collaborate with the private sector, and if needed, design business incentives to invest.

South Africa will remain a competitive destination to invest in renewables and Green Economy developments, with the caveat that this is backed by the political will to break free of non-renewable sources, implement sound (green) energy policies, and establish a business-friendly environment for the industry.

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