CRA Business News – South Africa
BY PATRICK HIRSCH
Structural vulnerabilities of fossil fuel-dependent economies have been revealed and amplified by Covid-19.
Concerns that the Covid-19 pandemic could put clean energy on the back burner appear to be unfounded. Experts forecast that clean energy technologies will account for 40% of global energy generation in 2020 and that, far from slowing down the shift, the pandemic is boosting it by further exposing the shortcomings of fossil fuels.
This is according to research commissioned by Bowmans and conducted by Stellenbosch University’s Centre for Complex Centres in Transition. The research shows how the deep-seated structural vulnerabilities of fossil fuel-dependent economies have been revealed and amplified by the Covid-19 pandemic.
The declining performance of fossil fuels is evident in the continuing declines in energy returns on investment (EROI), which measures how much energy is required to extract the energy from any particular resource. In the case of oil, EROI has deteriorated significantly over the decades. In the 1930s it took one barrel of oil to extract 100 barrels, a ratio of 100:1. Recent estimates indicate that the EROI for fossil fuels such as oil, coal or gas now sits at between 6:1 and 3:1.
By contrast, according to the research findings investments in clean energy technologies are becoming attractive. Investment in renewable energy has exceeded investment in fossil fuels every year since 2009. By 2019, investment in renewables was nearly $300bn — twice the total investment in fossil fuels and nuclear combined.
Across the range of energy sources renewable energy is the lowest cost option for Africa, a continent well-endowed with the sources for natural energy generation such as wind, solar, hydro, biomass and geothermal power. But cost is not the only factor that contributes to renewable energy infrastructure being an important element of post-Covid economic recovery plans for African countries.
Given the magnitude of the investment required, national governments cannot be expected to be the only investors. The solution will inevitably involve funding from other sources, requiring blended finance, including prominent investment by development finance institutions and foreign donors.
It is clear that a high degree of collaboration across the funding sources will be required and energy, together with transport, is considered one of the main core infrastructures where public investment catalyses private investment, given its multiple social benefits and more stable employment opportunities.
More than 640-million Africans (more than half of the population) have no access to electricity. As energy access enables the diversification of business and improves health and education, it is critical not only to economic growth but to all aspects of social welfare and inclusive development.
Furthermore, when infrastructure is designed, constructed and operated in accordance with globally accepted environmental and resource transformational goals, it becomes more investment-worthy and attractive to investors with mandates that require a focus on sustainability and climate change.
An essential part of infrastructure design today is the use of life-cycle management as a planning tool for reconciling the longevity and adaptability of infrastructure to avoid it becoming a stranded asset. As the continent is still at an early stage of development it has the opportunity to build low-carbon and resource-efficient energy infrastructure, and so maximising the opportunity to leapfrog more developed areas into a more sustainable and resilient development trajectory, while reducing the financial risks for investors.
The urgent requirement for energy infrastructure development as an integral part of economic recovery is reflected in the plans announced by the SA government, which include as a priority the development of sustainable energy infrastructure.
Among the 51 infrastructure projects identified by the Sustainable Infrastructure Development Symposium of SA as strategically important and earmarked for fast-tracking, is the Emergency/Risk Mitigation Power Purchase Procurement Programme, expected to deliver 2,000MW of renewable energy power generated from renewable sources.
Similarly, the proposals published by Business for SA (established as business’s response to the Covid-19 pandemic and representing the majority of SA businesses) includes among its prioritised actionable initiatives a focus on developing the gas economy and accelerating renewable energy deployment via further rounds of the successful independent power producer programme initiated in 2011 by the department of energy. It furthermore identifies the need for government policy to address regulatory processes that are slowing down the transition to cleaner energy generation.
As the report published by the Stellenbosch research centre points out: “The decisions that African countries make today on the configuration of physical infrastructure will determine the inclusivity, resource intensity and climate resilience of their development pathways for decades to come.”
• Hirsch is head of project finance at Bowmans.