The energy sector plays a dual role in growing economies. It contributes to growth and creates jobs through the activities involved in extracting and distributing energy to the economy, and it underpins growth in the rest of the economy as a key input in nearly all goods and services1.
In fact, since the industrial revolution, economic growth in countries around the world has been closely correlated with an increase in the utilisation of energy.
“Energy is the lifeblood of the global economy – a crucial input to nearly all of the goods and services of the modern world. Stable, reasonably priced energy supplies are central to maintaining and improving the living standards of billions of people.” (World Economic Forum, 2012)
In South Africa, the development of our economy has historically been driven by what is termed a Minerals-Energy complex, where cheap electricity has facilitated the exploitation of our country’s vast mineral reserves. Cheap electricity was in fact one of South Africa’s major competitive advantages in the past and as a result we have built up an extremely energy intensive economy.
Historic underinvestment in energy infrastructure has both (i) undermined the affordability of electricity in South Africa, and (ii) created a situation where our economic expansion is constrained by insufficient and unreliable electricity supply.
In addition to these challenges, the energy sector is overly reliant on coal for its primary feedstock. This has devastating consequences on our local and global environment. South Africa’s greenhouse gas emissions are on par with that of highly developed economies and our per capita emissions are amongst the highest in the world. In addition, our current overreliance on coal has led to a number of local environmental problems such as Acid Mine Drainage (AMD) and local air and water pollution.
South Africa is thus in a situation where it simultaneously needs to:
- Contain escalating energy prices;
- Expand energy generating capacity; and
- Reduce our reliance on coal, which has historically allowed for the generation of relatively cheap electricity in South Africa.