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									The Great Policy Disconnect
By Gary Pienaar and Smita Nakhooda


Various government departments and agencies are busy preparing policies, strategies and plans
that directly and indirectly impact on the energy sector. The public power utility, Eskom,
government agencies and industry have been adamant about the urgent need to take decisions
that keep the lights on as demand for electricity threatens to exceed available supply. But there is
much at stake in these decisions, which will affect the environmental and social quality of South
Africa’s economic development, impacting on both present and future generations. More
generally, as countries around the world introduce measures to reduce carbon emissions and
mitigate global climate change, the carbon intensity of South Africa’s economy may negatively
affect its competitiveness.

A number of government processes are underway to address many aspects of the energy
challenge. The Department of Trade and Industry, for example, has been consulting on a second
iteration of its Industrial Policy Action Plan that seeks to support the shift towards a new, green
economy in a currently carbon-intensive South Africa. Similarly, the Minister of Economic
Development’s New Growth Path framework recognises the many opportunities presented by
such a deliberate transition. The Department of Environmental Affairs, too, has recently released
a green paper on climate change for public consultation. The Department of Energy, in
collaboration with an inter-ministerial committee, is developing an integrated energy plan and a
renewable energy white paper, and also released a new policy on energy efficiency in 2010. The
Department of Energy has further initiated a public consultation process on the second
Integrated Resource (electricity) Plan (IRP2).

How do these various initiatives (see Box 1) align with the IRP2, a policy document that will
determine South Africa’s response to its electricity needs over the next 20 years? The National
Energy Regulator of South Africa (NERSA) will be able to license only the new electricity
infrastructure included in the IRP2. The IRP2 is thus the operational framework informing
decisions about both the most appropriate energy mix for future economic and social
development, and associated new investments in highly capital-intensive electricity
infrastructure.

How can government departments ensure that the constitutional imperative of ‘cooperative
governance’ is achieved? What role can Parliament and civil society stakeholders play in
supporting a more coherent, truly ‘integrated’, multidisciplinary approach? This article considers
the processes that have guided fundamental decisions about electricity choice, and their
implications for public interests over the long term.




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Box 1: IRP-Relevant Policy Processes Underway in 2010 Across Government
•    Climate Change Policy - Department of Environmental Affairs
•    Industrial Policy Action Plan - Department of Trade and Industry
•    National Planning Commission - Office of the President
•    Rural Development Policy/ Integrated Sustainable Rural Development Strategy (ISRDS) -
     Department of Cooperative Governance and Traditional Affairs

Department of Energy
• Renewable Energy White Paper
• Integrated Energy Plan
• Integrated Resource Plan
• Energy Efficiency and Standard Offer Policy

National Energy Regulator of South Africa
• Energy Efficiency Rules (including the Standard Offer)
• Operationalisation of the Renewable Energy Feed in Tariff programme
• Eskom Multi-Year Price Determination (MYPD2)
• IRP Implementing Regulations


A New Approach to Electricity Planning
Since 2008, Eskom has been developing ambitious new plans to double installed electricity
generation capacity. However, regulations governing new electricity generation capacity,
promulgated by the Department of Energy in August 2009 under the Electricity Regulation Act,
stripped NERSA and Eskom of their respective planning functions. It proposed, instead, a new
Integrated Resource Planning (IRP) process, which would provide a blueprint for licensing new
electricity generation infrastructure. This decision seemed to presage a move to emulate
successful coordinated electricity planning in other developed and developing countries.

Indeed, the various planning processes undertaken by Eskom through its confidential internal
Integrated Strategic Energy Plan (ISEP), and NERSA through its National Integrated Resource Plans
(NIRP), had not been well aligned.1 Attention to environmental and social considerations in the
various NIRPs had been uneven. Better coordination could have supported a more transparent
and deliberative process for long-term decision-making regarding electricity needs.

In practice, the core elements of Eskom’s “new build” aspirations became the Department of
Energy‘s first draft of an integrated resource plan for the electricity sector. Following minor
modifications, this plan was proposed as the national IRP, enabling NERSA to move forward with
considering Eskom’s request for a 45% per year price increase from 2010–2012. The primary
purpose of Eskom’s request for a price increase was to finance new investments in electricity
infrastructure, particularly the Medupi and Kusile coal-fired power plants. In addition, the
proposed IRP would bring three more large-scale coal-fired power plants online by 2028.




1
 The Electricity Governance Initiative of South Africa. The Governance of Power - Shining a Light on Governance of the Electricity
Sector in South Africa, Idasa (February 2010).

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A review of this plan by government departments made it clear that it was inconsistent with
efforts to reduce greenhouse gas emissions, as outlined in the Cabinet-mandated Long Term
Mitigation Strategy (LTMS). President Zuma was, after all, preparing to go to Copenhagen with a
commitment to reduce emissions by 34% by 2020 relative to business as usual, coupled with a
request to the international community for the necessary finance, technology and capacity
support. Furthermore, government was seriously concerned with the implications of the
proposed tariff increases and electricity delivery modes for the poor, as well as the impact on the
National Treasury of expanding electricity infrastructure.

The Department of Energy’s Policy Programmes
The National Energy Act of 2008 requires that South Africa’s energy plan consider the country’s
overarching energy needs. Yet the IRP for the electricity sector is being developed in advance of a
more holistic Integrated Energy Plan (IEP). The department has recognised that this sequence is
not ideal, as the role that electricity plays in the economy is of course intertwined with other
aspects of energy supply and production. For example, if the availability of liquid fuels for cooking
were to increase as a result of decisions made in the IEP, it is possible that household
consumption of electricity might decrease. However, the department has decided to prioritise
planning for South Africa’s largest energy sector, citing its concern about the economic risks
associated with the narrowing electricity reserve margin.

Since February 2010, the Department of Energy has also begun work to revise its 2003 Renewable
Energy White Paper. While assurances have been offered that this process will align with the IRP,
the operational modalities of such an alignment have not yet been made clear.2

NERSA’s role
A major reason for the country’s shrunken electricity reserves has been the cheap sale of what
used to be a plentiful electricity supply. Indeed, in the 1980s South Africa had excess electricity
capacity: prices were therefore reduced significantly to encourage energy intensive industries to
expand operations in South Africa. Since then, however, growing demand for electricity has eaten
into electricity reserves. Eskom’s balance sheet has not subsequently been able to accommodate
the urgent need for additional generation capacity..

Eskom’s resulting request for a substantial price increase was reviewed by NERSA, through a
process that included closely-watched public hearings in nine cities across South Africa. In
February 2010, NERSA approved a 25% per year price increase. But the decision to increase
electricity tariffs in order to finance new investments in electricity generation infrastructure,
without clarity on exactly what those longer-term investments will be, raises problematic issues.

NERSA’s approval of additional costs to South African consumers in the absence of a robustly
developed planning framework has raised questions about the role and scope of regulatory
oversight over Eskom. Depending on one’s perspective, the second Multi-Year Price
Determination (MYPD2) could be seen as a blank cheque for Eskom’s new build programme, since
its full scope is still to be determined.

On the other hand, the approved increase is 20% lower than Eskom had originally requested.
Therefore, it could be argued that the increased revenues will likely fall short of the funding
required for the anticipated investments emerging from the IRP process. Although Eskom has

2
 This initiative is being financed by the World Bank via the Development Bank of South Africa under the Renewable Energy Market
Transformation Programme, which is supported by the Global Environment Facility. See: http://www.dgmarket.com/tenders/np-
notice.do~4906830

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reported financial profits over the past quarters as a result of the tariff increase, many observers
estimate that the utility’s MYPD2 will barely cover the costs of Medupi, Kusile and the first phase
of the renewable energy feed-in tariff (REFIT). Indeed, Eskom recently announced its intention to
apply to NERSA for a further interim tariff increase.

In addition, while NERSA continues to work with the Department of Energy to operationalise the
much-anticipated REFIT, it has also been tasked with developing implementing regulations for a
new set of energy efficiency and demand-side management programmes. These include a
“standard offer” programme to incentivise the uptake of energy efficiency projects. NERSA has
also recently released for public comment a draft set of implementing regulations for the IRP,
though the release of this document was not well publicised.

Interim IRP1 and the Inter-Ministerial Committee on Energy
Through its internal processes, government realised that it needed a much more deliberative
approach to developing a long-term strategy for the electricity sector. It chose to approve an
abbreviated five-year IRP1, in order to meet the legal requirements for reviewing the Eskom tariff
increase request. The Department of Energy committed to develop a longer-term IRP in
consultation with interested stakeholders in 2010.

The Inter-Ministerial Committee on Energy was established to facilitate inter-governmental
consultation on the crucial issues at hand in the electricity sector. It would be chaired by the
Minister of Public Enterprises, and co-led with the Department of Energy and the National
Treasury. The Department of Environmental Affairs, the Department of Economic Development
and the National Planning Commission would be amongst the ten ministries included in the
committee.

It was envisioned that the inter-ministerial committee would coordinate nine work streams,
particularly the development of the IRP2. It would also consider the funding model for Eskom;
renewable energy; the macro-economic impact of the price increases on competitiveness;
demand-side management and energy efficiency; nuclear strategy and implementation; private
sector participation in power generation; and coal haulage logistics for road and rail.

The decision to engage in a more integrated process to develop the IRP2 was a most positive
development, indicating that government has taken South Africa’s commitments to combat
climate change more seriously than many had feared. Nevertheless, the processes the
Department of Energy has employed to develop energy policy have been out of sequence, and
fraught with conflicts of interest.

Stakeholder Engagement in the IRP2
Business has been proactive in stepping up to engage with the IRP2 process. In a special meeting
with Business Unity South Africa in February 2010, Minister of Energy Dipuo Peters briefed
business stakeholders on the proposed approach to the IRP2. More controversial has been the
appointment of a group of “technical advisors” to the Department of Energy, who have been
guiding the process for developing the IRP2.

Independent media were the first to report on the existence of this group, which was dominated
by representatives of minerals- and energy-intensive industries, and to question its influence on
the decision-making process. Civil society groups then took up this issue, with the support of
some parliamentarians. A formal request for information on the composition of the IRP2 advisory

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group was lodged, and as a result the details of this group were officially disclosed for the first
time. The disclosure confirmed reports that individuals employed by BHP Billiton, Exxaro, Xstrata
and other energy-intensive users were advising the process, although the Department of Energy
stated that these persons were serving in their “individual” capacities.

Requests for details of this group’s deliberations lodged in terms of the Promotion of Access to
Information Act (PAIA) have, however, been denied. Civil society groups, for their part, have
raised serious concerns about the associations of the advisors on the IRP2 modelling exercise, and
have questioned the dearth of qualified advisors on the social, environmental and gender aspects
of decision-making.

Access to the IRP2 process has been difficult for stakeholders from civil society, particularly
environmental groups. The Department of Energy initially accepted invitations to engage with the
Energy Caucus, the largest grouping of civil society and labour organisations engaged on energy
policy in South Africa. The Department also agreed to participate in a series of workshops
organised by Idasa in partnership with other civil society organizations, including the South
African Faith Communities Environment Institute and the World Wildlife Fund (WWF) South
Africa. Yet despite its professed intention to take the perspectives of all stakeholders seriously,
the Department of Energy has not engaged deeply with these processes. It has not followed
through on commitments to participate in meetings, nor to provide supplementary information in
response to questions from civil society stakeholders.

The National Economic Development and Labour Council (NEDLAC) has become an important
forum for deliberation on energy issues across some stakeholder groups. The participation of civil
society and consumer and community groups in this body, however, is not well organised, and
limited information has been available to the public about the content of deliberations within its
Energy Task Team.

More recently, the National Stakeholder Advisory Committee for Energy in South Africa, originally
established in response to the 2008 electricity crisis, has re-emerged as a relatively pluralistic
platform for high-level government engagement with stakeholders around electricity choice. Its
areas of focus have included the IRP2, the associated Medium Term Risk Mitigation Plan to “keep
the lights on” in the immediate term, and issues around demand-side management and
protecting the poor from the impacts of tariff increases. However, in terms of resources,
organisation, and access to additional informal channels of engagement, civil society remains the
weakest grouping within these multi-stakeholder processes.

Labour, for its part, has been proactively engaged by government, but seems also to have lacked
the preparation and capacity to take informed positions on the issues at hand. More strategic
collaboration between labour and civil society groups around issues of common interest may hold
the potential to enhance the effectiveness of both parties. Nevertheless, the views of civil society
on energy issues are hardly uniform, and important areas of divergence may be arising within
labour’s evolving positions as well.

The Formal Process of Consultation on the IRP
In response to sustained requests from stakeholders, including civil society and private sector
companies from the emergent clean technology sector in South Africa, efforts have been made to
engage stakeholders in a formal public process for developing the IRP2. In February 2010, the
Department of Energy believed that the IRP2 would be completed by June 2010; since then, it has
made noteworthy efforts to extend timelines and improve the scope for public participation in

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this process. Nevertheless, there have been many problems with the structure and approach
taken.

Public comments were solicited on the draft assumptions underpinning the first round of IRP2
modelling. Public hearings were held in June 2010, although only in Pretoria, which significantly
constrained the participation of interested stakeholders from other regions.

The comparative life-cycle costs of conventional and renewable energy technologies are arguably
the most important input into the IRP2 modelling process, as the emergent scenarios are largely
being assessed on the basis of expected costs. Accordingly, a detailed cost analysis of South
Africa’s energy technology potentials was commissioned from the Electricity Policy Research
Institute (EPRI), a think tank for the utility industry based in the United States; however, the full
text was released only the day before the hearings.

A detailed review of the EPRI analysis suggests that the estimated costs of nuclear power are
quite low relative to the costs of nuclear facilities recently brought online in other, particularly
Western, countries. The problems with approaches EPRI used to estimate technology costs were
not apparent until it was too late for most stakeholders to point this out in either of their
submissions. A subsequent analysis of the modelled scenarios suggests that this imbalanced input
on technology costs has strongly influenced the Department of Energy’s preferences and
recommendations.

The department, when announcing the final assumptions underlying the Draft IRP2 scenarios,
took the important step of including in its modelling a list of comments received on the draft
assumptions, and its responses. An independent civil society analysis of those responses,
however, suggests that many of the substantive issues raised by stakeholders did not actually
receive a correspondingly substantive response.3

The Department of Energy’s omission to post on its IRP2 website any of the written public
submissions represents a missed opportunity to inform interested and affected parties of the
views of a wide range of stakeholders. This would have provided a valuable
educative/information-sharing intervention, and important context and additional explanation
for the Department of Energy’s subsequent ‘comment and response’ document. It would also
have shed light on the Department of Energy’s non-/adoption of various proposals. On the other
hand, the Department has posted on its website the oral submissions made during its recent
public hearings held in three cities. However, even if the more detailed written submissions due
shortly are posted, while they will offer an important informative and educational opportunity,
their immediate utility and impact will be limited, as the Department’s schedule indicates that
this will be the final opportunity for the public to influence the decision-making process.

Some stakeholders have questioned the department’s commitment to transparent and
meaningful stakeholder engagement that can substantively and substantially impact decisions to
be taken. Such concerns are exacerbated by the myriad concurrent informal processes, described
above, that seem to be shaping proposed decisions. Public government statements to the effect
that nuclear energy is the preferred base load alternative to coal, and that a fleet of nuclear
power stations is required - apparently pre-empting the outcomes of a truly comprehensive and

3
 See: Institute for Security Studies. Power to the People: Raising the Voice of Civil Society in Electricity Planning - Integrated Resources
Plan 2010 Inputs and Departmental Responses, Corruption & Governance Programme. The Green Connection, Project 90x2030,
Southern African Faith Communities Environment Institute and WWF-SA (with additional input from 350.org and Idasa) (28
September 2010).


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objective IRP2 modelling process - have further called into question the value of the consultation
process.

The Department’s publication in the past week of extensively revised draft New Generation
Capacity regulations, intended to replace those promulgated barely a year ago – and just as the
IRP2 process culminates – has raised more questions about policy coherence, and planning and
contractual predictability.

The Role of Parliament
The pervasive impacts of current decisions in the electricity sector, and their far-reaching and
long-term implications for all South Africans, point to a crucial necessity for the South African
Parliament to promote more transparent, inclusive and accountable processes for reconciling
divergent responses to these many challenges. Opportunities for parliamentary engagement with
these processes to date have been limited: Parliament received its first briefing on the IRP
development process in early August, when modelling of the IRP2 scenarios was well underway.
When it has been able to engage with departmental officials, however, Parliament has been able
to draw attention to important questions and to demand accountability from the Department of
Energy.

Yet to fully meet their oversight responsibilities, parliamentarians will need to be proactive in
seeking opportunities to inform key policy processes. The issues at hand are both highly technical
and deeply political, with widely divergent perspectives on the appropriate course of action.
Hence, Parliament has tended to rely heavily on government departments for information, rather
than seeking independent information that might illuminate impacts on the public interest.

The Draft IRP2
In October 2010 the Department of Energy released a proposed IRP2 scenario that, in its view,
balanced various policy objectives, including environmental quality, greenhouse gas reduction
and social welfare. This draft scenario anticipates a huge increase in South Africa’s installed
generation capacity, from 259 685 GWh to at least 454 367 GWh. The assumption seems to be
that energy demand will grow strongly—despite disincentives deriving from a history of
significant price increases—and that energy intensity will continue to increase proportionately to
the country’s economic growth.

A plan based on these assumptions seems inadequately grounded in the new green economy
aspirations of the second Industrial Policy Action Plan and other Department of Economic
Development initiatives, including its recently released New Growth Path. Even the proposed
enhanced energy efficiency scenario appears excessively conservative about the potential for
reducing energy consumption and transitioning to a less energy-intensive economic model.
Indeed, it represents an unexplained withdrawal from the Department of Energy’s own higher
estimates of South Africa’s energy reduction potential.

Renewable energy technologies do play a significantly larger role than observed in previous
iterations of the IRP. In fact, a significant volume of renewable energy is proposed to come online
in the immediate term. By many accounts, however, the envisioned deployment of renewable
energy technologies is still quite conservative.

The prominent role of nuclear power in the Draft IRP2 has also been controversial, although that
would only come online from 2023 - long after additional capacity is required to meet what we


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are told is an urgent need for additional generation capacity. In theory, this could allow time for
further deliberation over the desirability and viability of the nuclear option.

Reports have recently surfaced that the Department of Energy’s preferred Revised Balanced
Scenario is inconsistent with the emission reduction commitments that South Africa made in the
Copenhagen Accord. It is also reported that a scenario proposed by the Department of
Environmental Affairs would have substantially reduced the environmental footprint of the IRP2,
at a relatively modest additional 3% of the estimated cost of the Department of Energy’s
proposed balanced scenario.4

The emergence of the Inter-Ministerial Committee on Energy seems to have provided an
important platform for inter-governmental coordination on electricity policy. Yet while attempts
have been made to reflect various government and policy objectives in the plan, its effectiveness
in aligning these considerations remains unclear.

Meanwhile, the role of NERSA in governance of the electricity sector remains far less clear. In
theory, NERSA’s role is to translate policy into regulations that guide operations in the electricity
sector. The regulations on new generation stripped NERSA of some of its previous responsibilities,
though stated that the IRP would be developed in consultation with NERSA. Yet it is not clear that
NERSA has really been centrally involved in the development of the IRP.

While business and labour stakeholders have advanced their positions by making use of informal
channels, such as appointments as technical advisors to the Department of Energy, such
opportunities have not been open to stakeholders from civil society. Yet civil society and social
groups have demonstrated significant interest and commitment to engaging on electricity policy
in a sustained, meaningful and well-capacitated manner. Indeed, such engagement seems
essential to help counter the many powerful stakeholders whose vested interest in business as
usual has dominated the process thus far.

Conclusion
The dominance of a narrow set of perspectives in energy planning may, at least in part, explain
the ongoing disconnect between the choices proposed in the electricity sector and government’s
stated objectives—including, in particular, environmental and climate change policies. Civil
society may have an important role to play in helping draw attention to the disconnect, and in
seeking accountability for more inclusive and cohesive approaches to meeting energy needs. Yet
many within government may perceive civil society groups, particularly environmental groups, as
representing special or “narrow” interests, rather than as offering important perspectives.

Civil society groups seeking to influence electricity policy face three key challenges. First, they
must raise general awareness of the complex issues involved across a wide cross-section of social
stakeholders and citizens. Such awareness is a prerequisite for building broad-based political
support for ambitious solutions that offer real environmental and social benefits. Second, such
groups must demonstrate that their contributions, in the form of independent research, inputs
and perspectives, can add value to planning processes and substantively strengthen outcomes.
Third, they must sustain such engagement through the details of the policy implementation
process, to ensure accountability for delivering in the long-term public interest.


4
  The DEA scenario would reportedly cost ZAR 884 billion, whereas the balanced scenario cost is estimated at ZAR 856 billion. Eskom's
R20bn Fillip to Come from Budget, Mail and Guardian (12 November 2010): http://www.mg.co.za/article/2010-11-12-eskoms-r20bn-
fillip-to-come-from-budget

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