Thinking out of the mains box: Solving the Eskom problem and poverty simultaneously.

The South African government’s plan to spend almost R1 trillion on nuclear power, and the recently announced nuclear agreements between SA and China, Russia, France, Korea have got me thinking.

Imagine this scenario.  The Russian state-run bank lends SA R1 trillion.  SA pays this 1 trillion straight back to the Russian State-run Nuclear company Rosatom who spends a portion of this on building the facilities here.  At this point we’d have paid the money back to the same entity that lent it to us (the Russian state).  But then we’d still owe the Russian state-run bank the R1 trillion we borrowed from it.  Our future generations lumped with this massive debt would I’m sure wonder how on earth we were suckered into such an obvious scheme.

Now imagine this scenario.  Instead of paying that 1 Trillion Rand to foreign companies to build nuclear power stations, we spend it on equipping the very poorest households in SA with locally designed and built rooftop photovoltaic panels (with battery storage), Solar geysers and Wind generators and allowing those households to sell their excess power onto the grid as German households have been doing for years.

In doing so we’d be killing six birds with one stone:

1) Lowering electricity demand (those houses fitted would require much less electricity from the grid).

2) Increasing the amount of total power generated nationally as the households sell their excess power onto the grid.

3) Lowering inequality by giving the poorest households a source of income from selling their excess power.

4) Reducing the need for welfare grants (those households receiving grants could be the first to receive the generators).

5) By spending the trillion Rand here in South Africa on locally built and designed generators, all of the money would be spent here, creating employment on a grand scale, and increasing aggregate demand by spreading wealth into our communities.  And because workers households will have no electricity costs, the lower cost of living will in turn bring down the costs labour and that would in turn allow us to be more competitive as a trading nation.   Or to put it another way, money saved on electricity costs or made through selling excess power means more money staying in households… essentially a raise in pay at no cost to their employers… Irrelevant maybe when the employers are large highly profitable corporations who could afford to pay their workers more anyway, but much more relevant when the employer is a small, struggling company or startup.  (The benefits of Salary-gap moderation as a solution to the low median wage of workers in SA are outlined by the author in another blog on this site called Economic Responsibility in Our Lifetime.)

6) Our current account would be much healthier without the outflow of R1 trillion.  An outflow of R1 trillion would severely weaken the rand, and reduce our credit rating, and force SA to borrow more.

A recent article written in Moneyweb (http://www.moneyweb.co.za/mw/content/en/moneyweb-eskom-crisis/i-told-eskom-to-take-a-hike) says that it cost Chris Prins around R120 000 to become energy independent using solar cells, batteries and an inverter.  (Though the price does not include the gas geysers he installed in bathrooms and kitchen.)

So lets do the maths.  R1 trillion is R1 million x 1 million.  In other words with R1 trillion we could put R1 million worth of wind or solar generators on each of the poorest million households in SA.  Or R500 000 worth on the poorest 2 million households.  Or R250 000 worth on the poorest 4 million households.  Or R125 000 on the poorest 8 million households.  The economies of scale involved here will surely greatly reduce the cost of producing the panels and wind turbines, so it’s quite possible that R1 trillion would be enough to make every single one of SA’s 9 million households energy independent and net producers of electricity onto the grid.  Furthermore, tax incentives for our wealthier citizens could encourage them to do the same with their homes at no upfront cost to the state.

The nuclear power stations (if we decide to take that road) will only be online in 2030 (and most nuclear power stations run way over the estimated build time), whereas the first wind and solar panels (if enough leadership, money and manpower were thrown at their design, manufacture and distribution) would be online far earlier than that.   Can we really wait till 2030 for more supply?  And how long can our poorest citizens really be expected to live in such dire poverty when there is no logical reason for it.

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8 Responses to Thinking out of the mains box: Solving the Eskom problem and poverty simultaneously.

  1. muna99 says:

    Exactly! and this is not even mentioning the local jobs for our CURRENT skillset in the country – we have literally thousands of people from the various manufacturing industries unemployed…not to mention the positive impact on Climate Change…and of course, the electricity price would pretty much have to double to pay it back from income on electricity sales…

    good one!

  2. Practico says:

    You need to rethink your math on this one…. A million rands worth of solar equipment for each of the million poorest households in South Africa? You’d have to have a VERY big house to put a million rands worth of solar equipment on each one! At a conservative estimate, the equipment you’re referring to will cost between R10k and R20k so let’s assume it costs around R15000 per household.
    That’s roughly 67 million households…. based on a Trillion rand budget. Additionally, one has to consider whether the very poorest households will mind having R15000 worth of equipment on their roofs or whether they will deem it more appropriate to sell said equipment for food, thereby rendering the plan useless.

    Wouldn’t it be a better, more practical idea to install a Trillion rands worth of solar farms?

    • Buddy Wells says:

      Hi Practico. I don’t think your maths is correct regarding the cost of photovoltaic cells, batteries and wind generators. From what I have gathered they are still quite expensive. Regarding theft, even if some of the equipment was stolen, it would still make more sense than sending all the money overseas to Russia. The equipment could be considered government property and thus made illegal to sell. The households could be given the choice of whether or not to have the equipment installed, but considering that the equipment will be giving them regular income, I think they will want them. Even if some are sold, whoever buys it and sets it up will save and generate as much energy as the original owners. Installing R1tn worth of solar farms will have much less positive effect on inequality, aggregate demand, poverty alleviation etc.

      • muna99 says:

        While I hear Practico’s assessment (the figures for photovoltaic can vary quite a lot – I have heard estimates between R60,000 to R120,000 to get a suburban home off the grid), perhaps we can consider the following:
        1) That Buddy makes a good point, regardless of the math – I will see what a workable figure is..will post if I find a good estimate, ok?
        2) that we look at ways in which poor people can access energy – many have electricity to their homes, but cannot afford the already high rates of about R1 per unit, far less the massive increase nuclear will need for subsidy. So the solar farms will just mean more capacity, not more use by the poor
        3) there are smart grids / mini grids etc that can directly benefit the poor without building onto their homes
        4) and selling excess electricity to the grid will generate an income, perhaps it can be from community grids that then supply a number of homes, and the income distributed amongst those receiving the electricity? something like that..

  3. Buddy Wells says:

    Well that’s really quite affordable. Muna you are right that we could centralise the grids, but what are the chances that the income generated from them will actually go to the communities? More likely it would go to Eskom, or the government etc. The benefit of installing on the homes is that it generates income for the households, the extra income spread to the poorest people would drive the economy through increased aggregate demand and because the households are not paying electricity costs, the costs of living go down, which will in turn bring down the costs labour and of doing business and therefore that would make us more competitive as a trading nation. If it is as cheap to become energy independent as you say, and all houses in SA can have the equipment installed for less than R1 trillion then thats great news. It still beats paying R1 trillion to Russia.

  4. muna99 says:

    I think the concerns are less than one would think – one of the many ways I have been exploring is by simply creating a trust for that community, with each member having equal shares, therefore equal income… so ownership must be vested in that community… there are also other models…already, in theory anyway, renewable energy farms are supposed to “give” a portion of income to the local community..yes, it does not always happen or that it is always fair, but the principle exists… greed overtakes, often…

    I do disagree that concerns are “cost of labour” or that we need to be more of a “competitive nation” – these are fundamental to the problems we find ourselves in today… labour is TOO cheap! The median wage in SA is R3300 per month – imagine raising a family on that? yet, if we just look at the profits of companies (last I looked was a few years ago) that were repatriated, that would more than double the wage of all wage earning South Africans…ignoring for the time being the illicit outflows of some R100 billion per year through transfer pricing and the like, and the underpayment of taxes by big business, estimated to be in the region of R300 billion annually… about a third of our budget!

    And it is that very “race to the bottom” that is leading to ever increasing inequality and accelerated environmental destruction…in a sense, that competitiveness is actually extortion by big business – “make laws that support and protect us or we go elsewhere” is the mantra, yes?

    so what we need is a more localised economy, and less of the globalised…more secure livelihoods, lower dependence on imports, better quality of life…

  5. Buddy Wells says:

    Muna I agree with much of what you say. My point on cost of labour is valid though, in that by bringing electricity costs down or eliminating them for most households, it would result in more money staying in the household…essentially a raise in pay at no cost to their employers, irrelevant maybe when the employers are large highly profitable corporations who could afford to pay their workers more anyway, but much more relevant when the employer is a small, struggling company or startup.
    I outline the benefits of Salary gap moderation as a solution to the low median wage of workers in SA in my other blog on this site called Economic Responsibility in Our Lifetime.

  6. Hey Buddy, the other benefit you left out, which is also quite important, is the benefit to Eskom. Eskom is a parastatal, so on paper at least it is owned by the people of South Africa. At the moment its a mess, not just infrastructurally, but also financially. Your proposal (which i love) would benefit Eskom greatly, as it would eliminate a massive amount of bad debt (unpaid for electricity), and also diversify their maintenance obligations (essentially fragment it into millions of litte manageable “who cares if it breaks” pieces). Another good option is all these land claims in SA. The governmant simply decrees that when the expropriate land and give it to the next rightful ownders the have to have a few windmills built on the to generate enough power to serve that community. I live in Germany, and the country is covered in windmills. They work brilliantly, you get used to seeing them (i find them quite attractive actually, because of what they do), and they generate a shitload of power. Much more bang for your buck than Photovoltaic..

    Anywho…just thought I would weigh in..

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