PETER ATTARD MONTALTO: Let’s deal in real evidence and hard facts

Posted in: Energy, Intellidex in the media on January 31, 2022


It’s hard to see evidence-based policy getting a firm foothold in a busy 2022 year of ANC electoral distractions. Perhaps some of the madness will be more evident, though, precisely because more and more people are calling it out, modelling it and promoting the alternatives.

The ANC’s recent calls for yet more social compacting are a classic example. How is this meant to be any different to the Jobs Summit (yes, the thing in October 2018 that everyone seems to have forgotten about)? The summit was a failure because, fundamentally, business — collectively or individually — can’t offer to the government a firm commitment on millions of jobs to be created, billions of rand lent by banks and billions more rand invested over a given period.

Attempts to do so at investment conferences result in companies grandstanding by dressing up operational expenditure as investment. Forecasts and scenarios can be offered for sure, but these can’t be commitments — especially if assumptions around structural reforms don’t occur. The social-compacting-on-repeat doesn’t solve poor sentiment about the economy.

There is a more dramatic battleground in 2022, however: energy policy. Yet, given some of minister Gwede Mantashe’s recent statements, one senses desperation setting in. Evidence-based energy policy may well be the victim.

There are some incredibly challenging discussions to be had where honest disagreements are quite possible (even good). The role of gas will be one of them.

Some want no new gas-to-power (or gas exploration and production, whether offshore or onshore). Do we need 0GW of new gas-to-power, 3-5GW or 10+GW? I veer towards the middle of this range, but there are strong arguments for either extreme where modelling work, a sense of the risks around financing for transition fuels, and adequately understanding the fall in battery costs will all be important contributors to the outcome of this debate.

The other issue is how you design a new Integrated Resource Plan (IRP) — technically challenging at the best of times — in addition to all the requirements for system balancing?

How does one deal with Eskom being at a demand tipping point as tariffs rise ever more rapidly? Does the plan adequately model the potential further falls in battery prices, and is it possible — without breaking such a framework in modelling terms — to apply the lens of jobs creation to the optimisation process? Most importantly, can it have a carbon envelope?  Unlike the last iteration, can it actually fit within a declining carbon emissions pathway towards net-zero? (The answer is yes it can, and the CSIR and others have shown this can be done while maximising jobs outcomes at close to least-cost).

The just energy transition in SA is potentially “easy” because the evidence is showing us precisely that maximising jobs, pathways to net-zero and least cost are all pointing in the right direction. This is something that is certainly not the case in the UK, Europe and many other countries.

One can break the framework, though, with cart-before-horse localisation plans and other demands. There are knotty and complex solutions here that need more focus than the current hammer approach of the department of trade, industry & competition.

Much more costly and challenging transitions elsewhere in the world can rely on gas exploration and hydrogen exported from SA — a route that requires trust that others are on their own credible path towards net-zero within a credible multilateral framework — while SA limits its own gas usage within its own credible path towards net-zero.

Clearly, the credibility of energy policy this year cannot rely on the department of mineral resources & energy alone. Its intentions are clear in its own draft transition plan that is dominated by gas, nuclear and “clean” coal. Instead, the presidential climate commission is the most credible independent guide on laying out the evidence, weighing it and adding integrity to outcomes.

The problem of energy policy credibility however is that it’s metastasised. We’ve gone off the reservation into conspiracy theory land with accusations that there are sinister neocolonial forces at work in the energy space. I don’t think people in government realise what happens when ministers start uttering madness like this. Investor and funder trust ebbs and concerns rise at what comes next in the just energy transition. Real damage is done.

If the minister does indeed have an intelligence report explaining a grand putsch, he must publish it straight away. I actually think he does have such a document — a mirror of the infamous “Project Spider Web” National Treasury conspiracy theory, which seemed to have been written either by an aspirant fiction writer or an intern.

Instead, we should critically inspect the research and work of those supposedly involved in such conspiracies and we might actually find a path to a better, jobs-rich SA. 

We can all laugh at Soviet-style conspiracy theories and Soviet-style compacting attempts, but the truth is they do real damage to domestic and foreign investor interest.

Let’s get back to some honest disagreements over actual evidence in 2022. By sticking to the modelling and data trail, we might actually find there are exciting and interesting solutions to SA’s problems — in the real world, comrades.

• Attard Montalto is head of Capital Markets Research at Intellidex, a SA research-led consulting company.

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