Podcast transcript: scroll to the areas that interest you

• IR: Iman Rappetti
• CH: Chris Holdsworth
• JM: James Mackay
• SM: Samantha Mooi
• CP: Campbell Perry

• 00:00: Intro

  IR: Thirty-three – that’s how many days South Africans went without any loadshedding in 2023. It was the worst on record for scheduled power cuts with 332 days of loadshedding.

  Just like potholes, water outages and corruption scandals, a lack of electricity has become a way of life for most South Africans over the past decade. If the start of 2024 is anything to go by, there are no tangible signs of loadshedding dissipating anytime soon.

  As we drive to work and take our chances at defunct traffic lights, it’s easy to think we are the only ones experiencing an energy crisis. But energy has been thrust into the top risks facing countries from Europe to East Asia as the world grapples with escalating fuel prices, disruptions in supply chains, rising inflation, and the repercussions of Russia's invasion of Ukraine.

  This is all against the backdrop of the urgent need to transition to clean energy as the climate crisis hots up. 

  While South Africa has its own homegrown challenges in responding to the crisis, it also has huge potential – and an opportunity to lead the continent in navigating ways towards sustainable energy.

  Welcome to The Current – an Investec Focus Radio series that delves into South Africa’s energy transition. Over 10 episodes we explore the current energy crisis, and how we can collectively shape a resilient and sustainable energy future.

  I’m your host, Iman Rappetti, and in this series, I’ll be talking to industry experts, from inside Investec and beyond, about how South Africa can keep the lights on while moving towards more equitable and sustainable energy solutions.

  In this episode, we unpack the realities of the country's energy sector, with a broad look at where it stands now, and where the potential for positive change lies. 

  In the lead up to today’s discussion, our four guests have been travelling the globe – from Japan and China, to Europe and COP28 – the UN Climate Change Conference in Dubai - to gain insights into the world’s energy landscape, and how South Africa can align itself with a future built on sustainable energy.

• 02:33: Introduction of guests

  CH: My name is Chris Holdsworth, my job title is Chief Investment Strategist at Investec Wealth and Investment. My primary responsibility is overlooking our investment process and more specifically investment strategy.

  JM: My name is James Mackay. I'm the CEO of the Energy Council of South Africa. In principle, we represent business focused on the energy transition of South Africa and also creating a strategic interface with government. 

  SM: My name is Samantha Mooi and I'm head of Sustainability for Investec with a global responsibility on ESG and environmental sustainability.

  CP: I'm Campbell Parry. I’m with Investec Wealth’s research team and I cover global resources and have been doing so for the last 30 years. 

• 03:11: Solving South Africa's energy crisis

  IR:  We start our conversation with an overview of the energy crisis, which Chris believes is multi-faceted.

  CH: I think we need to take cognisance of the fact that it's a fairly complex situation that we face at the moment where we are A, short of electricity, but B, we're producing the wrong kind of electricity, certainly within the eyes of our trading partners. 

  And that does pose some risk, longer term, to the competitiveness of our exports. And broadly speaking, the economy at large. And it is something that requires urgent attention, both in terms of the economy and financial markets more generally.

  IR: Similar to Chris’ view, James believes that the solution cannot be one-dimensional. 

  JM: Loadshedding has been very detrimental economically and on a societal basis. And I think there’s three things that we need to think about: One is how do we solve loadshedding as quickly as possible? And that's largely going to be focused on solving power station performance at Eskom. 

  Then secondly, how do we build a lot of new technology, which comes with a lot of change and is largely going to be dominated by wind and solar. But will include a lot of other technologies.

  And thirdly, we have to fundamentally reform our energy sector into a very different future, and this is largely a big technology disruption that we've got to get our heads around as a country and as society, because everything will change. So in that regard, there's actually a huge amount of opportunity.

• 04:35: “South Africa is going to transition by mistake”

  IR: Perhaps ironically, but almost certainly because of the hardwired resilience in every South African, Sam believes that loadshedding has resulted in the country taking its first transitional steps.

  SM: I say quite often to my colleagues that South Africa is going to transition by mistake. Because we're all adapting, we're an adaptable nation and we're all, you know, putting rooftop solar on our homes in order to just get on with the business of the day. 

  Of course, there needs to be a call to everybody, both government and corporates, to assist in making us shift much faster as we try to move out of this loadshedding crisis.

• 05:13: The economic impact of not undergoing a Just Energy Transition

  IR: And coming out of any crisis is never an easy task - beyond the changes that the population will need to make in order to ensure a sustainable future, both government and corporates will need to manage the process incredibly carefully - especially from a business point of view.  

  IR: So, Chris, fossil fuels have been a huge topic in South Africa. In fact, just recently, COP28 made a resolution on the phasing out of fossil fuels. 

  There is a lot of contention about the details of this deal and whether developing countries will get the necessary sponsorship they need to transition and, especially in South Africa's context, make it a just transition.

  CH: Yeah, I think if we take a step back, we have to recognise that this would not be a simple process if we go down this path. And there are two primary complexities: The first is vested interests, people who own companies in the space, and secondly people who are employed in the space, who rightfully would be concerned about their income going forward. 

  And the second is technical complexities, building out the grid and that sort of story. And the question we have to ask is, if we go down this path, where we're going to encounter these complexities, what are the trade-offs? Or if we flip it around: if we don't go down this path, what are the consequences? 

  And I think there are three primary consequences. The first is we've already agreed to go down this path, the Just Energy Transition. And we've taken money from some of our international partners to do that. 

  So if we were to switch around and say it's too difficult, then we're going to renege on those international agreements. And that will mean, going forward, it will be more difficult to raise finance at favourable rates for the government. So that's the first consequence of not doing it. 

  The second is a vast array of fund managers across the globe are signatories to what is known as the United Nations Principles for Responsible Investment. And these are companies that are obliged to encourage corporates to either emit less or, in the case of governments, to ensure that their policies, broadly speaking, there are fewer emissions across the economy. 

  And if we say we are not going to follow that path and we're just going to keep our coal stations going, we again will be cutting off access to favourable financing from those institutions, both for our companies listed in South Africa and secondly for the government as well. 

  The third is if we look at places like Europe, they're imposing a carbon border adjustment mechanism. Which in effect means that they are going to be applying tariffs to countries that don't have their own internal carbon pricing mechanism. 

  They're monitoring a few sectors now, but ultimately, they would apply it across the board. And if again we just happen to emit lots and we don't charge for it locally, that means that our exports would be attracting tariffs for Europe and we'd be less competitive. 

  And it's not just Europe, these things are in the works for a whole range of countries. And that would affect the broader economy. 

• 07:58 Is it fair for developing countries to be penalised?

  IR: Chris, what you’re describing requires us all to be on the same even footing and the developed countries have already leapfrogged us economically off the back of coal. Is this a fair ask of developing countries?

  CH: I think that is a fair question. Developed markets have emitted literally tons, billions of tons of carbon up until this point and now we're being asked at this early stage of development for us to transition away. 

  But the reality is they are our trading partners and that is what they're asking, and we have to deal with the cards that we've been dealt.

• 08:30: Managing the balance between profit and people

  IR: For Campbell, there are also questions to be asked at board level. 

  CP: I'm really interested in this balance between, you know, how companies manage the profits today versus position themselves for the future. 

  And on the one hand you have to look after shareholder concerns now, but you have to look at broader societal issues over the long run. And if I think of companies like Sasol, I think of companies like ArcelorMittal and even think of Eskom, you know, these are companies that are strategically so significant in this country, from supplying us with the raw materials that we need to make our economy tick. 

  But at the same time, they're coming under scrutiny as every company, and that's for their carbon intensity and just how they manage that just transition or manage the balance between profits and people is absolutely fascinating.

• 09:19: The European energy crisis

  IR: Now would be a good time for a bit of perspective. There are challenges, there is dissatisfaction and angst about the state of South Africa's energy supply. But from some points of view, things aren’t too dissimilar in Europe, highlighting the fact that a just energy transition is a global concern. 

  Another point to consider is that locally, there are already some positive developments. Before we discuss those, here's James with a European outlook.

  JM: I was recently in Europe and the four big issues that they put out from an energy perspective is one, grid. Same, problem in South Africa. 

  Europe have got 3,000 gigawatts queuing for grid access. Okay. So we we've probably got about 30, but that's number one problem. 

  Number two problem for them is actually regulations. And so again, very much similar to what we’re speaking about: coherent, clear policy regulatory environment that enables investment private sector to wade in, get things done.

  Third one for them is workforce. So enough workforce of the right skills and the right people to be able to get things done. 

  And the last issue that they raise is supply chains. So on very different sort of levels of maturity because we’re in different sort of areas of our transition pathway, our problems are not dissimilar even from Europe who really leads global climate change.

  So again, I think if we simplify some of these issues, there is enough finance in the system. What we've got to focus on is good governance. Skills in the right place to implement the good plans that we have. 

• 10:48: Government more committed to public-private partnerships

  IR: South Africa has a reputation for being long on plans and short on implementation. Public private partnerships are crucial to ensuring we have the right skills in place to make our plans a reality.

  JM: One thing that I think people should be more aware of is the business government partnership which has been created. 

  The CEO pledge, which is 130 CEOs of top companies. Investec has also signed the CEO pledge – to work with government in a partnership to help rebuild the economy and focused on energy, transport, logistics and crime and corruption. 

  The Energy Council coordinates and runs the energy leg. And this partnership, I think we've seen a more responsive and engaging government than we've ever seen before.

  So I think that's a positive. We've got to take it. We have a six-weekly meeting with the president and all the ministers in person and we've stuck to it.

  IR: It's really lovely to hear the news from the tower. Because often we don't get that view, right? And I think when you do manage to galvanise national spirit as we've seen with the World Cup, it can change the dynamic and the nature of what is possible.

  JM: It's got to be “stronger together” to use our Bokke! But it's taken time to mature. I can tell you that the very first meetings were very silent and a little bit sort of adversarial, but there is very robust engagement in these sessions with the ministers and the president.

  Also, the Eskom CEO participates in those sessions. One, we've got to solve loadshedding as quickly as possible, focus on the Eskom turnaround, and we are going to have to get those coal fired power stations more reliable. Because that's what's going to keep the lights on in the short term.

  Two, we've got to unlock and do everything we can to create huge amounts of private sector investment in new generation and the supporting technologies. 

  And three, is rapidly reform the energy sector. So we create that confidence, and move into where we should be in looking at global benchmarks.

  So, I think that's a very positive top-down sort of programme, which is still running, got all the support and hopefully starts to really create confidence in society and in investors.

• 12:49: Progress on corporate emissions reductions and the REIPPP

  IR: And for Campbell, there are two more not insignificant achievements that should be lauded.

  CP: The one thing that we should be doing is giving ourselves a pat on the back for what we've done so far. I mean if you look at emissions reductions in the corporate sector. You know, you look at SASOL, they've taken out 6 million tons of CO2 in the last decade, which is more than the combination of what BP, Shell and Total have been able to do. 

  I also think that the Renewable Energy Programme has been absolutely world class in the way it's been run and handled by a combination of private and public sector. 

  So I think the first thing is acknowledge the fact that we should be very happy with what's happened so far. You know, it's very easy to see the glass half empty but in actual fact, I think we're one of the shining lights, particularly in developing markets.

• 13:34: Technology disruption is what’s really driving the value of the energy transition

  IR: So we know the challenges when it comes to energy in South Africa – we live through them almost every day – and we understand that things have to change for the better. 

  That fact, in a South African context, is universally agreed upon. But the other factor driving the energy transition is, of course, climate change – something about which there is a lot less consensus, both locally and globally. 

  For those who don't believe that climate change should be the reason the world scrambles to make the gargantuan change, James offers an interesting perspective. 

  JM: Imagine if we said to Investec that let's put bank tellers back in on a Saturday morning. We'll all have chequebooks and let's all go back and spend our Saturday mornings kind of writing up our little notes and getting stubs. 

  Okay, so it's not going to happen because digital efficiency and technology disruption is now integral as part of our daily lives. The energy transition is very important to climate, but actually that's not what is driving the value of the energy transition. 

  What is driving it is a technology disruption. So clean tech is cheaper, better, it's more innovation. It's highly digitised and it's going to serve consumers better in the future. 

• 14:44: Targets in the Integrated Resources Plan

  IR: Rather than seeing the energy transition as a knee-jerk reaction to a contentious issue like climate, it's arguably more constructive to see it as a progression to a future system where things are fundamentally better in every respect. 

  But, we're many, many steps – and even more billions of Rand in investment – from this sustainable, energy utopia, the road to which is underpinned by the Integrated Resources Plan, or IRP, and the South African Renewable Energy Master Plan. 

  Both of these documents focus on which resources to use and how best to use them. Let's expand on some of the details: 

  James, what are our targets and how are we doing in achieving them? 

  JM: Essentially, the target was by 2030, we should have roughly 55 to 60 gigawatts of wind and solar, supported by about 8 gigawatts of battery storage. About 5 gigawatts of peaking gas to power. 

  Nuclear can definitely be in the mix, but it's going to take a long time to build nuclear. So, it's not in the short-term purview. 

  And then you would be able to decommission roughly 11 gigawatts of the oldest coal fired power stations, which would balance out to give the emissions reduction in line with our targets. But also then keep the lights on giving energy security.

• 15:59: Is nuclear an option?

  IR: Well, since you brought up nuclear, this is an opportune time to maybe quickly touch on that. South Africa's forays into nuclear in 2014 were disastrous from a government perspective in terms of Russia and their state nuclear energy corporate, Rosatom. 

  We're back in that terrain where we're Investigating going into nuclear. Campbell, can we get your take on the potential of nuclear in South Africa and also where we’re at when it comes to renewable capacity. Do we have what we need? Have we got the land? Have we got the correct weather and environmental conditions to make this happen?

  CP: Well, first is I do like nuclear, because, you know, 24/7 clean baseload power, efficient, we understand the technology. I think the risks are overstated both from a technology point of view as well as a waste product point of view.

  But we definitely have the right resource for solar and wind. You know, you just go up to the Northern Cape, it has some of the highest wind speed and solar power in the world. 

  Also, relatively few population because land use does become an issue where renewables are rolled at, scale. Of course, there's a job creation element in the Northern Cape as well. 

• 17:04: The potential of natural gas as an alternative power sources

  IR: Campbell, other countries rely on gas as a cleaner source to generate electricity. Will there be a point where we can see South Africa having a well-functioning gas power sector for low carbon energy transition?

  CP: Gee, I'd like to think we'll get to that at some point, but frankly, right now, without the right fiscal framework, it's quite hard to see that happening. 

  We need, you know, international expertise to extract or find and extract the gas and, that right fiscal framework to monetise it in the interest of all stakeholders. It's really about stakeholders, not just the hands of a select few. 

  So, I'm a little cynical. I think that there's a lot that needs to be done on our gas resource, which let me say is plentiful. But I believe that we need all types of energies. 

  There's a certain myopia in other countries of the world - just in looking exclusively at renewable options, throwing the baby out with the bath water on coal and oil and gas and fossil fuels, the transition should happen slowly. 

  My travels to China have clearly shown them to be of the mindset that, well, yes, we're going to really ramp up renewables and anyone who knows, you know, how much they're putting on the ground. It's absolutely amazing the amount of renewable infrastructure they're putting on the ground while at the same time building out coal and fossil fuels. 

  And they've gone on record to say that at some point when we have enough of the new, we can switch off the old. And I quite like that…

• 18:24: The time for implementation is now

  IR: So, let's maybe pivot a little bit to look at the future. Again, this is the starting point in a journey of conversations, which I hope are going to be able to provide more of the granular detail around some of the strategies and the plans. But to come back to you, Chris, what next?

  CH: I think we need to recognise that we've already made massive progress in allowing the private sector as a start to generate electricity for themselves, decentralised electricity generation, and two, as we've discussed earlier, already our international commitments. 

  So I think the key part of what's next is ensuring that we meet our current plans, our current obligations, not that we need new ones at this point, we need to ensure that we continue with what we've done, but there's already a lot underway, and I think we need to allow time for the private sector to come through and invest to solve the electricity crisis. 

  And then at that point, you know, give it a bit of time, we'll have to review and see where we are and maybe we need a hand on the tiller. 

  But I think we do need to pause and reflect on the significant progress that's already been made over the past couple of years.

• 19:29: What do we need to achieve in the next 10 years?

  IR: James, over to you, what is your view of the future?

  JM: I do think that the Eskom turnaround plan is making a difference. And so there is a significant investment, very focused at a power station level with a lot of decentralisation of accountability and authority. So procurement, people issues, technical issues. 

  And for us to get out of loadshedding, we actually are going to have to extend the use of coal-fired power stations, just because we haven’t built enough clean technology in the way that we said we would. 

  So if we want to talk about what do we need to do by 2030 or even 10 years, 2034, we need to put the hammer down on public auctions around wind and solar. 

  We are seeing, largely because of loadshedding, a big response out of rooftop solar. It’s been phenomenal. You know, we’ve now got about five gigs of installed rooftop, and the corporate utility sort of market, which is where the banks and Investec, you know, very, very active, that has also had an amazing response.

  So our view as the Energy Council, we will double the amount of wind and solar brought online from 23 to 24, and we'll pretty much double that again from 24 to 25. 

  So we're getting to about four gigs a year of sustainable wind and solar coming online. What we've got to pair that with is, as Campbell said, we need a lot of gas to power on the system. We need a lot more storage in the system. 

• 20:47: What impact will the energy transition have on jobs?

  IR: So Sam, as James is talking, what I'm thinking about is the people, the stakeholders, the actual warm bodies that have to make all of these things possible. 

  In this just energy transition story, where do people fit in from an engagement and also a sustainability perspective?

  SM: Right in the centre. They fit right in the centre. The just energy transition cannot happen unless you're thinking about the people at the centre of it. 

  Because we're such a, carbon-intensive economy there's a lot of jobs attached to that carbon intensity. So how do we shift those jobs, the people in those jobs, towards a cleaner energy or into cleaner energy jobs, green jobs. That has to be part of the conversation right at the beginning.

  IR: Chris, I know one of the things you're concerned about is around jobs displacement in the transition to cleaner energy. The fate of these coal towns and thousands of people depending on the plants for jobs. Is the energy transition able to address job creation in South Africa?

  CH: Yeah, it's a tricky one to answer. We have seen this sort of situation before many times through economies over time as new technologies come through and make jobs redundant.

  We've got about 90,000 people or so involved in coal mining in South Africa. So it's a very valid question. What happens to those people as we transition away? Are we able to re-skill those individuals to find jobs elsewhere? 

  But the flip side of that question too is we've got a vast number of people outside of the labour market at this point. People seeking employment that are unable to find it. 

  Our economy has not grown at a sufficient pace to ensure that we materially reduce unemployment in South Africa. 

  And so we almost need to see this as an opportunity to grow the economy. If we do it right, we reduce those, the cost of capital, increase access to international markets, and as a result, we grow the economy. 

  So, we may well have these 90,000 people's livelihoods put at risk and we'll have a process around that I'm sure to reskill those individuals. But at the same time, we'll have opportunities for millions of other people, if we get this right, and the economy grows at 3 percent instead of 1%, and I think that needs to be put in the mix as well.

  IR: What you say is so important because I think with everything especially big problems, you almost have to apply a different lens. And what you're saying is, well, we might lose that on the, on the swings, what can we gain on the merry-go-round with the same group of people? 

  Could that skilling and that transfer of skills be, be done, quickly enough to not leave them in the lurch? What's your thinking?

  CH: As I say, it's been done many times before, and it's a process that economies and people have gone through, through generations in economies across the globe. And typically, it's the case that new technological development leads to more employment rather than less. 

  So, there may well be a difficult phase as we embark this, but history suggests it, if anything, it leads to greater employment, greater growth going forward rather than the other way around.

• 23:40: Affordability of renewable energy

  IR: And Chris, what about affordability? The one issue is supply and us being able to have electricity when it’s needed, and the other is affordability. 

  We've seen increases, exponential increases in, the price of power over the years. How does South Africa find the balance between producing energy that’s sustainable but also affordable?

  CH: I can refer to my own personal experience. We installed solar and batteries probably about a year or so ago. And we financed that through our home loans. We just took an extra bit on our home loan and now we pay interest on that. And the interest payment on that loan is roughly equivalent to the reduction in our electricity cost. 

  So, for my monthly expenses, for myself as an individual, it was cash flow neutral from day one. Pay a bit more interest, pay a bit less for electricity. And that's just an individual that doesn't have access to capital in the same rates that a corporate would and is not generating electricity at utility scale. 

  So, what it does suggest is from an affordability perspective, it is affordable already, certainly for the large users of electricity to transition, if it is affordable for an individual.

• 24:51: Insights from COP28

  IR: The final part of this episode touches on a global approach to sustainability, through the lens of COP28. 

  Sam and the Investec Sustainability team attended the event, so I asked her what insights she gleaned. 

  Sam, one of the outcomes was a decision to create a fund that could help countries like South Africa address its energy crisis. 

  Would this help South Africa play its part in reducing greenhouse emissions? 

  The developing world or the developed countries, you know, spend the money and we pick up the tab from a climate change perspective on the continent.

  SM: So first, quite interestingly, was to hear that we're currently calling it the Loss and Damage Fund, but the name still needs to be confirmed as the US doesn't like loss and damage. 

  But I think whatever you call it, I think it's a step in the right direction. It's not the first year that this is coming up. So, while there are pledges and we're really happy that, you know, there was consensus, I think within the first 15 minutes or something, we'd like to see the commitment. And once we have the commitment, how can we better use it? 

  Of course, this is going to reduce our reliance on coal, and fund our transition as South Africa. That's what we would be able to use it for. 

  But I think there's another challenge that comes from that for ourselves. How are we, as South Africa, going to ensure that we're using the funds effectively? How are we going to make sure that they're being managed appropriately? And then, of course, I'm going to bring it up again, that the transition is fair for everyone.

• 26:30: Closing comments

  IR: There is, of course, still a long way to go for South Africa. Not just in creating a sustainable energy industry, but one that's also equitable. 

  We're just at the start of what will no doubt be a long and difficult journey, but we have a good roadmap, the right focus, and don't forget that good old South African resilience.

  CP: So unfortunately, loadshedding is with us for a while. But ramping renewables is the right thing to do. It's the correct thing to do in terms of the just energy transition.

  JM: I think there's a lot of things that we can look at that are moving, that are very positive. We've got to really focus on implementation and not get too caught up in saying, you know, everything is burning and that we've got so many problems. 

  SM: It will lead to massive energy efficiency and, a modernised grid. So, people will not have to worry about loadshedding. We will have cleaner air, we'll have energy security, we'll have green jobs and a sustainable future.

  IR: Thanks for listening to this episode of The Current, brought to you by Investec Focus Radio. This is episode one of 10 episodes where we’ll have in-depth discussions about the state of energy in South Africa, what the future holds and what a just energy transition looks like. 

  To make sure you don’t miss an episode, follow Investec Focus Radio SA wherever you listen to your podcasts. And if you enjoyed this episode, please rate it, leave a comment and forward it to your friends and colleagues. 

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