Putting power on the grid: An Alternative lesson in development

In 2011, the South African government initiated a renewable energy procurement programme with the view to achieve a few aims: the diversification of its energy sources away from coal; liberalisation of the sector through the introduction of independent power producers and augmenting supply to fuel economic growth and limit the impact of blackouts owing to aging power generation facilities.

By introducing technologies for exploitation of wind and solar power, the programme required that experienced foreign entities be invited to design, construct and operate these new generation facilities. Additionally, the space requirements of these new power plants opened up an opportunity to locate infrastructure in typically under-developed, rural areas. Therefore, the internationally lauded programme has, since inception, attracted ‘over R120 billion in foreign direct investments’ (Finweek, 7 August 2014); secured 2220MW of electricity (if the round 4 allocation is not exceeded) and perhaps most importantly, it has generated social benefits that range from job creation to the generation of 20-year annuity incomes that will flow from the energy projects directly to the communities in which they are located.

As a model, what the programme demonstrates is that social and economic objectives can be pursued simultaneously. Even more importantly, that social investment can be generated through a system of entitlements rather than charity or aid. The question that emerges then, is how this form of development, which promises a much higher level of sustainability, will be incorporated into the Sustainable Development Goals?

UNDERSTANDING THE MECHANICS OF SA’S RENEWABLE ENERGY PROGRAMME

South Africa’s Renewable Energy Procurement Programme requires independent producers to submit proposals into a competitive bidding process. Independent Power Producers are necessarily consortia comprised of senior partners, who are typically foreign energy utilities with extensive track records in renewable energy and junior partners, who are a combination South African entities aspiring to become utilities as well as Community Trusts who hold shares on behalf of the communities in which power plants are to be established.

In submitting their bids, these consortia are judged on two criteria: Economic Development and Financial/technical robustness Economic Development (ED) comprises 30% of the score that is ultimately allocated to a bidder. Making up the ED score are seven elements: job creation; management control; ownership; local content; preferential procurement; enterprise development and socio-economic development.

All these sub-elements of ED concern themselves with the extent to which investments are made into various, previously disadvantaged categories of South Africans: Black people, women, youth and people with disabilities. Therefore, a project’s score is dependent on the extent to which it commits itself to making these social investments. Critically, all successful projects are bound to the commitments made in their plans and are subjected to financial penalties in the event that they fail to fulfil their obligations.

From the perspective of sustainability, the most aggressive obligations are those linked to community development because they guarantee two income streams for communities: a share in annual revenues as well as a share in project dividends. Given that the power plants are awarded 20-year licenses, what this means is that communities are also provided with a 20-year revenue stream to fund local development.

LEARNING FROM THE WEAKNESSES OF SA’S RENEWABLE ENERGY PROGRAMME

The programme is of course not without its weaknesses. Although designed to address both infrastructure and social development concerns, the inability to monitor the quality of social investments has proven to be a drawback. As a result, one of the missed opportunities that has come with the job creation process is insufficient skills development. By emphasising job creation, the State has incentivised the creation of high volumes of short-term jobs, which are typically of a very basic nature for the purpose of power plant construction. These jobs last, at most, for 24 months. What this means then, is that the real opportunity is not in enabling a family to have income for 24 months, but rather to ensure that the employment period improves employability in future, which is dependent on an improvement in or diversification of one’s skills.

Another challenge has come from an ownership requirement that looks only at the identity of the owners and not their role in the power plant. The result then is a fairly passive class of Black owners of power plants who are oblivious to the actual operations. Their role is thus limited to raising funds and then waiting for dividends, which denies the economy what it really needs: Black industrialists who are capable of organising all elements of production for the purpose of constructing and operating renewable energy power plants. Therefore, one of the key lessons of South Africa’s experience is that development requires a monitoring system that measures not just crude participation but also the substance of that involvement.

A SUSTAINABLE WAY FORWARD

However, the broader development lessons from this experience provide an alternative and arguably more sustainable approach to what is generally touted. First of all, it is clear from this programme that there is massive potential in development investments that marry social objectives to economic and political goals. For in committing to a certain level of social investments, private companies can be held accountable by both the state and communities for their choices. This then goes beyond corporate social responsibility, which sees private sector players accounting only to shareholders for their actions.

Furthermore, by virtue of owning shares, communities are empowered to directly drive the social investment agenda rather than receiving development as charity or aid. In other words, development as an entitlement can be fostered through government-regulated investments made by the private sector.

And this type of model is of even greater relevance given the massive infrastructure needs across the African continent. Therefore, what we’d like to see in the Sustainable Development Goals is a framing of development objectives that goes beyond social objectives, and rather locates the social in a context that is linked to economic and political objectives. This requires the new development goals to draw to clear linkages between the state, the private sector and society.

This kind of approach, which is found in the traditionally unlikely case of energy procurement in the South African context, is critical for improving accountability amongst local actors, which is ultimately vital for strengthening democracy. What it also promises is independence from international aid, which should, in the first place, be the main goal of sustainable development.

* Fumani Mthembi is Managing Director of Knowledge Pele, a social research and development advisory firm based in Johannesburg, South Africa.

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