Developed by the
Department of Minerals and Energy
South Africa
June 1998
INTRODUCTIONPART 1: CONTEXT, OBJECTIVES AND PRIORITIES FOR ENERGY POLICY
PART 2: DEMAND SECTORS
PART 3: SUPPLY SECTORS
PART 4: CROSS-CUTTING ISSUES
PART 1: CONTEXT, OBJECTIVES AND PRIORITIES FOR ENERGY POLICY
The process of drafting the White Paper on Energy Policy has now reached the stage where it can be released for public comment. The following steps, leading to the final acceptance of the Policy, are envisaged:
Interested parties are invited to comment on this Draft White Paper. Comments should preferably address the national situation and avoid narrow parochial issues. Commentators are also requested to keep to the level of policy and avoid detailed strategies and action plans. Comments addressing incorrect facts or interpretations in the white paper, or missing areas, will be appreciated.
Comments should be addressed to:
Deputy Director General (Energy)
Department of Minerals and Energy
Private Bag X59
Pretoria, 0001Fax: (012) 320 2105
Comments should be submitted by 31 July 1998.
Where comments refer to specific items in the Draft White Paper it would be appreciated if commentators could note the relevant page number. It will be appreciated if commentators could clearly specify their names, organisation and in what capacity they are passing comment.
All submissions will be analysed, summarised and published in due course.
South Africa is a country that is endowed with abundant energy resources. Fosssil fuels such as coal, uranium, liquid fuels, biomass and gas continue to play a central role in the socio-economic development of our country, while simultaneously providing the necessary infrastructural economic base for the country to become an attractive host for foreign investments in the energy sector. Renewable energy development opportunities are already being explored in the fields of solar power, wind power, pumped storage and in hydro power schemes.
The successful tapping of all possible energy carriers of our country is vital for sustainable economic growth and development. We are fortunate in South Africa to be in a position to utilize a rather broad spectrum of energy carriers such as coal, electricity, liquid fuels, gas, solar power, and so on. Various economic sectors that contribute to the GDP of our country are practically driven by these energy carriers. For instance, large industry such as manufacturing, which accounts for about 25% contribution to the GDP and mining, which accounts for about 10%, are both heavy industries that are driven by electricity. Industry as a whole consumes approximately 40% of the total electricity that we generate in the country. This means that electricity is one energy carrier that makes a significant contribution to economic growth and development in our country. This is made possible by the fact that industry alone accounts for a sizable proportion of capital investment in the country.
As government sets out on a macro-economic policy on growth, employment and redistribution of the country’s resources, as well as in the implementation of government policy of reconstruction and development, the energy sector continues to present interesting challenges to our Department regarding the transformation of state-owned entities, reshaping of governance principles, enhancement of socio-economic trends within communities, and even changing peoples’ attitudes towards the use and importance of national energy resources.
Government is committed to the promotion of access to affordable and sustainable energy services for small businesses, disadvantaged households, small farms, schools, clinics, rural areas and a wide range of other community establishments. As provided for in our Constitution, the state must establish a national energy policy which will ensure that the national energy resources shall be adequately tapped and developed to cater for the needs of the nation. Energy should therefore be available to all citizens at an affordable cost. Energy production and distribution should not only be sustainable, but should also lead to improvement of the standard of living for all of the country’s citizens. For this to become a reality, the state should ensure that energy production and utilization are done with maximum efficiency at all times.
In view of all of the above, the energy policy should preserve an appropriate balance between energy demand and supply. It should pronounce itself on short, medium and long term priorities. It should balance the use of natural energy resources with environmental considerations.
The state should establish a clear difference between its primary role as a regulatory entity of the energy sector, and its secondary role as a facilitator in the supply of energy services.
This draft white paper has been written so as to clarify government policy regarding the supply and consumption of energy for at least the next ten years. The proposed policy strengthens existing energy systems in certain areas, calls for the development of underdeveloped systems and demonstrates resolve to bring about extensive change in a number of areas. It addresses international trade and co-operation, capacity building, and the collection of adequate information. The document is comprehensive, addressing all elements of the energy sector as practically as it can.
Considering the complexity of some of the priority policy changes, it will not be possible to implement the whole body of new policy in the short to medium term. The executive summary gives an indication of the government’s priorities. These will be refined, in the light of comments received, when drawing up the final product.
The draft white paper was developed by an active process of consultation, beginning with the publication of the Energy Policy Discussion Document in August 1995. The Introduction and Appendix 1 give more information on this consultation process.
The draft white paper is intended for parliamentarians, those involved in the energy sector and any other concerned and interested person. Involved parties include energy suppliers, energy consumers, employees in the energy sector, researchers, academics, environmentalists, policy makers, contractors, product developers and manufacturers. The approach of the draft white paper is to provide a specific policy statement, namely what the government intends to do regarding the energy system in a broad context. The paper does not intend to deal with strategies, namely how these policies will be implemented. Indeed, these issues are part of the core functions of my Department. It should be borne in mind that my Department is not dealing with energy matters from a ‘greenfields’ approach. We are continuously engaged in strategic planning and review regarding the implementation of our functions in the delivery of energy systems to communities in the country on a day-to-day basis. The White Paper will not therefore serve as a means to ‘re-invent the wheel’, but will constitute a formal framework upon which the energy sector will operate within the broad national strategy for reconstruction and development. It will serve to bring more focus and direction on what is already being achieved.
Because of its complexity and its wide ranging implications, our energy policy is not as yet mature. This draft white paper provides an opportunity for an active debate in developing a mature policy. I invite as many as possible to participate in this debate. All comments will be reviewed in detail. However, I do urge those who will be letting us have the benefit of their reactions to these policy proposals, to address the national situation rather than personal or organisational interests.
The draft white paper will then be revised where appropriate and submitted to the portfolio committee, cabinet and parliament, not necessarily in that order. I may have to request the parliamentary portfolio committee to conduct hearings on specific topics and provide me with recommendations as to what the appropriate policy should be. The experience of the last few years clearly demonstrates that, although we need to consult, it is not possible to take all decisions by consensus. In some cases government will have to take the lead and decide on some of the more contentious issues.
This document is the product of an intense process in which a large number of dedicated people participated. They are the authors of the Energy Policy Discussion Document, the organising committee of the consultation process, commentators on the Energy Policy Discussion Document, the rapporteurs and moderators responsible for the first draft sections of the white paper, international participants and evaluators, the editorial committee, the participants in the different workshops, members of certain contracted organisations, and members of my Department.
Special thanks are due to the International Energy Agency and the United States Department of Energy for their dedicated evaluation documents, direct participation in a variety of workshops and detailed advice and support. To all of you I would like to convey my thanks for the hard work that you have put into this important project. I trust that your reward will be to see that the energy policy that we implement in the future is the best one for our country. We want it to achieve our main goal: the socio-economic development of all our people.
P M MADUNA
MINISTER OF MINERALS AND ENERGY
The South African government last published a white paper on energy policy in 1986. With apartheid overthrown South Africa experienced fundamental shifts resulting in significant changes in the energy policy context. The election of a new government necessitated a review of existing policy.
In response to democratisation, a number of negotiating processes began spontaneously within the energy sector, usually in stakeholder-based forums such as the Liquid Fuels Industry Task Force and National Electrification Forum. Government’s wish to integrate these and provide policy stability led to it formally launching the energy policy white paper process in 1994.
The general approach to policy formulation has also changed and places greater emphasis on transparency, inclusiveness and accountability. The energy white paper process has therefore attempted to make government’s approach more transparent; to build public confidence; to clarify organisational roles; to communicate policy effectively; and to integrate policy processes.
The process commenced with the drafting of an Energy Policy Discussion Document by a multi-disciplinary team of experts. It described the energy sector and identified 111 major energy policy issues. Informally known as the ‘Green Paper’, it was released by the Minister of Mineral and Energy Affairs in August 1995 for analysis and comment. Formal and informal workshops were then held with interested parties (see the appendices). In August 1995, a team of expert ‘issue rapporteurs’ was appointed to draw up the first draft white paper. Their contributions were then edited for review by an editorial committee. The general approach to policy formulation is to recognise problems; to identify causes and solutions; to analyse their implications and make choices; and to implement, monitor and evaluate the effects of policy.
Broadly speaking the sector can be viewed from demand and supply perspectives. The South African energy sector has historically tended to promote policies which predominantly address supply side issues. In South Africa the demand side is generally analysed in terms of the energy requirements of households, industry, commerce, mining, transport and agriculture. Supply sub-sectors include the coal, electricity, nuclear, liquid fuels, gas and renewables industries.
From a policy perspective, social problems can arise in both demand and supply sub-sectors. Identifying the causes of these problems can be difficult. Causal linkages may extend beyond the energy sector. Energy policies must, therefore, be carefully co-ordinated with other social sectors and also be co-ordinated between energy sub-sectors.
To cope with multiple causal linkages, energy policy analysis usually commences with the demand side by means of the process entitled- ‘integrated energy planning’. This recognises that energy is not an end-good but is rather consumed as a means to an end. Policy must facilitate optimal energy consumption and production to meet social needs. This requires consumer choice and the operation of market forces.
Integrated energy planning suffers from the same drawbacks as other ideal models. It requires a great deal of data and analysis to implement, of which South Africa has a scarcity. Nonetheless, this white paper identifies integrated energy planning as the most suitable base for planning purposes.
The logical components dealt with in each demand, supply and cross-cutting section are: a background to the sector; the key policy challenges; government’s proposed policies with motivations where necessary; implementation; and monitoring and evaluation. Clear policy objectives have been established.
Part 1: Context, Objectives and priorities for energy policy
The context for energy policy
Nearly every aspect of social and economic policy in South Africa is being re-examined, reformed and redrafted. As government sets out on a path of growth with redistribution, many economic sectors require bold, new thinking. More than most, the energy sector presents a challenge of transforming specific industries and governance systems.
Before deriving detailed energy policy objectives, however, it is necessary to understand the energy policy context and energy sector challenges. Three aspects are considered:
• economic, social and environmental policies and forces;
• the nature of the South African energy sector and its linkages with broader forces; and
• what the sector needs to achieve overall policy goals.
International context
International relations had a profound effect on South Africa’s energy sector during the apartheid era. South Africa’s energy sector is still influenced, albeit differently, by international pressures. As the economy opens up, energy sector decisions must ensure appropriate energy supply and use. Local policy developments inevitably acknowledge international trends.
Significant international shifts have occurred in post-oil-crisis energy policies. South Africa can learn from abroad. Perhaps the most significant shift is that energy security is now being achieved through greater diversification and flexibility of supply. One of the implications is that the energy sector is relying increasingly on market-based pricing. The state is placing greater emphasis on commercialisation and privatisation. Competitive energy markets need sophisticated regulatory regimes.
Global financial markets are also changing. Private finance is becoming increasingly important. Government needs to create policy that attracts investment, while ensuring the achievement of national policy objectives.
The energy sector has larger environmental impacts than most other economic sectors. Energy policies are reducing emissions as energy investments are subjected to greater environmental scrutiny. There is a greater focus on energy end-use. The research and development of alternative and renewable energy sources is also being promoted.
The Southern African Development Community (SADC) has adopted an energy co-operation policy and strategy. South Africa’s energy policy must therefore seek to be compatible with regional energy policy.
National context
Since 1994, the interests of the South Africa majority have found expression through new social and economic policies, particularly the Reconstruction and Development Programme (RDP). The government’s new macro-economic strategy - Growth, Employment and Redistribution (GEAR) - places more emphasis on economic growth (6% per annum) and employment creation (400 000 new jobs) by 2000.
The energy sector can contribute to economic growth and employment creation, as well as providing infrastructure for households. The RDP base document included a number of policy proposals, especially the electrification of 2,5 million households by 2000, which the industry is well on its way to achieving. By contrast, the RDP white paper and the Growth, Employment and Redistribution macro-economic strategy have not set out detailed sectoral strategies.
Government has also prepared a protocol on the corporate governance of state entities, including the energy sector. This includes a programme of asset restructuring at the national level, which is being undertaken with organised labour within the National Framework Agreement.
Sectoral policies recognise linkages and overlaps in related economic sectors. White papers in many of these areas have been, or are in the process of being, developed. Energy policy must also take into account the constitutional framework which has created new organs of government and demarcated specific powers and functions.
Having established the international and national policy context for the energy sector, the draft white paper examines the sector’s problems and challenges to determine energy policy objectives.
The South African energy system
It is not easy to provide a coherent and comprehensive overview of the energy sector. Perhaps even more difficult to understand are its linkages to, and impact on, the rest of the economy. The draft white paper gives an overview of the South African energy sector’s contribution to GDP, employment, taxes and the balance of payments. It concludes that the sector can greatly contribute to a successful and sustainable national growth and development strategy.
Energy sector policy objectives
Increasing access to affordable energy services
Government will promote access to affordable energy services for disadvantaged households, small businesses, small farms and community services.
Improving energy governance
Governance of the energy sector will be improved. The relative roles and functions of the various energy governance institutions will be clarified, the operation of these institutions will become more accountable and transparent, and their membership will become more representative, particularly in terms of participation by blacks and women.
Stakeholders will be involved in the formulation and implementation of new energy policies, in order to ensure that policies are sympathetic to the needs of a wider range of stakeholder communities.
Co-ordination between government departments, government policies, and the various tiers of government will be improved in order to achieve greater integration in energy policy formulation and implementation.
Government capacity will be strengthened in order to better formulate and implement energy policies.
Stimulating economic development
Government will encourage competition within energy markets.
Where market failures are identified government will intervene through transparent, regulatory and other carefully defined and time delineated mechanisms, to ensure effective delivery of energy services to consumers.
Government policy is to remove distortions and encourage energy prices to be as cost-reflective as possible. To this end prices will increasingly include quantifiable externalities.
If subsidies are required these should be implemented transparently in order to subject them to normal political forces.
Energy taxation will continue to remain an option within government’s fiscal policy, but will be exercised with more consideration for the economic and behavioural impacts of such policies.
Government will work towards an investor-friendly climate in the energy sector through good governance, stable, transparent, regulatory regimes and other appropriate policy instruments.
Managing energy-related environmental impacts
Government will promote access to basic energy services for poor households, in order to ameliorate the negative health impacts arising from the use of certain fuels.
Government will work towards the establishment and acceptance of broad national targets for the reduction of energy-related emissions that are harmful to the environment.
Securing supply through diversity
Given increased opportunities for energy trade, particularly within the Southern African region, government will pursue energy security by encouraging a diversity of both supply sources and primary energy carriers.
The five policy objectives above form the foundation for South Africa’s new energy policy.
Energy policy priorities
This document outlines specific policy priorities to achieve each policy objective, for both the short and medium term. It is acknowledged that as time passes it may be necessary to amend these priorities.
Part 2: Demand Sectors
Households
The trends indicate the complexity of multiple-fuel use in many households. Beyond the home, energy is required for infrastructural services to communities. Energy services for low income households have not been adequate, since previous governments’ emphasis was to create a modern industrial urban society. Households suffering unemployment and poverty rely on less convenient and often unhealthy fuels. Grid electrification may not satisfy all the energy needs of low income households. Although most household consumers are women, past energy policy has largely ignored their needs. Energy policy has also not adequately addressed energy conservation by high income electricity-dependent households.
The environmental effects of household energy use are particularly severe on the rural poor, who use fuelwood as their primary energy source. Coal-use in urban areas also results in indoor air pollution with serious health consequences. With both fuels, pollution in many cases exceeds World Health Organisation standards.
Energy security for low income households can help reduce poverty, increase livelihoods and improve living standards. Government will determine a minimum standard for basic household energy services and monitor progress over time. People must have access to fuels that do not endanger their health. Basic energy needs must consider costs, access and health. Technological interventions are only likely to be used if they are introduced in consultation with households.
Government will have to consider: appropriate appliance/fuel combinations; households’ abilities to acquire these fuels and appliances; the availability of efficient and safe appliances and fuels; and the effect of pricing and financing on affordability.
Building thermally efficient low cost housing presents an opportunity to promote energy efficiency and conservation. There is also great potential to stimulate energy demand management and other strategies in middle and high income households. Energy savings would free resources and delay the need for further investment. Government commits itself to the promotion of energy efficiency awareness in households. An initiative is needed to inform householders on how to use appliances and fuels.
Industry, commerce and mining
The overview of the use of energy by this sector also addresses the development of large primary industrial, mining and minerals beneficiation sectors, all of which are energy-intensive. Whilst large industry has been well supplied with energy, a major priority is to provide lesser supplied areas with energy access.
Past governments devoted little attention to energy efficiency in industry, mining and commerce. Greater efficiency will provide financial and environmental benefits, with industry becoming more internationally competitive. Government needs to tap this potential.
Cheap energy benefits our foreign exchange earnings, but there are harmful environmental and health effects which are not included in the price. Changing international environmental standards may have an adverse effect on some of South Africa’s future exports. Government needs to balance energy prices with sustainable environmental standards. Many energy supply/demand issues do not require regulatory intervention. The regulatory framework must, at the same time, stimulate large industry’s growth and competitiveness. Productive activities in underdeveloped areas will economically empower the poor. Energy, particularly electricity, is a key requirement for these productive activities.
It is estimated that greater energy efficiency could save between 10% and 20% of current consumption. Government needs to facilitate increased energy efficiency. Obstacles include: • inappropriate economic signals; • lack of awareness, information and skills; • lack of efficient technologies; • high economic return criteria; and • high capital costs. Government commits itself to facilitate greater energy efficiency.
Cleaner energy end-use technologies, environmental performance auditing and incorporating environmental costs could reduce the environmental impacts of energy use by industry, mining and commerce. The Department will collaborate with other departments and public authorities to improve the management of these environmental impacts.
Government will continue to monitor international environmental standards. It will then formulate policies preventing loss of exports due to unwitting violations of the environmental policies of our trading partners. Economic implications of environmental agreements will be properly assessed.
The Department will develop a comprehensive energy demand database that, subject to sensitive commercial interests, will be available to all.
Transport
Liquid fuels play a prominent role although supply security is less important than it was. South Africa now needs equitable access to affordable public transport. Fuel diversity within the transport sector needs to be increased.
Past land policies resulted in the poor being located furthest from work. In addition to being a burden on the poor this results in the inefficient use of transport energy. The draft energy white paper has only limited scope for addressing transport issues, although it comments on several energy-related challenges.
Liquid fuel prices consist of costs and government imposts. Pricing enables government to influence the fuel mix by adjusting taxation levels. A suitable differential between diesel and petrol will be determined, through research and negotiation, and will be phased in.
The Department of Minerals and Energy will advise other departments, particularly Transport and Finance, on the energy efficiency implications of alternative transport modes and subsidy policies. It will also help in formulating fiscal and transport policies to promote energy conservation and efficiency.
Government needs to co-ordinate and integrate transport, energy, land use, economic development, environmental and other policies. This may be more difficult under the new constitutional dispensation, since transport functions have been devolved to provincial and local government.
Past policies’ failure to consider transport energy efficiency implications resulted from a lack of adequate co-ordination. Government policy instruments, including fiscal measures, have been used to generate revenue without considering their effect on energy efficiency. An inter-departmental Transport Energy Co-ordinating Committee will be established to co-ordinate and integrate policy. It will also co-ordinate and communicate transport energy policies between national, provincial and local government. The Committee will formulate guidelines to assist metropolitan and other authorities to consider the transport energy use impacts of land use, transport and traffic management plans.
Agriculture
Agricultural energy use both in commercial and traditional agriculture are reviewed. Commercial farmers have access to energy supplies and technologies. The main issue is energy efficiency since energy inputs have increased for the same agricultural output.
Smallholder agriculture requires improved energy services, rural schools, clinics, roads, communication infrastructure and well-trained people. Relevant energy policies include: access to diesel (government seeks to facilitate the removal of market barriers so as to provide access to bulk supplies for small-scale farmers); the electrification of farm worker households; and providing agricultural, forestry and agro-forestry products, by-products and residues as raw-materials for biofuels.
Electricity
Primary challenges are outlined, the development of electricity policy over the past few years is described and government’s vision for the industry is presented.
The distribution industry faces a number of challenges if it is to meet electrification targets and continue to provide low cost, equitably priced, quality supplies to consumers. The distribution industry will accordingly be restructured into regional electricity distributors. A Transformation Team will be formed to determine detailed policy recommendations, address implementation issues and prepare draft legislation.
The present state of the electrification programme is reviewed and government is committed to implementing reasonable legislative and other measures, within its available resources, to progressively realising the goal of universal household access to electricity. Detailed policies are described to achieve this goal.
The criteria for pricing policy are stated. Government expects electricity tariffs to become increasingly cost-reflective at all levels of the industry. Approaches to meeting growth in electricity demand are also discussed. In future government will expect greater public participation in decisions on large public sector electricity investments, and will require evaluations using integrated resource planning (IRP) methodologies.
Some of the debates around competition within the electricity sector are raised. Government supports gradual steps towards a competitive electricity markets while investigations into the desired form of competition are completed. Eskom will be restructured into separate generation and transmission companies, initially held by a single holding company. Government supports the development of the Southern African Power Pool (SAPP). Various measures to improve governance effectiveness within the sector are presented.
Nuclear energy
An overview of the nuclear energy sector is given, both in South Africa and internationally. Whether new nuclear capacity will be an option in the future will depend on the environmental and economic merits of the various alternative energy sources. Nuclear energy governance is described. Government will review and assess the Atomic Energy Corporation’s activities and future plans as a basis for decisions on the desirability of its restructuring and further fiscal support for its activities. The Department of Minerals and Energy will investigate and clarify the functions of other bodies associated with the nuclear industry, such as the Council for Nuclear Safety, as well as the implications of separating nuclear energy governance from issues associated with the use of nuclear materials. The complete nuclear fuel cycle, in particular the issues of spent nuclear fuel, nuclear fuel procurement and radioactive waste management, will be investigated by the Department in collaboration with Eskom and other role-players.
Oil and gas: Exploration and production
South Africa’s situation and Soekor’s role in particular are desribed. Rights to on and offshore exploration and exploitation of oil and gas remain with the state. Government will regulate and promote oil and gas exploration. Some of the challenges involved as well as the institutional arrangements and legislation needed to give effect to upstream oil and gas policy are stated.
Liquid fuels
A brief overview of the liquid fuels sector and the policy challenges are given. In the long term government believes these challenges will be met through minimum governmental intervention. The key challenge then is to determine the appropriate level of government involvement during the transition to a competitive environment. Government will not extend regulatory control over the crude oil refining industry. Control of industry margins and the Rationalisation Plan will be phased out and margins will ultimately be determined on a commercial basis. There will be a temporary moratorium on self-service and vertical integration to minimise job losses and promote small business. A social plan must be put in place to address the labour implications of retrenchments. Fuel standards and specifications will remain mandatory. Synthetic fuels subsidies will be phased out. Upliftment of synfuels will be required only while synfuel manufacturers are barred from the retail sector.
The restructuring of the CEF group of companies will take place in terms of the National Framework for the Rationalisation of State Assets and national policy. Soekor’s exploration and production division will be fully commercialised. Satellite gas fields will be considered for development in order to enhance the life-expectancy of Mossgas. Government will not increase its involvement in the manufacture or marketing of synthetic fuels. South Africa will maintain a strategic crude oil stock level as directed by Cabinet. Government will determine the country’s strategic crude oil requirements and will accept responsibility for the maintenance of such stocks through the SFF.
Transformation of the liquid fuels industry will mostly occur through negotiation and government directives and no major legislative reform is required. A phased approach will ensure minimum disruption, allow proper management and monitoring, and enable preparation and adjustment. The first (three year) phase will involve interim adjustments. The second phase will allow market forces to set prices.
Gas
An overview of the existing gas industry in South Africa is provided. Gas resources within South African, Mozambique and Namibia are described, and the importance of stable policies is outlined. From an energy policy point of view natural gas is an attractive option and government is committed to the development of this industry. Government is attempting to harmonise regional gas polices and establish bi-national agreements. Key policy challenges are outlined. Coal-bed methane mining will be promoted at both the exploration as well as the production stages.
Government will legislate for the transmission, storage, distribution and trading of piped gas. The legislation will provide for a minimal regulatory regime consistent with the orderly development of a competitive gas industry. Limited vertical integration will be permitted. Gas regulation will require pipelines to provide open access to uncommitted capacity, transparent tariffs, and disclosure of cost and pricing information. The Department of Minerals and Energy will assist the Department of Labour to develop national health and safety standards for gas infrastructure.
Coal
An overview of the existing coal industry in South Africa is provided. The industry will remain deregulated and its performance will be monitored. Whilst coal will probably remain the major source of energy for the foreseeable future significant scope exists to reduce the environmental impacts of coal with clean coal technologies. The resource potential of coal bed methane will be investigated. Government will continue to investigate options for the utilisation of coal discard streams and will promote these as appropriate.
Renewable energy sources
The advantages of renewable energy are set out, particularly for remote areas where grid electricity supply is not feasible. Government believes that renewables can in many cases provide a least cost energy service, particularly when social and environmental costs are included, and will therefore provide focused support for the development, demonstration and applications of renewable energy. In particular government will facilitate the sustainable production and management of solar power and non-grid electrification systems such as the further development of home solar systems (SHS), solar cookers, solar pump water supply systems, solar systems for schools and clinics, solar heating sytems for homes, hybrid electrification systems, wind power, etc. All of the above will be largely targeted at rural communities. Power from Cahora Bassa will be tapped, provided that suitable agreements can be worked out between the participants at government level. Government will also promote appropriate standards, guidelines and codes of practice for renewable energy and will establish suitable renewable energy information systems.
Transitional Fuels: Low-Smoke Fuels
Government will promote research into low-smoke fuels as a transitional product that may be utilized as an energy source for remotely located and rural households. Investigations will be made into simple strategies that may be used in order to reduce the production costs.
Integrated energy planning
Integrated energy planning (IEP) entails many technical functions that are listed and require institutional capacities which currently do not exist. Government believes that it should be playing this role and will provide the necessary resources to establish IEP so as to facilitate future energy policy development.
Statistics and information
Good data is required for the energy policy process and integrated energy planning. A database needs to cover a number of areas, as outlined in the draft white paper. Government will provide information to the public at a reasonable price in a manner which does not compromise legitimate commercial interests.
Energy efficiency
Significant potential exists for energy efficiency improvements in South Africa. In developing policies to achieve greater efficiency of energy use, government is mindful of the need to overcome shortcomings in energy markets, but without unduly interfering with market forces. Government will create an energy efficiency consciousness and will encourage energy-efficiency in commerce and industry. Government will establish energy efficiency norms and standards for commercial buildings and industrial equipment, and voluntary guidelines for the thermal performance of housing. A domestic appliance labelling programme may also be introduced. Publicity campaigns will be undertaken to ensure that appliance purchasers are aware of the purpose of appliance labels.
Government will promote improved combustion techniques and appliances for fuelwood and other traditional fuels and will implement an energy efficiency programme to reduce consumption in all its own buildings. Government's capacity to implement energy efficiency programmes is currently limited and consideration will be given to establishing an external agency to undertake this work. The functions of such an agency are outlined. Targets for industrial and commercial energy efficiency improvements will be set and monitored.
Environment, health and safety
There is an inevitable interaction between environmental and development goals. The key policy challenge is thus to maintain an acceptable balance by utilising an integrated approach. The immediate priority for energy-environment policy is the negative environmental and health effects of air pollution arising from coal and wood use in households. A set of measures to address these problems are outlined. Government will continue to encourage household electrification, whether grid or off-grid, and will introduce safety and performance standards for paraffin retail and paraffin stoves.
Government will monitor international developments and participate in negotiations around response strategies to global climate change, in order to balance its environmental responsibilities and development interests in these processes. The Department of Minerals and Energy will follow a ‘no regrets’ approach that minimises environmental impacts commensurate with cost effectiveness and positive cash flow. The Department will also access international funding in re-directing development projects towards more favourable environmental effects.
Research and development
The state of energy related research and development in South Africa are outlined. Government spending on energy research has decreased steadily since 1990. The challenges in developing policy on research, development and demonstration are described . Government expects energy suppliers and the private sector to carry out appropriate research.
Human resources
Government recognises the integral nature of human resource development to its industrial strategy for the energy sector. To transform and develop appropriately trained and skilled human resources, the Department of Minerals and Energy will develop policies to redress the inverse skills profile and increase access to institutions, resources and opportunities. The Department of Minerals and Energy will facilitate investigations to establish the sector’s skill requirements, assess current training provision and recommend human resource development strategies and programmes.
The Department of Minerals and Energy will develop an employment equity plan to assist with attracting appropriately skilled people and correcting imbalances of the past. It will attempt to increase the number of women and black people on all policy development structures, forums, parastatal boards and similar structures. The target is at least 30% women, 2% people with disabilities and 50% black participants by the year 2000. The Department will ensure increased support and access for black and women businesses providing services or contracting with the Department and energy parastatals. This is in line with the White Paper on Affirmative Action Policy that was launched by the Public Service Minister in April 1998.
Capacity building, education and information dissemination
Government will support capacity building, education and information dissemination. The Department of Minerals and Energy will monitor energy awareness and assess communication strategies and will allocate funding and staffing for this purpose. The Department will, wherever possible, seek to integrate energy issues into other government communication programmes.
International energy trade and co-operation
The major policy challenges in this area are stated. Government will develop strategies to reduce trade barriers, facilitate regional co-operation, and establish energy sector co-operation with other countries and international bodies.
Fiscal and pricing issues
Fiscal and energy policies need to be aligned, since fiscal policies can either promote or hinder the accomplishment of energy policy objectives. The five categories of fiscal transfer and their impact on the energy sector are dealt with.
Government supports dedicated levies to fund regulatory and other government agencies, provided there is a clear link between those paying and those benefiting. Levies need to be managed responsibly and transparently and will not be used for general revenue-raising. The implications of subjecting the electricity industry to income tax will be investigated. A National Electrification Fund will be established, to be funded by a tax deductible levy on electricity.
Tax differentials may be used to support government’s policy of promoting more efficient and environmentally sound transport modes. Government will investigate an environmental levy on energy, the proceeds of which would be dedicated to the support of more environmentally-benign and sustainable energy options.
Governance and institutional capacities
The range of players and the complexity of their inter-relationships makes energy sector governance difficult to understand, and even harder to manage. Key challenges facing government are spelt out. The roles of the various institutions involved in energy sector governance are described.
The Department of Minerals and Energy will create mechanisms to improve communication with national, provincial and local government.
The need for a new white paper on energy policy
South Africa’s external and internal environments have experienced fundamental shifts which, not surprisingly, have resulted in significant changes in the context for energy policy. The apartheid-inspired United Nations oil embargo, for instance, was lifted following moves towards democracy within the country. The adoption of broad government policy frameworks, such as the Reconstruction and Development Programme, also necessitated a review of existing energy policies. Given that government’s last white paper on energy policy was published in 1986 it is clearly high time that the sector’s policies undergo a major re-evaluation.
In response to the process of democratisation a number of negotiating processes began spontaneously within the energy sector, usually in stakeholder-based forums. These processes have examined problems facing individual sub-sectors, with policy positions being developed within the Liquid Fuels Industry Task Force (1993–), eventually under Nedlac, the National Electrification Forum (1993–95), and the Nuclear Fuel Cycle Initiative (1994–96), among others.
Recognising the need to integrate these energy policy processes and, furthermore, the need to provide policy stability for energy suppliers, investors and consumers alike, government formally commenced the energy policy white paper process in 1994.
The process of energy policy formulation
Not only has the context changed for South Africa’s energy policy, but so has the general approach to policy formulation. Democratisation of the country’s political system has resulted in greater emphasis being placed on transparency, inclusiveness and the accountability of elected officials and their appointed managers. The energy white paper process has therefore attempted to achieve the following:
The process commenced with the drafting of an Energy Policy Discussion Document by a multi-disciplinary team of experts. This 220-page document describes the energy sector and identifies 111 major energy policy issues. These were divided into sections dealing with energy governance, energy demand, energy supply, and cross-cutting issues. Policy alternatives and implementation strategies were identified and discussed for each issue.
The Energy Policy Discussion Document, informally known as the ‘green paper’, was intended to be used as a resource for the policy consultation process and was released by the Minister of Mineral and Energy Affairs in August 1995 for study and written comment by interested parties.
Following the release of this document a number of formal and informal workshops were held with interested parties. Details of these workshops and their proceedings are described in the appendices.
More than one hundred individuals and organisations, including ten international organisations, responded to the Energy Policy Discussion Document with formal submissions. A list of these organisations appears in the appendices.
A team of individuals were subsequently appointed in August 1995 to write the first drafts of the various sections of the white paper. Known as ‘issue rapporteurs’, these individuals were selected on the basis of their knowledge of specific issues. As far as possible rapporteurs were drawn from within government and the academic and research communities in order to reduce the potential for conflicts of interest. Their tasks were:
The contributions by the various issue rapporteurs were then edited into a draft white paper for review by an editorial committee to ensure consistency, clarity, practicality, appropriateness, balance, and comprehensiveness. The members of this committee were selected on the basis of their specific areas of expertise, backgrounds in energy policy development, and availability. The editorial committee was deliberately established as a non-stakeholder body in order to avoid the difficulty of ensuring proportional representation from the large, diverse and fragmented energy sector. The membership of the editorial committee is described in the appendices.
The approach to policy formulationIn many ways the approach to policy formulation for the energy sector is identical to that taken for any other sector of society, namely:
This process is, however, somewhat complicated by the nature of the energy sector itself. Broadly speaking the sector can be divided between demand and supply. Although one may intuitively expect activities on the supply side to arise as a result of expressed demand this is not automatically the case. In fact a dominant feature of the South African energy sector has been a tendency to promote policies which address issues predominantly from the supply side.
Analysis of the energy sector typically commences with the identification of different demand and supply sub-sectors. In South Africa’s case the demand side is generally analysed in terms of the energy requirements of households, industry, commerce, mining, transport and agriculture. Supply sub-sectors would include the coal, electricity, nuclear, liquid fuels, gas and renewables industries. Both demand and supply sub-sectors can be broken down into smaller and smaller divisions as required.
When approaching the sector from a public policy perspective, analysts are faced with the reality that problems can arise in both demand and supply sub-sectors. For instance, a financially unsustainable state-owned energy-supply institution, or energy poverty in rural households, could both be constituted as problems requiring policy decisions on the part of government. Identifying the causes of these problems can, however, present policy analysts with an extremely difficult task. The problem of rural energy poverty, for instance, may stem from insufficient energy supply by multiple supply sub-sectors. Causal linkages may well extend beyond the energy sector itself. For instance, problems to do with liquid fuel consumption for transport purposes may arise as a result of broad fiscal policies.
Energy policies must, therefore, be carefully co-ordinated with other sectors to avoid unwanted side effects. For instance a policy of rural electrification will not resolve rural energy poverty on its own. It must be complemented by other policies and programmes, such as social forestry programmes, education and job creation, to have the desired effects. Energy policies must also be co-ordinated between energy sub-sectors. Using the example of rural electrification again, it is necessary to recognise that poor households cannot afford expensive electrical appliances and hence continue to utilise wood, paraffin and other fuels. Supply-side initiatives are therefore also required in other energy sub-sectors too if rural energy poverty is really to be addressed.
In order to cope with the analytical problem of multiple causal linkages energy policy analysis usually commences with the demand side. This approach, commonly known as ‘integrated energy planning’, recognises that energy is not an end-good in itself, but is rather consumed as a means to some end. Since technology generally allows fuels to be treated as substitutes there are almost always multiple solutions to any one energy service need. The role of policy is thus to facilitate the optimal consumption of energy resources to meet social needs. This obviously requires a recognition of consumer choice and the need to open up the energy sector to market forces where appropriate.
Despite its intuitive appeal the integrated energy planning approach suffers from the same drawbacks as other ideal models, in that it requires an enormous amount of data and analysis to implement. For various reasons South Africa has very limited energy data and, furthermore, very limited capacity to perform this sort of policy analysis. Nonetheless, this white paper has attempted to follow the integrated energy planning approach, as reflected by the structure of the paper, which deals firstly with the demand sectors, secondly with the supply sectors, and finally with the broader cross-cutting issues which affect the sector as a whole.
The expression of policy
In expressing government’s energy policies for the particular demand, supply and cross-cutting sectors, care has been taken to present the following logical components within each section:
In keeping with any good policy formulation
process a set of clear policy objectives have been established at the outset to guide
policy choices. These are presented in the following section, which deals with the
context, challenges and objectives for energy policy.