Nampower Turkeys Vote for Early Christmas

                      Nampower Turkeys Vote for Early Christmas

Last week’s announced electricity price increase of 8%, which is above the current rate of inflation of 6.7%, is part of a long painful series of price increases that has been demanded by Nampower. Last year the approved increase was 16%. These huge price increases are driven by a number of factors including catch-up on past electricity prices. Nampower has a plan to increase the price of electricity to consumers at a rate of 15% per annum until 2020, that is assuming that the Electricity Control Bard (ECB), the government’s regulator, will allow them to do so. But even if this commercial folly is permitted by the regulator there have been some fundamental technological changes in electricity generation that set clear limits to the path of price escalation that Nampower is pursuing.

On the supply side the country remains dependent upon two source of power. One is form the Ruacana Hydro projection the Kunene which supplies some 345 MW of power, another 80 MW comes intermittently from the Van Eck coal fired plant in Windhoek. Both of these work intermittently depending on the rains in Angola and the supply of expensive trucked coal for Van Eck. This creates potential installed capacity of approximately 480 MW  in 2016. While peak demand in July 2016  was approximately 600 MW. The second source of power is based on imports mainly from South Africa which in a “normal” year supplies 60% of the country’s energy needs . While Namibia is committed to increase domestic capacity, the situation which existed from 2008 onwards when  Eskom did not have the capacity to supply South Africa’s demand, let alone the neighbouring markets of Namibia, Botswana and Zimbabwe has now completely changed.

 Demand for electricity in South Africa has started to fall while capacity has started to increase substantially. Eskom now proudly says that it has 4GW of excess power and this is only set to increase. By 2022 the two thermal  mega-plants at Kusile and Medupi are set to be operating at full capacity. South Africa’s capacity will then rise to 55GW, almost double current demand. The decline in demand in South Africa is a disaster for all concerned, as much as the load shedding was of several years ago. The excess demand is a sign of the weakness of the South African economy.

Electricity consumption is always a good indicator of just how  an economy is doing and the decline in demand is widely seen as a ‘Zuma’ effect and the lack of confidence in South Africa by the business community.

 As a result, Eskom is now hungry to sell its excess capacity to its neighbours and this will make developing local capacity all the more difficult as it will now be willing to make contracts that are cost reflective but coal fired plants are still amongst the cheapest. This will only encourage a return to the bad old days of  complete  dependence on South African supply and will  only breed future energy insecurity because when Zuma finally  leaves and simultaneously the economy begins to recover, South Africa’s appetite for electricity increases, we could see a repeat of the situation that existed over the period 2008-2015. This is a complete  reversal of the situation just two years ago where South Africa’s neighbours, including Botswana and  Namibia, were forced to buy electricity from Eskom at ‘spot’ prices, i.e. the highest prices which are linked to the cost of generating electricity using diesel generators. It was these exorbitant prices that were charged to Botswana and Namibia to keep the lights on that Namibians seem to be paying for now in higher prices agreed by the Electricity Control Board.

 But something almost unnoticed has also happened in Namibia. In 2015 the government agreed to the development of what is called a ‘’feed in tariff’’ to allow the development of solar PV and wind powered systems. License holders can charge 1.37 Nam$ per kWh generated from a 5 MWSolar PV plant. These were prices that were considerably above the price normally paid for electricity by Nampower from Eskom.   Four small 5 MW plants are already in existence in Omaruru, Otjiwarongo, Tsumeb and Grootfontein and a total of 70MW of similar types of plants are expected to go on grid by mid 2018. On top of this, the regional electricity distributors to which Nampower sells,  such as the City of Windhoek along with other towns  have agreed to pay a price for electricity generated into the local grid by private suppliers at what is called the ‘’avoidable cost’’ which is approximately $1.13 per kw hour. This will mean that when I set up a solar unit on my roof and I generate more electricity than I need at home my electricity meter will start going backwards and I will be credited $1.13 for every kwh that I generate at home.

 What is happening to electricity generation  globally as well as in sun-blessed Namibia is nothing short of  a brave revolution where solar power will  do to Nampower what the cell phone did to landlines and to Telecom Namibia. I will soon be both a producer and a consumer of electricity. The only real question is does this make any commercial sense for me personally? Installing a solar system including the most important component, which is a solar hot water system, will pay me back in 5-7 years. By that time I will have paid back the $80,000 or so investment and stopped paying the City of Windhoek anything significant and they will start paying  me.

While  the capital cost of installing a solar system at home is still fairly high it is now appearing like it is viable here. You can get a tailored loan from banks like FNB to install home solar systems. What is certainly the case is that the price of installing solar costs is continuing to fall and it will, in a few years, become normal for people in Namibia to generate their own power at home.

 

Namibia, has committed  at global  climate change conferences to have 70% renewable power by 2030. Given the relatively  high price that was agreed initially to be paid for solar, N$1.37per kWh for a 5MW facility,  as solar  expands Nampower will no doubt be coming back to the ECB asking for ever greater electricity prices which will only accelerate the switch from them to home generated power. Nampower’s pricing policy of asking for 15% per annum is like the proverbial turkey voting for an early Christmas.  

 There is a more important development issue as Namibia plans to be not only environmentally sustainable but also to industrialize. If one looks at the history of resource rich countries that have actually transformed their economies, whether it is Malaysia or South Africa they have done it with cheap electricity. There is nothing cheap about the green road Namibia is now travelling and it will only serve to make manufacturing in Namibia even more expensive. Namibia cannot industrialize with expensive electricity and certainly it will not be able to beneficiate base metals which are particularly energy intensive. The best way around this is a clear two tiered pricing system based upon high prices for consumers and much lower prices for industry based on the cost of generating hydro power from Ruacana. Hydro remains the cheapest way to generate electricity and a price of electricity based on this will help give industry some relief from the high cost of environmental sustainability to which the government is committed.

These are the views of Professor Roman Grynberg and not necessarily those of UNAM where he is employed.

Lies we telll our children!

Lies we tell our children!

For years good parents have told their children a story that belongs to another century. ‘Study hard at school, we tell them, go to university, get a degree, get a good job and you will live happily ever after!’’ It is a story that was true in another time but less and less in the 21^st century and  certainly not now in Africa. The facts are well known to many graduates. Young people have believed the stories that their parents told them and done as they were told. But legions of them have come out of Africa’s universities and found nothing but unemployment facing  them in future.

The Supply Side- Blaming the Victim

The question is what is the cause of this situation and what should be done to give young Africans a brighter future than what currently awaits them?  There are two explanations that are offered. The first is supply driven and that is that we have simply created too many universities which have created an enormous supply of young graduates many of whom lack even the most basic of skills that are of use to either government or the private sector. Between 1990 and 2007 the number of universities in sub-Saharan Africa has grown from 24 to 460. Most of these universities are private and many are of the most questionable standard. At present the estimates are that there are over 680 universities in sub-Saharan Africa. All of sub-Saharan  African has a tertiary enrolment rate of only 8% of the relevant population which is much lower than the rest of the world. If Africa met the world average of around 30% we would have twice as many unemployed graduates.

It is easy enough to paint a picture of many African university graduates who have weak mathematical skills and who are incapable of writing a complete and coherent paper. While there can be no doubt that in some cases this is true in many cases this amounts to blaming the victim. It is precisely this problem that so many observers try to depict as the fundamental cause of unemployment throughout Africa. The argument goes that if we could just produce better graduates then all will be good and the good ones who will go to the ‘Centres of Excellence’ that the World Bank hopes to create in West Africa will all find jobs. In other words  the unemployment is a supply side problem. Just produce a better graduate and the demand will be there.

But will it? There is no doubt that the involuntary unemployment amongst graduates from the elite institutions in the developed and the developing world is almost zero. But what of the rest of the graduates? No-one has a comfortable answer to this question. The rest are just getting an education and only those who will come from elite institutions will find jobs.

Demand Side Problems -Its the Model!

 Why are there so few jobs created in Africa, whether they are for graduates or otherwise?  

The free market, liberal economic model we are in creates few private sector jobs in anything other than the world’s low cost centres, mostly in Asia. Manufacturing in Africa is virtually non-existent, extinguished in the 1980’s and 1990’s under World Bank policies and the effects of trade liberalization in the 1990s. We make nothing except holes in ground and a narrow but traditional  range of raw agricultural products. We export minerals using capital intensive techniques that create few jobs and import manufactured good from Asia. In mining technological change from underground to open pit mining has decreased employment levels enormously.  The globalized free market economic model emphasizes efficiency and Asia, in particular India and China, are simply more cost efficient than almost all Africa countries.

 Donald Trump is the American worker’s response to this economic model which has taken their highly paid jobs and moved them to lower cost China and Mexico where dynamic growing economies have emerged as a result. In return Americans, like Africans, get cheap consumer goods which they can afford to buy if they still have jobs. This model is efficient but hopelessly unsustainable and it is at the heart of why the world is becoming more politically unstable. No amount of blaming African graduates or building elite institutions will solve the demand side problem because it is a product of the global economic model we live in.

 There is an ’alternative Nkrumahist fact’ that is particularly relevant in explaining Africa’s predicament. Between the Congo River and the Cape are 250 million hard working, industrious and very entrepreneurial people who have good land, water and every conceivable minerals that should make them as rich as any developed country and yet, by and large, these African citizens of the SADC region live in poverty. It is only because Africans live in tiny countries, defined by white colonialists 150 years ago, and are ruled by what are too often malicious and corrupt elites that no  solution to Africa’s situation is found.

 Only a change of Africa’s economic model to one, paraphrasing  Donald Trump’s words, where ’Africans puts Africa first’ and seek to develop a large competitive African market, focus ruthlessly on  developing competitiveness and our manufacturing capacity will the myths of the last century have any meaning to our unemployed children. Until that time comes, the North and West African version of the 20^th century story  will remain the most relevant to our children  ‘’go to university, get a degree and then  when you find yourself unemployed, get on a boat to Europe  where, if you survive the crossing,  you can work illegally,  doing the same menial jobs for white people that the ancestors did when they were forcibly taken across the Atlantic 200 years ago”.  

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