BUSINESS INTEL
Nerves around policy uncertainty
By Roula Inglesi-Lotz
To grow the number of energy sector infrastructure projects requires innovative, evidence-based policy propositions and implementations.
Roula Inglesi-Lotz( RIL), president of the South African Association for Energy Economics( SAAEE), answers some questions posed by The Civil Engineering Contractor( CEC) regarding the need for greater debate within the energy infrastructure sector.
CEC: In what way is policy uncertainty hampering the roll-out of new energy infrastructure projects?
RIL: Ongoing financial volatility policy uncertainty, especially around the country’ s energy supply-mix future, creates nervousness among foreign capital investors, project developers, and financial institutions with regard to the roll-out of new energy projects. Delaying the announcement or implementation of national policies, such as the Integrated Resource Plan( IRP) or the carbon tax, does not allow long-term strategies and proper planning of risk. Investors rely on continuity of policies and certainty for the future, and they would choose the most attractive opportunities that will ensure the lowest risk and highest return in the long-run. South Africa’ s currency, which is characterised by high volatility and sensitivity to exogenous shocks, presents investors with a predicament too.
CEC: How could this uncertainty be improved, in your view, by SAAEE’ s lobbying of government?
RIL: Quoting the 2018 president of the International Association for Energy Economics( IAEE), David Knapp,“ Take
36- CEC August 2018 the politics out of policy.” The sector is in great need of policies that are evidencebased and unbiased, with the ultimate purpose being the improvement of the current living conditions of everyone in South Africa. The energy sector is in need of leadership that will be prepared to make the right decisions and follow the right path, no matter how difficult. In addition, the sector is in need of collaboration of different‘ lobbies’: collaboration, debate, and engagement. Only then will policymakers promote and implement policies beneficial to the majority of the sector. The public sector as well as the private sector and academia can only benefit from the exchange of ideas and research outcomes that SAAEE aims at. Most developing countries lack robust institutions and continuity in their policies that will provide investors with a fertile ground for further investment. Having that would lead to job opportunities through economic development.
CEC: Is South Africa falling behind in terms of energy innovation? How do we— and our engineering skills— compare internationally?
RIL: Technology spillovers, especially in energy applications, tend to create‘ laziness’ in certain countries: why innovate when they can import innovative solutions? South Africa, to my mind, is not one of those. The country has shown that it has the capacity and skills to be a pioneer in energy R & D, while at the same time appreciating the benefits of adopting existing technologies( albeit, not always adapting them to South Africa’ s unique conditions). Energy researchers work on technological improvements of existing applications as well as new products and processes in the country. Engineering is traditionally and currently a career choice for the country’ s youth. Various research institutions as well as research funding institutions show, in practical ways, their support to such technological developments and training of individuals. Where do we get it wrong then? The answer lies in the financial planning and management, and in the economics. The sector tends to innovate for the sake of innovation; there is a greater need for quality, appropriate, and well-directed innovative solutions; for solutions that can be absorbed in the production process and in the everyday life of residential consumers with relative easiness and low cost. Otherwise, the country’ s energy R & D expenses will yield no societal benefits and the crowding out from other economic sectors will be proven crucial.
CEC: What are the challenges and opportunities facing the sector?
RIL: This country is one of the powerhouses of the African continent; a fact which gives us great responsibility for the future. Lack of access to safe, reliable, affordable, and environmentally friendly energy services is the primary developmental problem of the continent. In addition, the current power generation plants as well as the national transmission and distribution systems of African countries are under pressure, so new and innovative solutions are needed to tackle the lack of