The South African energy sector has historically been at the centre of the country's development. The origins of the electricity supply industry in the first years of the twentieth century, for example, were driven by the needs of the booming mining industry. The more calculated decisions of the apartheid government in the 1950s to develop a synthetic petroleum industry and a local nuclear capacity reflected the strains of isolation and later the oil embargo. Today, with the new government's focus on widening household access to electricity, the energy sector continues to be at the heart of structural developments in the economy (Spalding-Fecher et al. 2000).

The energy sector has supported massive investments in heavy industry and mining. Much of the manufacturing sector is also linked to mining activities through minerals beneficiation and metals production. All of these activities are energy intensive, relying on the availability of cheap coal and electricity. The presence of the 'minerals-energy complex', with its links to mining products and reliance on low energy prices, underpins much of the South African economy. Massive power station projects initiated in the 1960s and 1970s, with the assumption of continued rapid increases in electricity demand, left the national utility with large excess capacity in the 1980s and 1990s, which has helped to keep electricity prices low, although this excess capacity is running out. The presence of low energy prices, including coal-generated electricity, has been one of South Africa's key competitive advantages and continues to drive much of new investment in industry.

Figure 2 illustrates the coal-dependence of the economy, with 70% of total primary energy supply (TPES) coming from coal (DME 2000). This compares to a share of 21% for the OECD and a world average of 23% (IEA 2000b).

Figure 2. Share of total primary energy supply, 1998
Source:

Figure 3. Share of final consumption, 1998

Figure 3 shows the large share of final energy consumed by industry, mining, and transportation. Energy consumption levels in South Africa are significantly higher than many other developing countries, particularly consumption of electricity - where South Africa consumes half of Africa's electricity with only 5% of her population .

Energy intensity, or how much energy is required to generate a unit of economic output, is more than double that of OECD countries, even when taking into account purchasing power parity to compare economic output (see Table 3).
 

NB: TPES = total primary energy supply, toe = tonnes of oil equivalent, PPP = purchasing power parity, GDP = Gross domestic product

The South African Department of Minerals and Energy released the long-awaited White Paper on Energy Policy in December 1998. This policy document was result of four years of consultation and debate, and articulated the new government's priorities and overall framework for energy sector development and regulation. Table 4 presents government's priorities for its various energy policy initiatives, as presented in the Energy White Paper .
 

Many of the government's policy priorities will have direct impacts on measures of sustainability for the sector. The restructuring of the National Electrification Programme should allow continued increases in access to electricity, particularly in rural areas, while promoting renewable energy through the off-grid electrification concession programme (NER 2001b). There is some risk, however, that rising costs and low consumption will make cost recovery a higher priority and so slow down access. The pending restructuring of the electricity distribution industry could be a major barrier to implementing energy efficiency programmes (Clark 2000). The National Electricity Regulator's attempts to enforce integrated resource planning as a standard practice across the industry, as well as reform in legislation related to independent power producers, will also be crucial to providing support for efficiency and renewable electricity generation (Ellman 1999; Clark & Mavhungu 2000). The introduction of competition in generation, and future privatisation of Eskom, will have dramatic impacts on the prospects for investment in renewables and efficiency - and many analysts have raised concerns that this impact will be negative without government intervention (Praetorius et al. 1998; Barberton 1999; Clark 2000; Clark & Mavhungu 2000)

In the petroleum sector, deregulation of petroleum marketing and increased black ownership of the industry could have major impacts on petrol and diesel prices, as well as investment in upstream refining. Phasing out subsidies to Sasol, the coal-to-liquid fuel producer, and removing the requirement of petroleum marketers to buy Sasol liquid fuels, will reduce the energy intensity of this sector. This also fits with Sasol's continued move towards more value-added chemicals.

One of the biggest questions in new energy supply investments, is whether South Africa should invest domestically, or look more to the Southern African region for energy sources (Spalding-Fecher et al. 2000). There are strong economic and environmental arguments in favour of using resources within the Southern African Development Community (SADC), which include considerable hydropower and natural gas potential (eg (Rowlands 1998; Sparrow et al. 1999; Graeber & Spalding-Fecher 2000). A 'power pooling' agreement already exists between the main electricity utilities in the region (the Southern African Power Pool), and with the much more constructive political environment which has prevailed since 1994, there is potential for South Africa to meet its increased demand through imports from the region, with reduced, but not insignificant, environmental impacts. Despite some ongoing conflicts over the price of importing electricity, the region's utilities are working on a combined regional power expansion plan, and Eskom has identified more than 9 000 MW potential for regional imports, even without considering the massive potential of the Grand Inga scheme in the Democratic Republic of Congo, which could supply 40 000 MW in the longer term (Eskom 1997).

One of the most important regional energy developments, and one which also impacts the synthetic fuels industry, is the increased investor interest in large off-shore natural gas fields in Namibia and Mozambique, as well as more recent finds off of South Africa (eg Marrs 2000a; 2000b). Sasol, for example, has taken over complete ownership of a gas field in Mozambique and intends to build a pipeline to South Africa, while Shell International is investigating building a gas pipeline from Namibia to Cape Town, to bring gas from the offshore Kudu fields to a potential gas-fired power station in Cape Town, as well as anchor industrial customers along the West Coast of South Africa (ibid.; (NER 2001a). These investments could promote a significant shift away from coal as a primary energy source, and provide feedstock for high value added chemicals in the synfuels plants.

The most controversial development in the South African energy sector, however, is clearly Eskom's plans to build a new generation of 'pocket size' nuclear reactors, for export as well as for domestic power generation. Eskom's plans for a test site for these 100MW Pebble Bed Modular Reactors, with support from several local and international investors, has stirred up such argument, that Cabinet has called for a special review of the project by the International Atomic Energy Agency. (Schoonakker 2001) Eskom has also stated that , to meet future demand, they may bring back on line three old 'mothballed' coal-fired power stations in the near future. At the same time, Eskom recently announced plans to develop 100-200MW renewable electricity demonstration projects using wind and solar thermal power (Lombard 2001). These would be the largest such investments ever in South Africa.