Thursday, November 17, 2011

Job creation

There is a remarkable myth propagated by the green lobby, that renewable energy will create jobs. The myth has almost more believers than any other religion.

Why is this a myth? It is because the number of jobs created by any new venture is not related to the spend on construction - those are short term jobs. Yes, a few people work while the project is being built, but this is part of the social cost, the sunk capital. If the project then doesn't produce, then NO jobs are created.

This is not to say that construction work is not job-creating. As an engineer, I would never say that. But it is the productive facilities or supportive infrastructure that we create which ultimately gives new jobs, not the actual work that goes into the construction.

Instead, the number of jobs you create is related to the number of customers you create once the project is up and running. You can see this quite easily if you think of an energy project which sells no energy once it is producing. Rather, jobs are destroyed, because you have wasted potential job creating wealth on a useless project.

The same argument applies to what you might call the marginal job creation. Consider two projects, one producing the goods at cost X and the other the same goods at cost Y, where X>Y. Then there will be more customers for Y than for X, and therefore the second project will create more jobs than the first.

This applies DIRECTLY to renewable energy. It costs more than coal-fired energy (yes, even when you include external costs). If you doubt that it costs more, you have only to read the documentation underlying IRP2010. So renewable energy actually creates less jobs than coal. The myth does not deserve the lip-service it is paid.

Monday, November 14, 2011

Are you short of gas?

The State is having difficulty persuading the petroleum industry to supply sufficient LP Gas. Minister Peters would like to convert 1.5 million households to this fuel by 2016.It would make a great difference. At present, unsafe fuels cause thousands of 'shack fires' annually. tens of thousands of homes are destroyed and many lives lost.
Part of the problem is the R8.15/kg regulated price at the refinery gate. This price is too low, and the industry cannot justify expansion/ This cannot be the whole story, because the retail price in Gauteng is R21.60/kg. Where does this huge markup come from? A few years ago I studied LP Gas distribution internationally. In China, gas left the refinery at (then) $370/t and reached the streets at under $400. In Morocco, where Government has also actively encouraged LP Gas use for the poor with great success, a refinery gate price of $350/t translated into a street price of just over $400, but there was a small subsidy of about $20/t.
So there are two problems we face. The first is the ongoing desire to regulate the price of petroleum products. Government has been speaking about deregulation for years, and doing nothing. The result is that the industry has underinvested in refinery capacity, and we are having to import more and more of all fuels every year, which is inherently more expensive than producing it from imported crude oil.
The second is the distribution model for LP Gas. There is layer upon layer of handlers, each of whom takes a cut. Much of this is spuriously justified by safety concerns. The LP Gas Safety Association has done an excellent job of promoting safety, but each layer of handlers now justifies its existence (and markup) on the grounds that safety is critical. It isn't. The local safety record is no better or worse than international records.
Moreover, Government unwittingly supports the distribution model by requiring licences all along the way. You even require a licence to store a few cylinders of gas in a spaza - which you can't get because the spaza doesn't sit on an identifiable erf.
A deregulated market would see refinery gate prices rise, distribution costs fall dramatically, hundreds of jobs created in an efficient distribution chain and a consumer who was grateful to a sensible Government for getting the hell out of the way.

Wednesday, November 9, 2011

Why the rush?

Our Environment Minister approves of renewable energy featuring strongly in the future energy mix of the country. Indeed, IRP 2010 was largely driven by some strange ideas about a low carbon future.

The trouble is that renewable energy is a relatively unproven technology, and therefore risky. The Danes are having to sell half their wind energy at a considerable loss; the Texans are griping because power costs have soared as conventional stations have been forced into inefficient start/stop operation to accommodate surges; the Chinese are having to switch off wind power to keep their power plants running, because the power plants also send hot water to homes and factories for warmth.

What is the Environment Minister doing in areas about which she knows next to nothing? The simple fact is that renewables are expensive. IRP2010 showed this.

For instance, nuclear capital costs are about R27000/kWh installed, and wind about R14500. However, the nuclear plant has a life of 60 years and yields about 85% of its installed capacity every year. The wind installation has a life of about 20 years and yields less than 30% of its capacity. That means that the capital cost is about 6c/kWh for nuclear and 28c/kWh for wind. Operating costs are around 15c/kWh for nuclear and 9c/kWh for wind.

There is no contest - if you want affordable low carbon, you should be into nuclear power.

Monday, November 7, 2011

The end of the affair

Ending relationships is always painful. We try to avoid the pain by delaying as long as possible. All that happens is that things get worse, until parting becomes inevitable.

In 1953 I opened my first bank account with what was then called Barclays Bank. Fifty-eight tumultuous years and several name changes later, the bank abandoned me, so I am now leaving it. It will be painful, it will take time and cost, but when you receive the message that your bank couldn’t give a damn, then it is time to move on.

Not that the relationship has been smooth over all these years. There was the memorable moment when I nearly found myself inside a jail in Iran. The brand-new $100 bills the bank had given me were counterfeit, which was instantly spotted by the Iranian money-changer. On my return to South Africa, I paid the ‘surplus’ dollars back into my account – and then warned the bank they were fakes. I am still waiting for an apology.

Or there was the time when I was a struggling young professional. Something I came across suggested a very profitable investment – but I had no cash. So I asked for an overdraft. I had an interview with my bank manager, who told me that, as I was already mortgaged to the hilt, the bank could not assist me. Over the next three weeks, I watched helplessly as my expectations came true. Then I went into the bank on other business, and the manager came out of his office to thank me for a really wonderful tip.

Or the moment when my credit card was frozen as I landed in France. Because I was heading for a remote area, there was little I could do about it for nearly a week. Seven days of bread and water followed, before I found that the freeze was because I had not taken the precaution of advising the bank that I would be overseas. It mattered not that I had paid for flights, cars, hotels and travel insurance via the card. The first transaction in a foreign land had blocked the card “for my protection”.

Could it get worse? Try three weeks of bread-and-water. In Naples my pocket was picked. The credit card went. I had advised the bank of my intended absence, so there was a possibility that it could be used. However, one phone call, and the card was blocked and a replacement promised. Yes, it should get to me within three days – “We care about our platinum card holders!”

When it didn’t arrive, a phone call showed that the process of issuing the card was stalled because the bank hadn’t received confirmation that I was a South African resident and that I intended to return (as they hadn’t asked for confirmation, it wasn’t surprising). The delay meant I had to change the delivery address from Naples to Rome – I could expect the card in three days.

More calls from Rome, and several promises that I would be contacted, all of which were broken. With three days to go, I demanded to speak to a supervisor. He was all unction; really apologetic that my holiday was being ruined; and promised faithfully to have the new card couriered that night so that it would reach me before I left Rome.

I did the sensible thing, and requested the document tracking number so I could contact the courier company. I was given a very wrong number. It became clear that it wouldn’t reach me in time – so I requested that the courier company be asked to change the delivery address. “No problem!”

Finally it was delivered to Rome. By then I was in Florence, but I had left a trail, and Rome called up to report receipt. €70 of courier fees and two days later, a new card was finally mine.

My troubles were not over. The card needed activation. The letter of transmission assured me I had only to call the bank. I called, and was told it was impossible – I had to go through a verification process.

The process required a PIN, but I couldn’t receive a PIN, because the PIN was being SMSed to my SA cell phone. Could they please send it to me by email – the same email used to send me my monthly statements? Not unless I got a PIN. Catch-22 is alive and well. I returned to SA with an unused card.

Telephone calls to get the new card had cost about R1200. Throw in the courier fees, and about R2000 was wasted on what should have been the simplest exercise. A holiday had been seriously affected. The bank has been silent. It clearly couldn’t care less.

I’ve got the message. After fifty-eight years I’m off to pastures new. I don’t know they will be any better – but they couldn’t be much worse.