World Economic Forum review: The global energy crisis

The dust has settled on the 2023 World Economic Forum (WEF) Annual Meeting discussions in Davos, and it's back to business as usual for many. According to WEF, the first in-person meeting since the start of Covid-19, this year’s conference attracted a record of leaders in business, government and academia to discuss important issues on the state of the world. One of the pressing matters that made the top list on the agenda was the looming global energy crisis.???

The energy issue is close to home– what’s referred to as a wicked problem. South Africa’s energy crisis threatens to bring the country’s economy to its knees. Remarkably, the JSE All Share Index has had a great run in January 2023, despite the unprecedented power cuts we’ve endured lately. Our national power producer, ESKOM, has gone from bad to worse, and there’s no end to the pain in sight. We are undeniably facing a national crisis of enormous proportions. The South African Chamber of Commerce (SACCI) recently announced that SMEs (mainly trading and retail businesses) would likely face higher cost pressures. Unfortunately, this is over and above the inflationary pressures on higher input costs and an economic slowdown. Thousands of businesses were forced to shut down, and many more will follow suit– the energy problem has become a crisis.??

The World Economic Forum discussions

Two weeks ago, one seminal discussion point in Davos was creating sustainable energy sources as part of the 2022 United Nations Climate Change Conference, more commonly known as COP27 resolutions and addressing climate change. WEF 2023 conversations on energy sustainability were clear– the global community ought to decarbonise energy systems to meet climate change targets. However, it has become a contentious issue because it implies that developing nations must swiftly move away from burning fossil fuels to generate energy and instead invest aggressively (at a massive cost) in renewable energy infrastructure. It’s ironic when you consider that the industrialised nations were built on coal energy and other fossil fuels.?

Over the years, developed nations have fast-tracked the process of setting compliance standards for climate change to reduce global emissions. Various incentives have been tabled in the form of grants and low-interest loans (offered to many countries like ours) to transition from fossil fuels energy to cleaner energy.??

The issue is not about the cause but rather the approach these institutions use to advocate for cleaner energy generation worldwide. The timing is also questionable. Many developing nations are facing debt crises, including our own National Treasury, due to rising foreign debt repayments, rising interest rates globally, and lower-than-expected GDP projections for 2023. The question, therefore, should be: Why should countries like ours that are rich in natural resources suffer the consequences of a supposed ‘just transition’ to cleaner energy when the industrialisation that created developed nations was built on burning fossil fuels (like coal)? Developing countries, particularly in Africa, are far from realising the benefits of industrialisation and rely heavily on commodity exports (oil, natural gas and coal) more than ever before to boost their economies.?

Africa’s energy infrastructure still lags behind developed regions, and access to electricity and basic services remains a luxury in many of our low-income nations. The African Development Bank (AfDB) estimates that funding Africa’s infrastructure gap will cost the region by 2025 USD 100 billion, and energy infrastructure makes up a significant part of that. It would be great to invest in an energy infrastructure that unlocks a mix of energy projects, including solar and wind, but where will the money come from? Would it be worth it for debt-burdened African countries to go into further debt by taking loans from the International Monetary Fund (IMF), World Bank and European Union to fund energy infrastructure? Logic dictates that this just transition to green energy should be carried out in a way that doesn’t place developed countries at a clear advantage over developing ones. Sadly, the WEF hasn’t addressed this issue.

The International Energy Agency (IEA) also announced at this year’s WEF meeting that it would continue to advocate for decarbonisation in the energy sector as a priority supported by the European Union. However, something’s amiss. More and more European nations are changing their tune. Late last year, Germany announced that it would be plugging back its coal-powered stations that were decommissioned onto its national grid. Romania has done the same, and Italy has not disregarded the possibility of doing the same.

What about China??

Many global leaders posed the question: Who will police China then (as the largest global carbon emitter)? The reality is that the targets set by COP27 and various other international bodies advocating for climate change initiatives will only be achieved if China comes to the party. China is the largest commodity-consuming nation in the world, and Africa has benefited from exports to the region (particularly in the current commodity boom). One of President Xi Jinping’s top economic advisers made a speech at the World Economic Forum in Davos, stating that China’s growth would return to pre-pandemic levels this year as the country reopens to the rest of the world. It has raised optimism globally for higher demand for commodities and consumer spending in the region. It’s safe to say China won’t be cutting back anytime soon on its demand for commodities (including precious metals and raw metals like coal, iron ore, manganese and others). How does this impact China’s energy mix going forward? It remains to be seen.?????

South Africa’s outlook

ESKOM’s challenges are well documented, emanating from several factors, including an inalienable reliance on coal-based power generation. Fortunately, the private sector is stepping up to help us address this challenge. SASOL recently announced its green hydrogen project, which is set to commence as soon as 2024 and should be fully operational by 2025. Initially, this project will generate about 300 MW of electricity during this period and 1200 MW by 2030.

Anglo American Platinum also took a big step to decarbonise its operations and is ahead of many other large mining conglomerates. They set a target in 2018 to reduce greenhouse gas emissions by 30% by 2030 and are firmly on the path to achieving carbon neutrality across their global operations by 2040.???

The private sector can (and probably should) play a key role in supplying our national grid with power to reduce load-shedding. Sadly, we’ve known this for years, yet not much has been done.

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The global energy crisis is an excellent example of a wicked problem. As a truly South African company, HumanInsights is more passionate than ever about doing business in Africa. It’s rooted in our DNA and approach to solving problems through human-centred design and engineering.?We’ll be hosting an engaging Design Thinking Webinar with our experts in the next couple of weeks, where we’ll take you through the fundamentals of approaching wicked problems. Watch the space! Albert Einstein once said, “We can’t solve our problems with the same level of thinking that created them.”

Article by Dumile Sibindana