¶ Intro / Opening
🎵 Music
¶ Guest Introduction and Energy Expertise
What's up everybody? Welcome back to the latest episode of Nuclear Barbarians. It is I, your Nuclear Barbarian, Emmett Penny, and I am here with Hugo Krueger, and we are going to talk about what is going on with South Africa's grid. What's up, man?
Hi Emits, thanks for having me.
Yeah, I'm excited. Um we've had some technical difficulties on but I think I think it was basically like one one in terms of Umith. Which call. So I'm glad that this finally came together. Um and that we could coordinate our schedules well because I'm I've been fascinated about this topic. A, since I started to see the headlines about what was going on in South Africa, and B, once I started to see the warnings in America about what grid fragilization was starting to look like.
And so I think trying to wrap our heads around this dynamic as it's already unfolding somewhere, should be a big warning sign to anyone else in the world about what happens when your grid starts to get fragile. But before we dive into that, uh tell me about yourself. Who are you? What's your background? How did you come to all this?
Sure. So I studied civil engineering originally, which is mainly construction based. Um My grandfather was a material scientist and he developed um fly ash technology in South Africa. For those who don't know, when you burn coal the ash can if you pulverize it, it's called fly ash. If you don't pulverize, it's called clinker ash. Clinker ash you can use to make cement bricks and the fly ash you can use to add into cement to extend cement.
So I grew up sort of in semi in the coal industry, understanding it quite well, understanding that uh when it comes to coal
Cold.
Uh
Uh
It's not just, you know, electricity that's often mistaken. There's all supply chain attached to it, all value chain attached to the coal industry. Anything from dynamite is related to it, to to other applications. Even sometimes uh South Africa in particular, we may go fuel from it.
So yeah, I studied civil engineering sort of uh with the goal in mind to study materials. Then I worked for cement company, a French company by the name of Lafarge for about two years in South Africa on Fly Ash and on uh cement and coal. And then at the time, uh, because it was a French company, I started learning French language and then our lecturer told us that there's uh scholarship for those who want to study a masters in France. And I applied and I
couldn't get into the uh material science uh university at the time'cause the enrollment closed, but I got the scholarship before the enrollment was a weird thing. And then I just applied randomly for a nuclear degree in nuclear energy. So it's civil nuclear engineering, it's my master's Which uh I found very useful.
'Cause it's actually how to build power plants. Nobody a lot of people know how uh study nuclear physics, but they don't necessarily study um, you know, how do you mobilize your supply chains, how do you put the concrete and cement together, how do you make it structurally sound against earthquakes, against aircraft crashes.
Things of that sort. So I studied all of that, so I know how to build a nuclear power plant and how to design it. Then I worked on the design of Hinckley Point C in the UK. So I've been in France since twenty fifteen. I've worked at ETER, the International Thermal Nuclear Reactor. I've designed one of the concrete structures over there.
We worked in a multidisciplinary team with a in consortium with a with An Saldo Nuclear who was an Italian company. And then um the last three, almost four years now I've been in the oil and gas industry'cause I they offered a better salary at the time and I thought Let me see what I look at. So I've worked for something related to coal, I've worked in nuclear and now in oil and gas and I won't surprise you that even the oil and gas industry is into renewables.
Um they uh which was again with an Italian company I'm with now which they won't disclose, but I've worked in offshore wind as well. I haven't worked in solar. So I've been all over the energy sector and I try to get a sense of what
the uh is going on there and what's concerns me greatly is that there's a big deviation between what the politicians and the activists are saying and what the engineers know we can deliver. Particularly when it comes to building it, which is my expertise. And people Totally underestimate the lead times of all of these projects.
And I think it's like computer, you're just gonna type in a code and switch it on and you're gonna change the whole grid overnight. It d it doesn't work that way in practice. And then partially I have a sub stack and I do um I do YouTube interviews as well, smaller channel, which is my name, they can suit that Hugo Kruger.
And um at substack.com I I write, you know, sort of like you do, but it's it's much smaller, just about energy, electricity and other topics, geopolitics as well. My wife's also Iranian, so I've researched the Iranian nuclear issue, which was interesting. Um yeah, so it's been all over my writing's all over. But with some focus on bridge in what I do.
Yeah. So just so the audience knows, you can find Hugo stuff in the show notes if you want. Definitely subscribe to his Substack. Um I read a great piece he wrote on what's up with the oil and gas fields in Russia. I thought it was very eye opening. There's lots of other stuff there to dig into. Um and like you said, they're brief, so it's which is great. I could take a few cues uh from him on that. Uh so
¶ South Africa's Grid History and Roots
Uh, let's talk about South Africa. What give us a little bit of history here. Was the grid always this way? When did it start going bad and and how?
No, um so South Africa has a nationalized utility called ESCOM. It started in So about the nineteen thirties, the director of the time was a man by the name of Hendrik von der Bayel. He studied in the United States and he was an electrical engineer and he worked for General Electric.
And he was inspired by the New Deal, which obviously was expanding during the depression. Yeah, South Africa also had a depression at the time and he was Invited uh by invitation uh by the Prime Minister of South Africa was then Field Marshal Jan Smutz, the only man to ever sign the I
the th the the Treaty of Versailles and the Treaty of Berlin. Okay, he was the only person to sign the end of the First and Second World War. He invited uh Indrik van der Bael, who was sort of one of our style physicists, to come back to South Africa to implement the industrialization plan of South Africa. Now South Africa historically has never had water. Uh we have lots of mining activities.
Um we're the twenty fifth driest country in the world, so you have to sort of picture all of these things, but we have lots of coal, we don't need oil and gas. And anyway the the idea was to industrialize the country around the mines.
Um so ESCOM, the nationalised utility, um, at the time uh became a nationalization project out of a few private companies that was already running the mining electricity, but they were not significant at the time. Then it expanded sort of based on the US co op system. Generally speaking it was not taken into account this was the last century when we had the apartheid regime which tended to favor the white population.
Um, and the way the apartheid government worked is it had um homelands all over the country. These were like comparable to US reserves for the for the natives, okay. And um generally speaking the white cities had electricity planned for them first and also they planned out towards the the omeland areas. Uh the quality wasn't always the same and they didn't have full electrification at the time, okay.
So now we fast forward to say Nelson Mandela coming in. South Africa first of all in during apartheid is this sort of says all they expand it with coal. We basically expand our coal mining fields. But sixties, seventies and nineteen eighties in particular, we built a lot of coal power stations. Okay,'cause it's all we had. And we had one cook uh nu uh nuclear power station, Kubak. We also have a few pumped hydro schemes, things of that sort.
Um, but by and large, I think today it's still eighty something at eighty, ninety percent of the country's coal. We have the highest coal usage per capita in the world. It's higher than China's and Japan's Wow. So uh it's it's a coal country and we have so much coal that we can convert our coal to petrol, to to gas.
4 cause
And about s one third of all the um gasoline in South Africa comes from uh coal to ba coal to oil. So we had high quality coal in the past. The quality has diminished a little bit and that has reduced the efficiencies of our power stations. But we had so much coal, it didn't really matter at the time. So 1994 comes Nelson Mandela becomes president and Nelson Mandela at the time makes a promise that everyone in South Africa will have a house and electricity.
Okay. At that time, um, yes, there was already black people who had electricity, but the majority of them still couldn't. So within almost two decades, South Africa has a program of mass electrification.
¶ Policy Failures and ESKOM's Decline
Um but here comes a few issues that we have, structural issues with this thing. Nineteen ninety eight the government publishes a uh um so take into account in apart thirty years we had the cheapest electricity in the country, South Africa was also sanctioned.
And because it was sanctioned, um, it wanted to keep the economy going like Iran is doing. And I know the Iranian sanctions very well because of my wife's. And what did they what did they do? They spilled a lot of power stations. So we actually built excess capacity in the eighties. Okay, you wouldn't say that today.
So in nineteen ninety scums, because we had excess capacity, we had the cheapest electricity in the world. Okay, uh because of coal, because we just had these coal stations that were basically standing empty. And we actually mothballed a few of them. Dr sort of dry mothball that you can open up later on. But now nineteen ninety eight comes and the government says, Well, we're gonna move South Africa towards an approach of privatization, similar to what the US has.
So the idea was we're going to deregulate the market we'cause we have a national monopoly and we're gonna brief the private industry in. But here's the problem. The government comes with a uh regulator called the new the uh national energy regulator of South Africa, Nursa. and they come with a weird
They call it privatization, but it was a communist minister that implemented it. So I don't think he understood it. It was really from the South African Communist Party. And and and he he said, Well, we're gonna have a tariff because he's very scared that the private sector is gonna exploit people with high tariffs, okay?
So the idea was the National Energy Regulator Board would fi price fix, they would have a special tariff for the mines because we're still subsidizing mining industry and then a consumer has a certain tariff, etcetera. And if you actually look at it today, the mines has gotten a free range. in South Africa. Um, because we were technically subsidizing the mining industry at the cost of the consumer.
But now here comes the catch. The government in nineteen ninety eight um tells ESCOM we're gonna privatize. ESCOM gets the instruction, well, they are not allowed to build more power station because the government says the market will do it. But the problem is this there's a tariff. And the tariff is so low, it's artificially low. The private sector says in there's no way we can make money for that low tariff.
So now you're exiting apartheid and all the black population comes onto the grid, the gov XCOM is instructed to expand grid capacity At a low tariff, well they can't add capacity. So what's gonna happen? You increase demand without increasing supply, you lead to shortages.
And that is more or less the story of how do we got into the problem. At the same time, you're forcing SCOM to sell at lower than cost recovery to um uh uh uh to to its consumers and particularly to the mines. So what does that do? It explodes today. Okay. Then on top of it the government makes another idiotic cascading series of idiotic policies. They make another policy where Um the municipalities are short of cash.
We have, I can't remember now, something like four or five hundred municipalities in the country. They're short of cash and they need to use electricity to raise revenue. So they're gonna be a middleman.
ESCOM supplies through the municipality to the consumer. The municipality has some part of the supply chain, okay it depends on the type. And then the idea is the municipality is going to collect the money and then they get their tax off that and they're going to pay the tax over to ESCOM. But what happens in practice? The municipalities just steal the money. They use it for other things, which is not so...
Yeah, I would imagine so. That was that was I was about to say. Like
Well.
You've got a middleman, they're gonna get their cut.
you're basically enforcing a middleman by law. So we have this completely insane policy of national utility where we put it on the on a regulatory framework that basically destroyed it. That destroyed what was In my view, one of the best performing coal fleets in the world. In fact, at the time we were training Taiwanese and um Japanese people in South Africa on running coal. So we were pioneers in some of the coal technology.
And um you refuse for what's it, ten, twenty something years to not build any power stations. Two thousand eight comes, so you have nineteen ninety eight. Now you're two thousand and eight. The CEO of the company is a man by the name of Jacob Marocha and he says, Guys, this is getting ridiculous. We're gonna have rolling blackouts if we don't build power stations to now.
And he goes to the government, he says we need to build it, look at the supply and demand, the things are tied up, you're gonna have it next year, which we did have eventually. Government says to him, Mr Marooch, uh you're not allowed to build uh we don't have money. Okay. It's usually you must use the maintenance money to build new power stations.
Okay. So what happened with the two power stations? Now it's almost ten I mean fifteen years since they fired the planning and the civil engineering office. So they can't they don't know how to build it anymore. At that time we could have gone to the Japanese and the South Koreans and said, just build us a plant and you just put it up, right? You're the experts. But no, we were arrogant. We said we still can't do it.
Okay. So that exploded the costs of those two plants with the maintenance budget. Okay. What happens to the plants that are working?
Yeah, they don't have the budget to draw from.
You know, they don't they can't get maintained. So you're seeing efficiencies falling and then until two years ago Uh, no private company was allowed to add its own generation capacity. The government has now finally backed down on that. So we're getting solar, wind and probably gas coming on the grid. So slowly we are climbing out of the crisis they created, but they destroyed the national utility.
And this is so sad they put it with through regulation into a death spiral. And uh consequence of that's gonna be a lot of communities are gonna get hurt because these assets are so underperforming and unless the government bails them out and fixes it. But I don't think we've got money'cause we have the fiscal cliff as well.
So I was about to say I know that you I know that South Africa's in some financial trouble as well and they just don't have the yeah, they don't have the war chest.
Yeah. But we don't have any of that. So uh that's the sweet of it is that um I mean these are policies that amount to systemic sabotage that I can compare to what Boris Johnson j Boris Yeltson imposed on um what's it on Russia in the nineteen nineties. Maybe it is dodgy Will Clinton advisors. But we didn't have dodgy advisors, we did it to ourselves. Okay. It's just insane policies and the best engineer in the world, I'm sorry, could not
save a utility under those conditions. I don't know what they were thinking, I don't think they were thinking.
¶ Green Policies and Market Distortions
No, I don't think they were at all. I mean I so on my um the newsletter that I w run grid brief, Travis Fisher just uh published an op-ed with us. where he asks are America's power markets be gonna become a clearinghouse for subsidies for wind and solar? Right? Because The idea, the aspiration is that our markets, the way in which we try to quote unquote deregulate, are supposed to rely on clear price signals for resource allocation. But if you distort the price signal,
Yeah.
then you distort resource allocation. And it's like really like that axiomatic. Like that's how that's going to happen. You know, so it's not the exact same problem, but it basically is on a similar theme.
Yeah, well well we had some of that because our government was also um a bit on the green bug for the last five to ten years. And they say they're gonna have IPPs, independent power providers, but it was nothing of the sort. It was sort of like a subcontracting and the deal was they can get money when they're producing, when they're not producing somebody else has the K of the Slack.
So even when the prices go negative, um root pays for the grid taxes and the integration of those things, the containment cultamin. And uh systematically they're destroying the gold fleet. So we have like five to six uh gigawatt of solar in the w in the day and the idea is we actually are forced to switch off the cold fleet when that works. Why? It's like a it's like you're driving a car that doesn't go all the time and you're forced to take that whenever it goes, you know?
And uh w we we i it's just insane policies. Now I'm all for solar actually. I think South Africa is one of the few countries where you can justify it because our winter and our summer peaks are the same. But then they must trade on a proper market. So we have to do that.
It would have to be a playing field that actually makes sense for the technology and its relationship to the rest of the grid, is what you're saying.
It has to be that also we can import natural gas. We have lots of gas reserves, but until recently we were not allowed to untap it. Government has changed. I must say in the last three years they've woken up, not because they wanted to to, because they were forced to. It's I I think South Africa's now where India was in the late nineties, or late eighties.
you know india it was the party of gandhi the communist socialist party that put implemented reforms not the one who took over because they were forced into it And we're at the point now where our government is basically implementing major reforms in the electricity markets, or in all the markets actually. Uh where I'm actually quite optimistic of us getting out of this. But the the the sad part is that our coal fleet has been made a victim.
of of these things. Now people are saying it's coal being expensive, but this is not cool. What I've explained to you now is it's got nothing to do with with coal reserves. It's got to do with policy. And you're saying and unfortunately if I look at the US, I don't know where these policies are going'cause it's so difficult to understand the US system. But
They agree.
If you if you t if you tinkle in the market with electricity, you inevitably are going to introduce pain to somebody. You know. It's usually the poorest people that have to cup with the slack.'Cause what if this green stuff doesn't work in the US? I'm seeing offshore wind in the UK. Just hitting L L C O A levelized cost, okay, this is their argument that are enormously high. So who's
It's about as much as Diablo Canyon now, with like a quarter of the capacity factors or half the capacity factors or something.
And and and we're seeing it in Europe as well. We're seeing Numbi attitude, Germany's um expansion of onshore wind. It's been in decline for the last five to six years. So y y y I'm seeing all these signs and a particular wind. So uh in terms of renewables, I'm optimistic about solar, but not as optimistic as the proponents, okay?'Cause you can you can use solar for the summer peak and and there's a time where they really are affordable.
But wind I regard offshore wind as the most subsidized electricity in history. It's far more subsidized than nuclear's ever been, and yet they criticize nuclear.
No, that's that's always their thing, right? Is that it Oh, same with oil and gas too in a in America. Like everybody likes to pretend that our gas generation fleet ch it just gets these lavish subsidies. Um But it's nothing compared to what wind and solar receive in perpetuity now because of the Inflation Reduction Act. So
¶ South Africa's Grid Recovery Efforts
Tell me about what getting out of this looks like for South Africa. You've talked about some of the reforms, but I feel like there's a little bit more of a story there and you guys are just at the beginning of that journey. So what's the game plan look like to you to fix this scenario?
So if I can have my magic wand, which I don't have at the moment, because the government's still resistant on some reforms, I would move away from selling electricity as a commodity and towards a service completely. Okay, so if you're always on you pay for it. Um servers, uh the the company should be offering you energy efficient uh solutions if they want to. They should be able to structure it like cell phone contracts.
So you would pay say a thousand dollars a a year, whatever you pay, and then X kilowatt hour. And if you go over that it's got a different sliding scale. So they should come up with the pricing structure. We still have this idea where we have a regulator that can determine the price. So they haven't gotten rid of the price fixing thing at the moment. But fortunately the price is systematically climbing up because the regulators realize that they have to be cost reflective.
Right. Yeah. So you'll have to if we stick with the regulator, which I would I if I can get a real magic one, they just fire the regulator. I think they totally uh it's it's the worst thing ever. But you know, we s in the world that I have to operate on, I would let the regulator allow the companies to argue for cost reflective tariff.
If that is not gonna happen, what's gonna happen? The solar guys are coming in cheaper than the regulator during the daytime and they can't control solar your home. How how can you regulate that? It's very difficult. So and the other thing that is now happening which is very good, because people have expanded solar and gas. In private generation, the municipalities are losing their income. So the municipality being the middleman is now completely politically unviable.
And that's a great thing. Now is on the utility if it just wants to save itself can sell directly to its customers. Uh we had the same issue of our water being in. So they still can't do it. So there's a lot of these stupid regulations that have to be worked out of the system for us to climb out of it. Um the other thing is we've this week ended load shedding blackouts. Um temporarily. I mean I don't know if it's going to end forever.
Fingers crossed, fingers crossed.
And that's actually been because the coal stations have been maintained. But now the big issue is who's going to take the debt of the utility? Somebody has to pay for it. And that we don't know. It has to come from taxpayers or bailouts or something. Um or do you just still I mean uh uh we do you inflate the currency, we don't know. Or does the government systematically allow it to be capitalized? But clearly the utility is shedding money because the higher it puts its rate
the quicker people go off grid. Mm-hmm. Right. And it that's also part the other thing that that needs to be part of this debate is We still have vertically integrated utility in South Africa. Um the US you've deregulated, you've split between transmission and distribution and supply, right? Um if we're gonna go that route.
What is who pays for that restructuring? Um how do you make the transmission lines cost reflective? And then we have the added issue of this is where the government has policies to expand solar and wind. Yet our biggest capacity for soda is in the Karoo Desert, which is three thousand kilometers from the population center, and the biggest wind is close to Richards Bay, which happens to be where it's the best location to import natural gas.
Okay. So you have this fight over grid access. And I think in the US you're facing similar issues as well. Now the question is if we're gonna build more transmission lines, who's gonna pay for that? Yeah.
That's always the rub.
That's a fight. And and at the moment we might do an IPO on one of the lines, which I think will be a good thing, and then you have somebody own part of it privately. Um but it doesn't seem that the private sector has the financing sometimes to fund these things. And what the renewable go oaks want is they want the government to guarantee them to give them sovereign debt guarantees.
So if they go bust, the government bails them out. Okay, so that that's gonna incentivize For real? Yeah, for real. That's gonna they they think force the government to negotiate for that. So i you're basically encouraging major risk of investment.
Um so th th there's a lot of stuff that has to be fixed with these reforms. But in terms of supply, I think South Africa is we're we're hovering on being in and out. We still have like one or two hours per year next year. So it's not the end of the world.
Um and the other thing we need to do is we need to fix the existing coal fleet. So somebody asked this whole thing about cost. That that whole debate is not being had in South Africa at the moment and it's elections next year. So we're not gonna have it until after the elections because the politicians are all promising their favorite electricity source.
Yeah, I mean. conversation isn't an election year conversation, right? Like'cause it's a governance issue. So it's like once people are in charge, like then they're like, Okay, now we can talk about what the real deal is, you know.
¶ Political Will and Nuclear Reassessment
Hopefully. If you're lucky, right, then you get that conversation. So let me let me ask you this. Like what So the green lobby here is huge and very, very powerful, like internationally powerful. Um I'm perhaps uh even uh has some uh uh people in South Africa. There are people from the US green institutions that end up all over the world.
uh how powerful is it in South Africa? Does it seem to have the regul the ideological capture of the elites? Like sort of what's the ideological situation in South Africa around energy because I've found that to be annoyingly determinant on what happens.
Yeah, so it's it's interesting you say that because um South Africa everything's a racial issue at the end of it and it reflects in racial bolts and disparities. Yeah. No, we we we we have a similar history of the US.
No, definitely.
If you look at polls, um All the other racial groups are in overwhelmingly in favour of nuclear power, for example. Okay, except the white population is split between English and African speakers. And the African speakers tend to be in favour of that. And that's the history history because when we developed nuclear it tended to have been at Afrikaans' universities. so you find that weird disparity in ideology but in to answer your question on these um renewable lobby
Um, they put a lot of money into South Africa and there was a time when they could pressure the government and push them around. But we now have a minister of energy that's really s um stick a finger to them. And it seems even the Minister of Environmental Affairs have now said we can exploit natural gas and we're gonna exploit uh well
So the government is is somewhat pushing back against it, but wholeheartedly. I mean I was actually in a meeting today with our Cope representatives and the minister said to the one activist, Look Exploit the exploiting oil is not illegal in South Africa and if you want it to be legal you can vote for that law.
Okay. It's basically basically a way of saying go to hell. Okay. Yeah. So so s so some of the politicians have put their foot down. The largest opposition party, the DA, in the Western Cape province, they tend to be bought and sought on this green stuff.
Okay. Um so it's it's it's disparities with where you go and that makes it a little bit better because we have a variety of elites in the country. We're not like the US that's more homogenous than you're thinking. Um I mean the US has two more or less elites, but in Europe they're all bought and salt on the same stuff, right? Um in
Oh yeah. And w at the first time I went to Europe, I talked to somebody from Brussels and I was like, this is like talking to an NPC about energy. Like this is crazy.
Yeah, I I mean in France we're a little bit better because they subnuclear, but they're even nuclear and and green, right? Um in the UK the the conservatives are are sometimes the most extreme in this stuff. But in South Africa we have opposing elite.
And we have universities that oppose them. Now it it just happens to be in racial disparities, which is sometimes annoying. But for example, the University of Johannes Johannesburg the uh last year, um in the economics department published a PhD thesis is that said the best and cheapest and affordable source of South Africa is coal and nuclear.
For this and this this reason. Okay. Um so you have some of that coming into the policies. I'm optimistic that we're gonna work it out of the system. We'll we'll have some of this stuff. I mean as I said I'm not against some green stuff, but it can be annoying the way it's so dogmatically presented.
Um but I must say the government when I personally engage them, so um are quite open to to listening to alternative views at the moment. So for example I was part of I was part of a lobby group arguing for nuclear. When the government came out with a policy opposing nuclear And we pointed out that listen, your nuclear data is based on basically US data. You're saying every power station costs the same as Vocdal.
Just as ridiculous, right? Yeah. And the government listened actually. And it seems that now they're saying, well, nuclear's back on the table. We might even amend the government position on nuclear bit and we might even send you know requests for information to build one or two power plants next year.
Okay. So th th that's not a full victory for, you know, somebody like me that can be saying this make the whole country nuclear, but that's a small victory and the government's somewhat open to it. So in terms of these things it's not that clear cut. but the environmentalists sometimes win fights as well you know and so you win some you lose someday
¶ Natural Gas Potential and Challenges
Yeah, I mean it's politics. So let me ask you this. I think the first time we ever talked, uh, I asked you some questions about what's going on with South Africa and L and G. I mean the world I mean, the future to me seems to belong to natural gas, like the in the medium term. Like we see Qatar inking deals that in Europe and China that it
blow past the twenty fifty net zero window by like a decade, you know, all of this stuff, uh, which I'm fine with, uh, of course. Uh you know, America's cutting similar deals um with other countries and other businesses. Where is South Africa that? Do you guys have import capacity, export capacity? Like what's going on? Tell me a little bit about that for you. Yeah.
So l let me answer about looking at the the US and the Russian problems. The problem one problem Russia has is that its gas is in Yamol, which is far away from Moscow and St. Petersburg, okay? So they have to transport it over long distances before they can sell it. So there's no market next to it that makes the risk investment for Russia.
That's why Russia might, you know, um lose gas uh gas markets to Europe. Well, if you look at the US, uh what you guys did very well was you exposed gas in Texas and Pennsylvania, which is next to the market, right? So short distance and then you can have lots of entrepreneurs and guys live close to the gas understand it. So it's applied where it's exploited. So
Now in South Africa we have to bring it to us, we have the seventh largest gas deposit in the world, it's estimated, in the Karoo Desert. So it's it's a massive gas deposit, but it's in the middle of nowhere. That's the problem. So we don't have the infrastructure there. Also, South Africa is isolated from the world's sea lanes.
We are around the Cape of Good Hope. There's not a lot of economic activity in in our neighbours. Most of the big Namibia. Namibia's got a million people. It's a big country. There's nobody there, practically facing. So They don't have a domestic market to justify L and G ships going there. The only place in South Africa that makes sense is Richards Bay, which is the harbored export school. And the coal interest historically has been blocking natural gas imports.
Over there.
I can see that happening.
Okay, so now I've written an article where I I've argued that that if we're gonna go for natural gas we need to first import before export. And import makes complete sense to me because worldwide in the gas market There's like forty countries last time I checked competing for imports and exports. So it's so affordable. If you're gonna export your s imp uh export your voice yourself.
and then try and sell it, you're competing with other countries like the US and you just have this bigger market to get our S curve down for a small domestic market. Our population's not that big. So that's been the the stuff. It's it's the government not understanding it and the coal industry locally blocking the import of natural gas. So the way you would get natural gas going in South Africa is you put in Richards Bay, there's aluminium smelters, there's a little bit of industry there.
And you would put gas ships on barrages. And the government has actually ordered these gas ships, but it seems that they paid bribes for the government and now it's tied up in legislation. So we we don't know if that's gonna scale. But if natural gas scales in South Africa from Richards Bay
We have pipelines all the way to Ghauteng, which is the economic heartland. Okay,'cause we develop from the inwards to the coast. We don't have coastal development like you do. And then that can scale to the rest of Africa. Um and it will be either pipeline or it will be overland. But it it will take time to scale it. So I'm in favour of of importing first.
Others have arguing for exporting, but we there's been no private investor that wants to export that wants to exploit in South Africa yet because of this isolation. And
And I also I also think it's just not a good time. So yeah, like you said, there's a lot of other co countries to compete against and so I was reading Javier Blas's latest op uh op ed in Bloomberg and he pointed out, he said, Look, if everybody's gonna get into the L and G export game, he's like in a very short amount of time, we're gonna have a prolonged buyer's market.
Yeah.
Yeah, I think I yeah, if we're not there already. And I think
4
Developing gas export in a place that's inconvenient, that would need a lot of upfront capital risk, you're walking into a market that is not hospitable to help you break even on that.
Exactly. And and you know, we are a water scarce country as well, so we have this issue about groundwater pollution and stuff. I I know it's exaggerated, but I mean i the environmentalists can be happy by importing as opposed to exporting.
Yeah.
Right so so so I I'm not in favour of of doing it ourselves yet. I mean in the future if it makes sense. We have had cool to gas conversion in the past, but it's obviously expensive. So we do supply do have some domestic gas, but it's it's not the you know major L and G and also
A few friends of mine have pointed this out to from a broader now stay in South Africa. South Africa is geographically isolated. And sometimes it we isolate from technology. We just don't understand the stuff. So we're like we've been with coal for a long time. Why should we change anything? Call work. You know, th there's a lot of that mindset going on as well. So you you need to break a little bit of that. And the people can be scared of new technology. So we're still scared of natural gas.
N no, totally. I mean, I think one thing that I've learned in all the histories uh history I've been reading in like
uh early twentieth century America and nineteenth century America is that there is always just as much optimism as there is fear about major technological developments. And if it's easy, I think, cavalier to say, well the people who are afraid just uh are just pessimistic or whatever when it's really like they don't understand and they don't it they don't have the like empirical conditions to make any sort of decision and they're defending what already worked.
You you see th this is why when I it comes to energy, I'm always in favor of countries using their own resources.'Cause they sort of understand it. Okay, which is it's I know from a m economist would say just import export. Okay, now on gas I'm arguing for importing, but it's this issue. that you face. We we're saying well we have this call around us. We grew up with the call. We know the call very well.
Mm-hmm.
What is this thing coming from Qatar? Who is Qatar?
Yeah, exactly. Well what does that mean? Right? Like that's why like in nineteen seventy three, so uh Anas Al Haji has really convinced me that the Uh New Deal era price controls really created the shortages in America. The OPEC 73 embargo was sort of the symbol of
Uh
Right, whether or not that was actually the cause of them. And so many articles that come out after that, especially from the incipient green movement, are about how now we're dependent on this foreign thing and we have to totally realter our domestic politics to account for that.
Not of course get r necessarily get rid of the price controls or whatever. They weren't arguing for that, but like to do something even more radical. And I think That is exactly the type of situation that could unfold in fluctuations in the LNG market for a society that is not used to that at all.
Yeah. And I I I totally agree. Um look, I I would say natural gas has a major business case in Africa'cause like we're like lot like the US where first of all we don't have a lot of rivers. So we're like your western state. We which is semi we' sem semi dry, semi arid, and uh we are a logistics economy.
So to put uh uh trucks on what's it uh liquefied gas, you know, makes complete sense to me. Long distance gas for transportation, for in domestic cooking. We we can get people off the uh electrical grid. We still heat our homes with oil heaters. You know, so there's a lot of applications for gas in South Africa, and I would wish somebody would exploit that market. But at the moment the interest has been blocking it. There is some import facilities they're now talking about at Richards Bay.
It always takes three years from the point of corrective action. And the the documentation has been lying and the feasibility studies been lying in the Department of Energy's table for years. And it every few years they do another one, they come to a similar conclusion that I've done and others have done. Yeah, we're trying to say to them, Okay, move ahead with this thing, but then the politics come in, the elections come in and they just block the thing.
Um so but it's it's a d it's a domestic failure not to import it because if gas would scale in South Africa, um and and there are signs of it scaling now because ESCOM is finally moving from burning diesel to gas um as a safety of supply. then I don't think the blackouts will continue because gas just scales so quickly, you know.
Yeah, it does. It moves really quickly.
¶ Decentralized Generation and Economic Growth
You said mo people are moving off grid or can move off grid in South Africa and I have some questions about that. So what does that look like? What does that mean? Are we talking about industrial consumers or just households or both or or what?
It it's both. So I mean I say off grid, so uh I I say they move towards their own supply, so they have a solar panel on the roof type of thing, or they have
High limiter.
Yeah, yeah, minor media next to the transmission, right? Because when you talk about real off grid in the middle of nowhere, that's expensive. Okay. Um but that's basically what's happening is they're all putting solar and they say, Oh, solar and winter or winter and summer sunshine's very similar. So you have predictable solar behaviour. So our uh um energy uh grid, our demand curve is is skewed towards domestic consumption.
Uh, for that reason. Um then also you so it's basically companies expanding solar and then they tend to have diesel as a backup generator. And some of them are now finally looking at replacing these of gas generators, so small generators. Mining companies are do are leading the way actually with some of these things. And the mines have got massive, massive capital. And we're still mining economy. So that has reduced the demand curve a lot for ESCO.
And uh you know, as I said a negative is the utility death spiral that's occurring. Um but yeah, so it's slowly but surely people are are looking for optimal solutions. I don't think there's really big from big companies are truly off grid people. Um it's just somebody optimizing their supply curve, you know. But in some cases or days they still have to rely on the national utility for supply.
Sure. Yeah, yeah. I mean, there's a lot of that here. You know, there's a lot of like off grid behind the meter. You know, often that means a a diesel generator that the State environmental agency doesn't recognize as admissions uh emissions, you know.
I th th th there's also another um thing that is that's occurring now because of these regulations being passed w in a good way is the municipalities are now allowed to source their own generation from sources. Historically they were not allowed to. Mm. So the local governments can do it. And now some of the governments like Cape Town, I think Pretoria is also going to do this, is they're gonna allow people to sell peer to peer through the grid. So we're gonna have peer to peer contracting.
Yeah, yeah. Yeah, so you're gonna have like co generating facilities and stuff like that.
Yeah. Yeah, how it will work in practice, I'm not so sure. They they supposed to say wheeling and things of that sort and they're talking about these schemes now. So it remains to be seen, but there is innovation happening in electricity trading at the moment.
And as so we're basically starting from a nationalised utility, a vertically integrated, almost Soviet type utility, to something that's gonna be free market. And that started about two to three years ago. So it's it's all optimistic in in in many ways. Um I would personally like to see us build one or two more nuclear stations.
Um
I don't know if we have the money at the moment, but we can finance it through export credit agencies and they tend to get good returns in Africa because the interest rates for use loan for us, our returns are higher. And uh we also have a young population and all these, you know, factors for economic growth. So if we can get over the electricity hurdle.
And over the water shortage hurdle, the salination is also going to scale probably. I do think South Africa will have some good economic growth in the next you know decade. Um I'm obviously.
¶ South Africa's Nuclear Energy Journey
I mean I hope so. That would be fantastic. I I have a question about um about nuclear
So
Uh would you guys be building like a design you have that's yours already? Like I'm very ignorant about what nuclear you have, or would you be working on a deal with either China or Rosedom or like Westinghouse or I don't know what the Koreans are up to to help you build or what's going on.
Yeah. W what we built in the nineteen eighty was a French reactor. Actually US design, but you know, the French reactors are all US designs. Um and that was financed through I think France's national bank if I'm not mistaken. And that's generally what the deal will be structured like. So it's a export it's a vendor financing system. One of the major five, maybe I think even Canada's now exporting six, maybe seven of India's exporting players will basically tender and
They come and build it for us. Okay, with some local local contract management as well. But South Africa had the world's first ever SMR, which was the Pebble Bait Modular Reactor. X Energy in the US, you look at all the team that South Africans was our design that they took.
No way. I had no idea. That's awesome.
Yeah, so we had the first ever one in the nineteen nineties and then in two thousand eight the government we had a political change and then the government came in the first thing that is to cancel the reactor.
Why?
But uh political political lobbying from uh other energy groups, basically. Uh Okay. And then all that team went over in the US and they basically founded X Energy. So X Energy is founded is founded by a South African entrepreneur in the US.
And you can look at the entire team. So it's basically that that reactor design. We were the specialists in it. I'm not sure if we still will be. It was a German design originally, just to, you know, not get like all the credit and we took it over. We were the first country to try and commercialise it. So had we not cancelled in two thousand eight, it was about five years away they say, say ten years from building. We would have had one by now.
No. Oh dude, that makes me so sad.
Yeah. So that is one. People are still angry about it. So there's a company in South Africa called Straty Gobl that has got a local um design ready, a new one. So it's a hundred megawatt. But they're looking for financing and even the government is not there's all of half acidity committing to them. So I just hope the government puts some money down. But again we'll have to go through all that R and D steps again. I'm not sure what the way we are.
I think maybe for that even it's best just to tell the guys in the US or China because China also has a pebble bed, or South African's advising them how to do it. Okay. It it'll be better just to get those guys to to build one of those reactors and say, Okay, you beat us out, this is our failure. And then we can get it going. Because half of South Africa's coal fleet is air cooled. It's not water cooled. So it makes sense to run it on helium.
Right, because I think we'll be there on something again. Yeah, gas cooled reactors. So that that makes sense for that. And then for industrial heat and other applications. So yeah, we we had a relatively small ish nuclear industry that sort of pioneered commercializing SMRs. Uh for we you know and then later we just dropped the ball on it.
¶ Global Politics and Energy Decisions
That's why that's why politics, I mean, speaks to your earlier point, yeah. If but politics get involved in any technology can destroy it, you know.
Yeah, yeah. I mean you gotta be careful, right? You have to and you don't wanna walk away, uh, from the political fight before the thing's done. You know, like that's the yeah, obviously I'm not throwing shade on
on anybody I am not doing like Monday morning quarterbacking here. Uh I'm not I wasn't in those rooms. I didn't you know what I mean? Like I respect anybody who's uh m tried to make progress on these things. But um So I have one last question for you and it's something I've been trying to figure out and I think it's been hard for me to figure out because on the face of it it pisses me off so much that it sort of shuts off my brain. Mm-hmm. Um
What is Europe's relationship to South African coal? Because when the energy crisis happened, All I saw, and this is gonna be my little rant, is a bunch of people being like, South Africa, you should really shut down your coal plants, blah, blah, blah. By the way, can we buy literally all of your coal to make it through winter? Yeah.
So one third of all the coal going into Europe is South African coal.
Get out of here. I knew it. I knew it, dog.
Yeah, and the Germans the Germans bought it, they're not burning extra in Germany, but they're stockpiling it, which is just weird. So they're saying it's gonna fail, or maybe it's a safety of supply.
Um, yeah, the Germans and the French gave us money to phase out one coal power station, but then the unions rose up and they said to hell, this thing is just ridiculous'cause they were transforming it into a renewable hydrogen plant in the middle of a country that's the twenty fifth driest in the world. Where are you gonna find fresh water?
No, that's great.
government bought this nonsense. I mean this is politics. So anyway, so the unions rose up, it was Kumati Power Station and they s so the government has now backtracked it and said we're not gonna close any more coal stations, we're gonna just extend them. That's before the elections. I don't know what happens next year. But they got they got they got money from Cope and they're now going again to the World Bank to get a loan here. And this is the problem with this climate stuff is that
Countries who are developing, okay, our politicians are as corrupt as anywhere else. They are going to use this issue to try and extract as much loot from the richer countries for your guilt for polluting. And then when that money runs out, they'd be like, Oh, but we have no choice but to use coal or diesel or whatever.
Yeah. Yeah, of course. Dude, that's it's all All this weird like guilt game. There's it's a lot of like uh I mean I actually kind of have to respect it for certain leaders from developing countries where they're just like Look, if our if the people who turned this into a colony are gonna do some stupid deal for some stuff that we're not even gonna bother to build, but we can make money off of it, why wouldn't we?
Well the the lady who approved this phase out of this Gumati station, as I understand it, she worked for Bloomberg Financing or she she's now working for them or something. So she got her went to the US, got a crazy job over there and people just left the country with Alcoal Station.
At a time when we were having blackouts, I mean I can understand phasing out call if you, you know, saying, Okay, we've got too many of them and maybe we can replace a few of them. Yeah. But when we have blackouts, why do you phase out call stations? Even if they work at fifty percent, it's better than after.
Fifty percent more than zero.
Yeah, exactly. So anyway, so we we have all these kind of stupid policies. I mean it it's no better than than what happens in the US and France. I mean, I know the French situation quite well and they
I mean France, for example, in two thousand and was it eighteen or something, when Franco Hollande was president, maybe before him, him they made a commitment to phase out nuclear and then EDF fired the engineers. I mean they had to rebuild Flamonville and those things, the cost exploded'cause they had no more engineers. So y you have this stuff in the energy sector all all the time.
I don't know how you can ever get a government or these type of decisions out of the energy sector. I think it's just something you have to live with and then when the cost rises they build more sensible policies later. And I think even the US
I think it's fire to fire. I think that's the yeah, and then you sort of muddle through and it's weird. And then something horrible happens and then hopefully you have smart people on the wings who can take advantage of that and make a better decision. It's kind of like a mess for a while.
¶ US Energy Policies and Nuclear Hurdles
Well, they they bump their head into sanity. Um and I I think even the US it's it's it's gonna happen with that, right? I mean I I look at some of the US policies and I'm like, Really you're doing this? And then I realise, oh but you're still burning gas. Okay, I understand how this is going.
Yeah, it's like forty percent of our generation or something. I mean I do a weekly update on power generation in both the monopoly so one third of the country is still traditional monopoly and then two thirds of it are in power markets. And it's just gas all the way. I mean it's just it's not even close. It's not even close nationwide.
But why are they not replacing some of the gas with nuclear? Is it just too expensive in the US or
Yeah, so I mean we have the same thing. I think you and I were talking about this maybe at the beginning before we started recording. Um, so I think Brett Google Mass has made the point really well that, you know, uh nuclear companies love safety regulations because they can drive up the cost of their product. There are also a lot of utilities who are very gun shy about investing in new nuclear because Like historically it has pushed utilities into bankruptcy if it goes wrong.
in the power markets, they're not friendly to nuclear. We have a very aggressive regulator on top of that. Like you could say and then the public opinion has not yet aligned towards nuclear. Like our green lobbies are You know, Michael Bloomberg just kicked in another five hundred million dollars to anti nuclear green groups, and he's already sunk in half a bill. Right. So yeah. So that is part of why it it's like this, um it's like a Chinese finger trap trying to figure out how to get
nuclear built in this country. It's gonna be very, very difficult. And I think it's gonna take a long time.
So my estimate for nuclear has been that you need three plants to get on top of a bottom of the escrow. Yeah. And if you're gonna build a third at thirty, which is you talk to thirty billion, then the second is twenty, and the third is fifteen, which is what it should cost. And then so that's what thirty plus fifteen is forty five plus you know um plus twenty. So you've got fifty five billion bailout.
Just to get nuclear b back to where it should be. That's before you make profit. So you can imagine you you're running into something close to a hundred billion if you're really gonna build a few s series of them. And then you hope that a politician won't break it down. So The the other solution for the US, but I don't think you'll do it, is just get the South Koreans to build your own deck for you, because they do it quite affordably.
Oh no, I know. I've I've I had conversations with that. I mean, there's some like weird stuff in the way, I'm sure also like some national pride. But I think one place where I do see a little bit of hope is it seems like the Tennessee Valley Authority is willing to work on like SMRs and their current um CEO is very adamantly in favor of nuclear and defends it publicly, which is a huge change.
um from like sort of the national public comms posture around nuclear. Like the Atlantic was sort of like, well, you know, you guys don't do enough wind and solar or whatever. And he just took out his phone and he was just like, we are greener than Germany is right now. I don't wanna hear it. You know? Like you can look right here at how bad Germany looks. So
Well the the the thing of the SMRs has been that you need about the first company to get ten going, which is still far from where I and I'm sitting, will probably win the race in my view.
Um yeah, I would imagine it's just getting reps in.
Yeah, I I mean it's uh I mean even large reactors. I mean the French built up to ten reactors a year in the nineteen eighties. Which is just an extraordinary rate. I mean you can't you can't even think of that now. So in France I'm probably gonna work on this now. Um they're gonna build six more EPR twos and I hope the EPR two is simpler than EPR one. It looks simpler from design point of view.
Um and then they're gonna build New Wart, which is a smaller pressure water reactor. But it's interesting with the PWR that His smallest SMR is coming in at about 300 MW. I think Nuke scaled 77 maybe, but they've been scaling it up and there's a question of how small you can go in terms of cost.
Oh, we don't know yet. And the gas-cooled reactors theoretically can go smaller. So I I would just like to have us build a few of these things to see what they actually cost because nobody knows, you know.
No, it's all we're all just guessing. So well, on that note, I think we can wrap it up. Dude, thanks so much for coming on. This was great. I hope we get a chance to do it again.
Yeah, thank you very much and uh yeah, thanks for your listeners. Appreciate it.
Yeah. Um everybody remember go to the show notes, check out Hugo stuff, follow him on Twitter, all the links are there. Um and as always, stay sharp, stay strong, and stay radiant. We will see you next time.