Macroeconomics

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SA wind industry to promote economic growth

Title of article

https://www.esi-africa.com/industry-sectors/renewable-en-
Link ergy/sa-wind-industry-to-promote-economic-growth/

30 April 2019
Date of publication

28 July 2019
Date commentary written

735
Word count
Article


SA wind industry to promote economic growth


Recent data released by the International Renewable Energy Agency (IRENA) puts Africa in
third place with 8.4% growth in renewables capacity, which is largely made up of wind.

According to the South African Wind Energy Association (SAWEA), South Africa is spearhead-
ing this sector forward, contributing to greater social and economic growth.
SAWEA Chair, Mercia Grimbeek, explains that the Renewable Energy Independent Power Pro-
ducer Procurement Programme (REI4P) “continues to be the most exciting wind energy opportu-
nity globally. Many countries are looking to learn from SA’s experience and leapfrog to the next
development level. It is the innovative technology that the African power sector needs”. Read
more: South Africa’s renewable energy landscape
Also commenting, Janek Winand, managing director of Siemens Gamesa Renewable Energy in
South Africa, who will be speaking at this year’s Windaba conference, noted: “With the promis-
ing development of the Integrated Resource Plan [IRP] potentially leading to continuous smooth
procurement, coupled with the potential capacity to expand and build a supply chain locally,
South Africa is poised to serve the sub-Sahara region. Furthermore, South Africa has become a
centre of competence for project development and is geared to spread beyond borders.”
SAWEA added that it is anticipated that the next competitive auction for renewable energy in
South Africa will be announced by the second half of 2019, following a positive start to the year,
which saw government renewing its commitment to growing this sector as part of the country’s
sustainable energy mix. Read more: Decentralised renewable energy producers can help relieve
pressure on the grid

“2019 has kicked off on a positive note for the renewable energy industry but, although the future
of wind energy looks bright, there is much that the industry collectively still needs to achieve to
consolidate its position and deliver on the many benefits it promises economically, socially and
environmentally. We believe that it is within our grasp to secure the generation of affordable, sus-
tainable and reliable power in Africa,” concluded Grimbeek.

 SA wind industry to promote economic growth


The article discusses South Africa's development in the Renewable Energy Independent

Power Producer Procurement Programme (REI4P), leading South Africa to become in third place

with an 8.4% growth in renewables capacity. This energy is largely made up of wind as stated by

the International Renewable Energy Agency (IRENA). South Africa is at the center of

competence for renewable energy development. According to Janek Winand, South Africa is

building its local supply chain and is poised to serve the sub-Sahara region.


The South African wind industry has brought two types of economic growth for the

country, a short term economic growth and long term economic growth. The short term refers to

an increase in real GDP in the demand side of the economy over a short period of time, usually a

year1. While the long term refers to an increase in the potential real GDP of the country caused by

a change in the supply side of the economy. Real GDP represents the value of all goods and

services produced by an economy in a given year adjusted to inflation 2.


The increase in investment on the wind project, and the potential export of South Africa to

serve the sub-Sahara region with their renewable energy supply, will presumably increase the

Real GDP in the economy and thus create a short term economic growth. This can be shown in

the following formula GDP= AD= C(consumption)+I(investment)↑ +G(government spending)+(X -M)(export-

imports)↑. As we know GDP is equivalent to AD hence, the increase in the net exports(X-M) and

investment(I) which are part of the AD components will cause a rise in the AD ceteris paribus. As

a result, the real GDP will increase.


1 (Blink & Dorton. 2011)

2 (Blink & Dorton. 2011)
 D1-> South Africa-Short term economic growth

The above diagram represents the short term economic growth caused by the increase in

AD. It starts at the equilibrium point P1Y1 where the average price level is P1 and the real output

is Y1. After the investment and net exports increase, the aggregate demand curve shifts to the

right ceteris paribus, from AD1to AD2 where we reach a new equilibrium point at P1Y2. As can

be shown the average price level is assumed to remain the same at P1 but, the real GDP increases

from Y1 to Y2 leading to short term economic growth.


One of the ways to also improve the real GPD is to increase the quality or quantity of

factors of production. These are land, labor, capital, and entrepreneurship.3 In this case, the South

African investment in research & development and technological advancements on the wind

project that contributed to more efficient capital, resulted in improved use of the natural resource

wind, leading to a rise in the productive capacity of the economy ceteris paribus, and thus a long

term economic growth.


3 (Blink & Dorton. 2011)

 D2-> South Africa-Long term economic growth

The diagram above represents the long term economic growth caused by the increase in

quality and quantity of capital. It starts at the equilibrium point P1Y1 where the average price

level is P1 and the real output is Y1. After the investment in improving the quality and quantity of

capital the long-run aggregate supply shifts to the right ceteris paribus, from LRAS1 to LRAS2.

The economy equilibrium point remains at P1Y1, however, as can be seen, the real potential

output increases from Y2 to Y3 leading to long term economic growth. 


Since economic growth is an increase in national output which is equivalent to an increase

in national income, If GDP per capita has increased, then we can assume that people's income has

also increased leading to higher living standards for the South African population. 


Furthermore, South Africa's expansion in building a local renewable energy supply has

opened new opportunities jobs and thus reduced the level of unemployment. It also created a

positive externality of production, this occurs when the production of a good or service creates

external benefits for the third parties4. In this case, switching to wind energy would help reduce

environmental costs such as pollution and climate change that may negatively influence the third

party. Equivalently the South African green GDP which represents the Real GDP taking into

4 (Blink & Dorton. 2011)

account any environmental costs5 will also increase.


In conclusion, The South African wind industry was able to achieve two macroeconomic

objectives, economic growth and a low level of unemployment, in addition to a better status for

all stakeholders in terms of more profit, jobs, standards of living, safety and health.

5 (Blink & Dorton, 2012)

Bibliography

Blink, J., & Dorton, I. (2012). Economics course companion. Oxford, NY: Oxford University
Press.

Africa, E. (2019, 30 April 2019). SA wind industry to promote economic growth. ESI AFRICA,
Retrieved from: https://www.esi-africa.com/industry-sectors/renewable-energy/sa-wind-indus-
try-to-promote-economic-growth/