While the lead-time for new generation capacity for some technologies can be a decade and more, ongoing, reliable and cost-effective electricity is critical for the daily activities and well-being of mining, industrial, transportation, business, agricultural, municipal, commercial and domestic customers.
New electricity generation capacity must therefore be planned and provided at least cost, while meeting existing ministerial determinations and contractual commitments for any existing new-build, as well as government’s policy objectives.
These policy objectives include universal access to electricity, economic growth and jobs, environmental compliance and sustainability, and increasing the diversity of both primary energy sources and generators within the electricity supply industry in order to manage risk.
Following a thoroughly discredited first attempt (IRP1) by the South African Department of Energy (DoE) in 2009, a respectable version of the national Integrated Resource Plan for electricity for the next 20 years – the so-called IRP2010-2030 – was promulgated by the DoE in March 2011, based on work done in 2009 and 2010.
This IRP should then have been updated annually (or at the very least, every two years) by the DoE, based on new economic data, revised technology costs, actual electricity demand growth in previous years, and a revised electricity demand forecast for the subsequent years ahead.
A Draft IRP2013 as an update to IRP2010-2030 was prepared and published in 2013 by the DoE, but for various reasons it was never accepted by the Cabinet or government. It has been widely reported that this was because the Draft IRP2013 recommended a reduced and delayed nuclear new-build for South Africa.
Lightweight and superficial
Against this background, the latest update to IRP2010-2030, known now as the Draft IRP2016, has been awaited with great expectation, as well as concern at the repeated delays and extensions to the date of release of the Draft by the DoE for input and comment through a public participation process before promulgation.
However, after it was finally published for public comment in the Government Gazette on November 25, 2016, one of the first things any informed reader would notice in perusing the Draft IRP2016 dated October 2016 in the Gazette is that it is both lightweight and superficial in comparison with the substantial IRP2010-2030 and Draft IRP2013 documents.
A number of the appendices referred in Section 7 of the gazetted Draft IRP2016 dated October 2016 are missing, and contrary to what is stated on page 18, these are not readily available on the DoE website. The missing Appendices 7.3, 7.4 and 7.5 include: substantiation of the technology learning rates assumed; the presentation on the discount rate assumed; and the report on all other assumptions made in the Draft IRP2016.
Within days, a revised Draft IRP2016 Revision 1 dated November 2016 was published on the DoE website in which all references to the above missing appendices have now been removed. In addition, the gazetted Draft IRP2016, and its Revision 1 on the DoE website, contain a number of further important errors, inconsistencies and omissions, as detailed below.
Erroneous and inconsistent technology costs used
One of the major areas of error, inconsistency and omission in the Draft IRP2016 report is that of the technology costs used.
In the first instance, the Draft IRP2016 states that the costs of generic technologies used are based on a previously secret, updated EPRI report dated August 2015, provided via Eskom as a member of EPRI, which was finally released in September 2016. The report was initially marked “Secret”, but is now declassified.
However in the above EPRI report, the critical nuclear, solar PV and wind technology costs presented bear no resemblance to all known, up-to-date, levelised costs of electricity (LCOE) calculations and contracted prices for new nuclear, solar PV and wind power in South Africa.
The rate of exchange used in the EPRI report and the Draft IRP2016 to establish the LCOE for new nuclear, is stated as $1 = R11.55 which is an out-of-date exchange rate applicable to January 2015.
The DoE is being disingenuous and quite wrong when it states on page 10 in the Draft IRP2016 Revision 1 that: “This does not impact on the results as this is a comparative analysis and all options are impacted equally.”
The latest LCOE calculation for new nuclear by the CSIR Energy Centre as at April 2016, based on an exchange rate of $1 = R13.40 (i.e. the average of the period from October 2014 to September 2016), an overnight capital cost of $5,083/kW net output (based on the lower of Rosatom’s own estimate of the overnight cost for eight VVER1200 reactors, and including a very conservative estimate for owner’s development costs and shallow grid connection costs) shows the most optimistic “IPP PPA tariff equivalent” for new nuclear in South Africa to be R1.17/kWh.
The LCOE figure of R0.97/kWh for new nuclear energy in South Africa used in the Draft IRP 2016 is thus very much lower than the most optimistic CSIR figure of R1.17/kWh, a far cry from the more realistic R1.30 to R1.52/kWh for new nuclear in a recent EE Publishers study dated 1 August 2016, and radically lower than the LCOE figures of R1.50 to R1.83/kWh provided in the updated EPRI report dated August 2015. The only PPA-based nuclear power station in the world, Hinkley Point C in the UK, comes in at an agreed PPA tariff of £92.50/MWh in 2012 money, which is roughly R1.60/kWh at today’s exchange rate.
While the Draft IRP2016 states that a “hybrid cost is used for nuclear technology based on the study commissioned by the DoE Nuclear Branch”, no further details are given on this, and no reference is provided to any such study. Presumably this study remains secret.
Of course, for nuclear power, the Draft IRP2016 conveniently ignores the costs of mid-life refurbishment, decommissioning and long-term storage and disposal of high-level radioactive waste, while for coal-fired power, it ignores the existing environmental levy, the pending carbon tax, and considerable other externalities such as the cost of negative health impacts.
The price basis used in the Draft IRP2016 for solar PV at R0.93/kWh and wind at R0.81/kWh are said to be based on REIPPP bid Window 4 prices as at January 2015, and to exclude owner’s development costs and shallow grid connection costs.
However, the CSIR Energy Centre has presented updated costs based on the bid the Widow 4 Expedited Round for both solar PV and wind at R0.62/kWh, a price that has already been adjusted to April 2016 rands, and that includes owners development costs and shallow grid connection costs.
Thus there is something seriously amiss with the solar PV cost (R0.93/kWh) and wind power cost (R0.81/kWh) (excluding shallow grid connection costs and owners development costs, and based on January 2015 rands) that are used by the DoE in the Draft IRP2016, as well as the absurd LCOE figures for utility scale solar PV (greater than R2/kWh) and wind (from R1.04 to R2.20/kWh) that are given for South Africa in the EPRI report provided via Eskom.
There is also something seriously amiss and inconsistent with the relative costs used in the Draft IRP2016 for coal, nuclear, solar PV and wind power, with the costs of wind and solar PV used being significantly too high with respect to the costs of nuclear and coal.
However, credit must at least be given to the DoE for realising that the EPRI numbers for nuclear, solar PV and wind power, are completely off the mark, and for not using them.
Base-case and general planning methodology ignores recommendations of Ministerial Advisory Council on Energy
The base-case presented in the Draft IRP2016 report not only uses clearly erroneous and inconsistent technology costs (as detailed above), but also imposes completely arbitrary and artificial constraints on the delivery of renewable energy, namely 1,000 MW/year for solar PV, and 1,600 MW/year for wind power.
Absolutely no justification is provided for such constraints, other than that the same (equally arbitrary) constraints were provided in 2010 in the IRP2010-2030, at a time when there was no renewable energy industry, utility scale solar PV or wind power plants in South Africa, and when international solar PV and wind prices were significantly different to what they are now.
Furthermore, the base-case also imposes a carbon emission constraint for the years ahead to 2050, this being the “moderate peak-plateau-decline” carbon emission trajectory.
This approach completely ignores the formal recommendation by the Ministerial Advisory Council on Energy (MACE), a broad-based group of academics, scientists, industrialists, representatives of various business and industry associations, energy intensive users, energy experts and other stakeholders, announced by the Minister of Energy shortly after taking office.
MACE urged the minister and the DoE that the correct planning approach would be to start with an unconstrained, least-cost, base-case scenario, using correct and up-to-date technology costs, to establish the associated least-cost, unconstrained, base-case technology mix to 2050, and the associated cost of this base-case scenario.
Thereafter, MACE recommended that the Draft IRP2016 should run a number of other scenarios using various imposed constraints, to establish the relevant energy mixes calculated by the IRP model for each of these alternative scenarios, together with the associated additional costs up to 2050, over and above the least-cost, unconstrained base-case.
Only then can planners, electricity customers and the public understand the cost implications of the various constraints over and above the least-cost, base-case scenario, in order to obtain a meaningful view of the additional cost vs the resulting benefit or policy objective.
For example, Eskom cites a limitation on the ability of the grid to accommodate the connection of more than a fixed amount of renewable energy capacity per year as a reason for the annual constraints on solar PV and wind power in the Draft IRP2016. (It is worth noting that Eskom has not commissioned any large renewables integration study so far to actually justify such claims.)
However, a study of the resulting cost increase of the constrained scenario with higher-cost generation technologies vs those of the least-cost, unconstrained scenario, indicates that it would be much cheaper to simply unlock the bottlenecks on grid access, and to upgrade the grid backbone, rather than to use higher-cost and less-flexible generation technologies.
But the least-cost, base-case, planning approach recommended by MACE was ignored. The base-case presented in the Draft IRP2016 was in fact not the least-cost scenario, and no costing of the base-case or any of the various alternative scenarios was presented.
This makes it impossible for any organisation or person to analyse the additional cost implications of a particular scenario vs any resulting benefit or policy objective achieved by that scenario.
Demand forecast – the need for flexible planning in an environment of inherent uncertainty
The electricity demand forecast used in the Draft IRP2016 is based on a Demand Forecast Report prepared by the CSIR for Eskom dated January 2016.
However, as can be seen in Fig. 8 on page 19 of the above report, there is a wide spread of forecasted demand depending on the assumptions and economic growth scenarios considered, and planners acknowledge that any electricity demand forecast today is fraught with uncertainty.
Some would say the demand forecast in the “CSIR High – Less Intense” scenario used by the DoE in the Draft IRP2016 is too high, while others may consider it too low.
However, the reality is that that demand forecasters actually don’t really have a clue as to the precise future grid-based electricity demand – not even for the next five years, let alone 10, 20, 35, 50 or 80 years hence – while there are significant disruptive forces and technologies at play, both now and in the years ahead to 2050.
These disruptors include: rapidly rising Eskom electricity prices; further significant price reductions for solar PV; grid-tied power supplementation; grid defection and energy switching for example to gas power, gas cooking and/or solar water heating; new emerging domestic, commercial and utility scale battery storage technologies, and the entry into the market of electric vehicles at scale.
Large-scale nuclear and big coal-fired power generation projects are not only notorious for very significant cost and time overruns, but would also commit South Africa to the specific technologies and vendor countries for the next 40 to 100 years. In this uncertain environment, it would be prudent to plan for flexibility, and not commit South Africa to expensive and inflexible technologies requiring mega-projects with long lead times.
Eskom’s preferred scenario – more constraints to force nuclear into the mix even earlier
It is quite obvious that the artificial constraints on solar PV and wind capacity every year in the Draft IRP2016 base-case is a political decision rather than a rational planning decision, to force 20 GW of nuclear power into the mix, even though only from 2037 onwards.
However, the scenario punted by Eskom goes much further, retaining the constraints on solar PV and wind, and pushing for an even more aggressive constraint on carbon emissions, following a “carbon budget approach” rather than the more “moderate peak-plateau-decline” constraint used in the base-case.
Eskom’s preferred scenario artificially constrains cheaper solar PV and wind capacity, uses unrealistically high and inconsistent technology prices for solar PV and wind and an unrealistically low and inconsistent LCOE for nuclear power, and applies more stringent carbon emission constraints, thus forcing the IRP model to fit 25 GW of nuclear power into the mix, starting in 2025.
Yet at the same time, Eskom continues to proceed with its massive coal-fired new-build programme, and plans to extend the life of its existing, environmentally non-compliant coal fleet – both having exceptionally high CO2 emissions.
The hypocrisy of pushing for more stringent carbon emission constraints to facilitate its nuclear ambitions on the one hand, while maintaining high-emission coal power, and constraining low-emission renewable energy, seems lost on Eskom.
However, this does reflect Eskom’s single-minded determination keep IPPs and potential competitors out of the picture, while focusing on big coal and nuclear power in order to retain its dominant market position in the years ahead.
The alternative for the electricity supply industry and Eskom, of course, should be to focus on more, smaller and flexible generation plants, with well-known and declining deployment costs, that can be constructed faster – like solar PV and wind power in combination with mid-merit CCGT and OCGT gas plant, pumped storage and other emerging energy storage options for peaking capacity.
Inhibiting and limiting public participation
The Draft IRP2013 Update has been under preparation by the DoE for well over a year now, and was intended to be issued for comment following a public participation process in March 2016. In the event, it was finally released on November 23, 2016.
But despite this long and much delayed gestation period by the DoE, notably missing from the information provided in the Draft IRP2016 published in the Government Gazette and on the DoE website are a number of appendices including: costs of the base case and the alternative scenarios of the Draft IRP2016; substantiation of the technology learning rates assumed; the presentation on the discount rate assumed, and the report on all other assumptions made in the Draft IRP2016.
Nevertheless, somewhat typically, after sitting on the IRP2016 for more than a year, the first series of public participation workshops announced by the DoE in the major metropolitan areas of South Africa, namely Johannesburg, Durban, Cape Town and Port Elizabeth, are being rushed through between December 7 and 15, 2016.
This gives stakeholders, affected parties and the public little over a week to digest the information provided (and to source and digest the missing Appendices), prior to the commencement of the public hearings in the major metropolitan areas of South Africa in the December holiday season, well before closure of the public consultation process in February 2017.
Furthermore, only DoE policy-makers will get to see the costing of the various scenarios, including any new scenarios identified by stakeholders, affected parties and the public during the public participation process. This is surely against the very spirit of a promulgation process through open public consultation and engagement.
All this can only result in inhibiting and limiting meaningful public participation and engagement with relevant affected parties from the major economic centres of South Africa. DM
Photo: Majuba Power Station, by Gavin Fordham via Flickr.
Jimi Hendrix was a private in the 101st Airborne in 1962.