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Green energy nipped in the bud

Donald Paul is a freelance writer and editor. He has no children but still thinks those that do should have the benefit of being able to leave them a good, clean and safe world to live in. He lives in Cape Town but still only thinks of the mountain in the lower case (9pt courier font, for those who like details). He has a bakkie, a bicycle, two cats and books—some with pictures. His last steady job was editor of The Big Issue South Africa for three years.

The department of energy's integrated resource plan for electricity goes some way towards addressing concerns over South Africa's regulatory framework for better electricity grid, but falls dismally short when it comes to renewable energy targets. Despite much revision, the IRP remains flawed, and renewable energy much ignored.

The World Economic Forum report “Developing Renewable Energy Capacity: Addressing Regulatory and Infrastructure Challenges in Emerging Markets”, produced in collaboration with PwC claims the keys to building a sustainable, energy-secure future requires a flexible regulatory framework and better electricity grid infrastructures.

South Africa was one of the five countries included in the report (with Indonesia, Jordan, Mexico and Morocco). Despite much revision, it remains flawed. The arithmetic does not add up and the projections fall dismally short of anything resembling a serious renewable energy policy. The profound implications of this will be felt long before the end of the projected period— to 2030. If South Africa wishes to stand alongside other BRIC nations, we need a more coherent and aggressive policy on renewable energy.

A figure that appears in most discussions about the IRP is that 42% of our electricity capacity is going to come from renewable energy. When you consider that currently more than 90% of capacity comes from coal-fired generators, this sounds wonderful: But it’s a fantasy target. This target is higher than any other country in the world. This is simply not achievable under the current IRP.

The compilers of the IRP should not be blamed for the way in which the media have interpreted the report in quoting this figure—itself the result of faulty arithmetic—but it is actually greenwashing and misrepresenting the facts.

The figure of 42% given in the “Policy adjusted IRP” column [Figure 3 on page 15] represents new capacity generation and not total capacity. This increased share of new renewable capacity from 30% (in the “Revised Balanced Scenario”) to 42%, but if you double check this number against that in column 2 in Table 4 on page 14, you can see, wind is 16.3%, CSP (concentrated solar power) 2.1% and PV (Photo Voltaic) 14.9% of new capacity added (including committed, the plant already in the pipeline for the next few years). This adds up to 33.3% not 42%.

Even if you add hydro-electric power (4.7%) which shouldn’t really be counted because it’s mostly imported from Mozambique and Zambia, you still only get to 38%. If you put the questionable 42% in context, in terms of total capacity, it’s actually 21% wind, CSP and PV figures in column 1 of the same table.

Look at the numbers further: the real contribution of “renewables” to the country’s electricity mix is found on page 28. Ignoring the hydro-electric factor (because it’s imported) the actual “renewable” account for a meagre 5% in 2020, and 9% in 2030. The figures will be slightly skewed by the fact that bio-fuels and solar water heaters are not factored into the calculations, but their contribution is minimal.

In 2005, the DOE set a renewable energy target of 4% for 2013. The IRP now wants to increase that to 5% in 2020 –a mere 1% increase over seven years. The profound implications of this decidedly unambitious energy plan will be felt long before the end of 2030.

South Africa needs to recognise the correlation between climate change (viz. carbon footprint) and energy policies: The decision to commit, as the IRP states, “to a full nuclear fleet of 9,600MW” to provide “acceptable assurance of security of supply in the event of a peak oil-type increase in fuel prices and ensure that sufficient dispatchable base-load capacity is constructed to meet demand in peak hours each year” is disingenuous and may be done simply to wave the “reduced carbon footprint” flag. 

The IRP admits that the future capacity requirement could, in theory, be met without nuclear, but that this would increase the risk to security of supply. The IRP does not qualify why this renewable would “increase the risk”.

The fallacies in the IRP present serious problems in accurately formulating a renewable energy policy and appear to contradict earlier projections made by government policies which continue to be championed as achievable.

In making sense of the figures in the IRP, it is necessary to understand the difference between “electricity” and “capacity”. The best way to do this is to think of capacity as the diameter of a water pipe and to consider electricity generated as how much water you have in your dam. You can pump all that water out through the pipe, but if you’re left with no water at the end of the day, you have not done anything for your water [read “electricity”] supply.

For example, Koeberg Power Station has 1.8GW capacity. It doesn’t run at full steam, but runs at a total capacity factor of 65%, which is what is delivered on average throughout the year. With renewable power stations, the capacity factor is between 20% and 30%. To generate the same power as Koeberg from wind turbines, you’d need approximately 10GW capacity, based on a 30% capacity factor and running continuously throughout the year. (For PV, the capacity factor is closer to 20%.)

It is worth noting that Germany’s installed wind capacity in 2010 was 27.2GW, the highest in Europe. Wind energy generated 37.3TW of electricity in 2010, which accounted for 6.2% of the country’s power consumption. In total, 17% of electricity was generated from renewable sources in Germany in 2010, with wind being the single largest contributor.

Renewable energy sources have different capacities and thus what they contribute to the total electricity generated is a very different picture from what the IRP gives. The IRP figures (see page 28) talks about “net energy supplied by all sources”. In 2010, the total electricity demand in South Africa is around 230-240TW. Of this, 90% is delivered by coal-fired power stations, 5% by nuclear and 5% by hydro.

The IRP states that by 2020, 87% will be delivered by coal, 5% by nuclear and 5% by hydro. The difference is made up by wind turbines (3%), SP (1%) and PV (1%). The total for electricity supply from renewable energy in 2020 will therefore only be 5%. That is the real figure. By 2030, the IRP states 65% will come from coal, 1% from gas turbine, 20% from nuclear, 5% from wind, 1% CSP and 3% from PV. Thus the real figure for renewable energy supply in 2030 is a mere 9%, not 42%. This is not a green economy and makes our claims laughable in the eyes of the rest of the world.

In 2005, a white paper said South Africa would need to reach renewable energy target of 4% by 2013. The minister herself continues to state that this is what the government requires. We are going to miss that by a long way.

Most experts in the renewable energy sector say they would be surprised if South Africa hits even 1% by 2013 simply because very few renewable energy power stations are being built. There are plenty of plans and various venture and investment capital funds are looking at the sector, but nothing is happening on the ground.

Director at Inspired Evolution Investment Management Christopher Clarke says very little private investment has happened to date. Since IRP2010 allocations were approved, however, there are “huge expectations on future spend” and he predicts “a market size around R50 billion by 2020”.

Still, further market development is highly sensitive to administrative barriers, grid access and the risk of policy change. The initial policy of the DOE may have been to provide greater investment, development and access for the renewable energy sector, but “policy change” has put a stop to that.

Much of this is driven by the members of the Energy Intensive User Group whose members are the industrial and mining giants that use up to 60% of all electricity in the country. Its brief is to maintain the status quo, set back in the 1980s. Back then, Eskom was on a roll and built far too many power stations. The result was an over-supply of capacity.

The industrial giants, especially the smelters, came in and, with the help of some very astute bankers, brokered deals for the electricity at very low tariffs, which they locked down for the next 20 years. It is those contracts that are part of the problem facing the development of renewable energy in South Africa.

The other part of their argument is that the tariffs need to remain low for South Africa to develop in competitive world markets. The National Energy Association and Alternative Energy Association conduct workshops and attempt to work with the government and stakeholders to support the design and development of renewable energy feed-in tariff programmes. These associations are calling for a power purchasing agreement at a tariff that makes renewable energy attractive for investors.

Private capital and infrastructure investments require returns that are between 15%-20% to make it worthwhile. This means a higher tariff—around R1.20 for wind and R2 for solar—than that currently locked in from to coal-fired power plants built 20 years ago.

In four years’ time, Eskom’s tariffs will have reached this level, due to the increases they have tabled. If you build a new coal-fired generator today, you will need R1.10 or R1.20 to make it worthwhile. That’s why Eskom is upping the tariff rate. It also has to raise funds on the market, as it can’t build coal-fired power stations at today’s rates. Eskom either expands its network by building new power stations – and it does so by raising the tariffs – or it stops building new stations and constrains growth, which is highly unlikely.

Clarke says it’s more complex and “depends on the renewable energy category, the specific project performance characteristics and the cost of capital. The rate of price ‘degression’ of certain technologies, for example solar PV, may allow certain projects to make fair returns at lower tariffs. The key issue is timing.”

While Eskom keeps its tariff unrealistically low, nobody is prepared to sign a 20-year PPA at the higher tariff. At the same time, the energy regulator has expressed concerns that by allowing the renewable energy sector a higher tariff, it will push up existing tariffs. The DOE simply says it can’t contract to buy the renewable energy capacity except through a lengthy and limiting tender process.

For the private sector to build the renewable energy sector, it needs a policy environment where someone will guarantee to buy the electricity. For that to happen, government must first introduce a renewable energy feed-in tariff (Refit)—a guaranteed tariff—fixed for 20 years or more and adjusted for inflation—that the producer will get for the electricity it feeds into the grid. “To kick start the RE industry,” says Clarke, “Investors want to see attractive tariffs. That is a necessary concession for Nersa to make in order to incentivise the industry out the starting blocks in an untested process.”

For it to work, producers will require free grid access so that any energy producing entity will be allowed to feed into the grid provided certain standards are met. Free grid access will liberate the market and allow a willing buyer-willing seller situation to develop.

As it stands, Eskom would be the buyer, but there is a plan under way to break Eskom into two companies: one business that just manages power stations and another business that manages the transmission and distribution and buys electricity from any entity that produces it—including Eskom and people outside our borders. Both would be completely independent bodies, but would remain parastatals and, as such, highly regulated. It is a model that is used very successfully elsewhere in the world. We do not need to reinvent the wheel.

In March this year, the Nersa proposed a significant drop in the level of Refit compared to those approved and promulgated in 2009. This has drawn the ire of the renewable energy sector.

The South African Wind Energy Association, the Southern Africa Solar Thermal and Electricity Association and the South African Photovoltaic Industry Association have condemned this, stating it is paramount the nascent industry is given consistency and certainty.

The renewable energy proponents point out that, over time, the tariffs for the start-ups will match existing tariffs and there will be no need for Refit to be continued. Nersa’s call for a review of the tariffs has raised concerns in the renewable energy sector that procurement processes would be delayed and investor confidence undermined.

The other problem—and one to which the EIUG pays lip service—is climate change. At the climate change conference in Copenhagen in 2010, South Africa committed to reducing its carbon footprint by 34% by 2020 and by 42% by 2025.

We are hosting the 17th Climate Change Conference in December 2011—an opportunity to showcase South Africa’s commitment to renewable energy. We need to show that we intend to stick to our commitment. The manner in which we will do this, however, appears to be through building and promoting new nuclear power stations—not through increasing our use of renewable energy. DM


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