A realistic look at energy's 'new dawn' | Fin24
 
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A realistic look at energy's 'new dawn'

Sep 07 2018 06:15
Stephen Thomas & Angela Andrews

The adoption of Integrated Resource Planning (IRP) in South Africa in 2010 should have been a major step forward for electricity consumers.

In essence, the rationale for an IRP is that provided environmental requirements are met, consumers don’t care how electricity is generated, they just want a reliable service at the lowest sustainable cost. The lowest cost policy is determined by a sophisticated, data-hungry model.

However, a combination of unrealistic data, ill-conceived interventions by ministers overruling the model, and poor performance by Eskom – in maintaining existing plants and commissioning new ones – has meant that, far from falling, prices have gone up. Additionally, the service has been unreliable since 2010.

Change of heart?

The new draft IRP may represent a step forward, not least because it does not include the programme of six to eight new nuclear reactors (9.6GW). Government ministers had forced this programme into all previous versions of the plan via policy adjustments, despite the nuclear option being far more expensive than the alternatives.

It is not clear how far the apparent abandonment of the programme is a genuine change of heart, and how far it is bowing to the reality that the programme was unfinanceable. Or the fact in 2017, the Western Cape High Court set aside the determinations under the Electricity Regulation Act with regard to the need for, and procurement of, nuclear new generation capacity.

Worryingly, the assumed construction cost for new nuclear power plants is still only about half the cost of comparable projects elsewhere in the world. The means that the economics of new nuclear power stations are far worse even than the new draft IRP suggests they are.

Other important changes are lower electricity demand forecasts and an increased role for renewables. There is often a macho element to electricity demand forecasts, with the assumption that low demand growth can only be the result of low economic growth.

In fact, the opposite may well be true. Reduced electricity demand generally goes with a move away from basic industries to high value-added, high-skill industries and the uptake of highly attractive energy efficiency options.

Simple changes

One of the few positive outcomes of the power shortages from 2012-16 was that consumers became aware that simple changes, like replacing traditional bulbs with LED bulbs, dramatically reduced consumption, with the small extra cost of these bulbs paid for many times over in lower electricity bills.

Industry will also have seen that energy efficiency measures improve their international competitiveness.

The cost of renewable generation has fallen sharply in South Africa. Prices have been reduced by a combination of falling world prices for solar panels and wind turbines and introduction of an effective 'auction' process in South Africa. Companies can bid to build new renewable generation, but only the lowest bids will succeed.

One outcome of this shift to renewables is that the planning horizon can be shortened. When nuclear was the favoured option, a 20-year horizon made sense, because typically that is how long it has taken nuclear projects from start of planning to first power.

Garbage in, garbage out

Small-scale renewables can be brought online reliably in two to three years. This is not to say governments should give up on long-term planning but, realistically, the variables needed by a precise model like that used in the IRP, such as economic growth, fuel prices, currency exchange rates and technology development are not forecastable with the required degree of accuracy over a 20-year time-frame; and the old adage of "garbage in, garbage out" will apply.

The performance of Eskom has deteriorated sharply since 2010. The IRP assumes that at any one time, 86% of Eskom’s capacity would be available to generate. But by 2015, Eskom was only achieving 70% with, at best, expensive old power stations being used more intensively; and, at worst, power cuts.

There have also been long delays (and cost overruns) completing the Fusile and Medupi coal plants, again requiring old, inefficient plants to be kept in service.

There is plenty to do if the promise of IRP methodology – that consumers’ interests would come first – is to be realised.

While it would make no sense for the government to implement model results uncritically, any government adjustments should be clearly explained and justified.

More realistic and unbiased cost forecasts, and revisiting the issue of time horizons, are priorities. A future dominated by small-scale generation is likely to lead to a reduced role for Eskom.

However, the benefits of a well-conceived IRP will only be achieved if Eskom can build plants on time, and maintain existing plants so that these are available to generate when needed.

Professor Stephen Thomas is Emeritus Professor of Energy Policy at the Public Services International Research Unit (PSIRU), Business School University of Greenwich. Angela Andrews is an attorney at the Legal Resources Centre.

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eskom  |  jeff radebe  |  renewables  |  irp  |  energy
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