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ENERGY DEBATE: REIPPP is driving SA towards a dark future

Jul 03 2018 05:30
Rob Jeffrey

The Renewable Energy Independent Power Producer Programme (REIPPP) has received extensive publicity. However, South Africans should not be deluded by the misleading benefits announced.

These include a mythical low capital cost; cheap, environmentally friendly, reliable electricity generation; and significant foreign investment.

This bears no resemblance to the current or likely future reality.

Simple arithmetic

The capital cost of renewables is claimed to be the cheapest alternative, certainly considerably cheaper than the alternatives nuclear and coal.

Simple arithmetic analysis of the figures reveals otherwise.

Broadly in line with the Integrated Resource Plan (IRP), the load factor and life for wind is taken at 34% and 20 years. Solar is taken at 26% and 25 years; nuclear 90% and 55 years; and coal at 85% and 30 years.

The result is that the apparent capital cost per installed nominal output – R/kWh per annum, compared to the real or produced R/kWh, and adjusted for the life and load factors of the generation sources – are as follows:

  • Nuclear (theoretical R0.15/kWh, real R0.17/kWh);
  • Coal R0.15/kWh, R0.18kWh);
  • Wind (R0.11kWh, R0.32kWh);
  • Solar PV (R0.08/kWh, R0.31/kWh).

These figures show that theoretically, wind and solar are apparently far cheaper to build. This is what the renewable lobby plays on.

But further examination reveals that in practice, their capital cost, once calculated over the life of the project and – importantly – adjusting for the load factor, they become far more expensive than nuclear or coal. The figures reveal renewable capital costs per real kWh supplied are 63% and 80% more expensive than coal or nuclear respectively.

A disingenuous flaw

The same disingenuous flaw is made when comparing the levelised cost of electricity (LCOE) of different electricity generation sources.

Experts consider that it is incorrect, and not possible, to compare the LCOE of secure, reliable electricity generation sources such as nuclear, coal and even hydro with unreliable, unpredictable and variable sources such as wind and solar.

Renewable sources require 100% back-up all the time. In addition, there are substantial extra grid and grid management costs. A further cost not taken into account in LCOE calculation is the real risk of not having electricity for economic activity when it is required. This risk increases with high-penetration renewables – as experienced in Germany, South Australia and other countries.

German shortages have been salvaged by importing electricity from Poland (coal) and France (nuclear). The fabled Energiewende programme is considered a failure by many experts.

These other, substantial costs are not taken into account when inaccurately proclaiming the R0.62/kWh LCOE of renewables and comparing them with coal and nuclear at approximately R1.06/kWh and 1.33/kWh respectively.

Compare apples with apples

The only fair means of comparison is that major suppliers of renewable power should bear all costs associated with bringing their power supply to the higher standards of security and continuity associated with coal and nuclear.

As it stands, they are in effect receiving a subsidy from the more efficient energy supply sources.

In summary, the much-vaunted least-cost solutions proclaimed by overseas suppliers and their idealistic supporters are deeply flawed and untrue. An examination of Eskom’s accounts reveals the extensive subsidies effectively paid to fund renewable energy. If all the costs were included, the true cost of renewable electricity supply would be closer to R2.00/kWh.

This bears out the experience elsewhere in the real world. German industrial electricity prices are some 80% more expensive than Poland (coal) and over 50% more expensive than France (nuclear).

It is therefore no surprise that China, India and the ASEAN countries, all high-growth economies, have selected nuclear and fossil fuels, particularly 'clean' coal, as their major electricity generation sources. They have analysed the alternatives and have recognised that High Efficiency Low Emission (HELE) or 'clean' coal, is the cheapest, most efficient electricity generation source for the foreseeable future.

Enthusiastic supporters of renewables, particularly those with overseas financial interests, have not taken into account some of the considerable negative economic and environmental impacts of high-penetration use of renewables. Jobs are only created temporarily during the construction phase. In the longer term in South Africa, they will lead to a significant decline in the mining sector generally and the coal sector in particular. The coal sector could shrink by 46%.

Given the direct, and indirect impact, this will reduce the Gross Domestic Product (GDP) of South Africa by over 2.5%. This will result in a loss of at least 29 000 jobs in the coal mining industry, and almost 162 000 jobs in the economy. It will detrimentally affect more than 600 000 dependents. The country's balance of payments would be seriously adversely affected by more than R50 billion per annum.

Importantly, the drive for renewables at the expense of coal and nuclear would deprive South African citizens of the R20trn value and added value of the country's coal and uranium reserves. This adds up to many hospitals, schools and other social benefits.

The National Union of Metal Workers of South Africa (Numsa) was quite correct to try to stop Eskom signing the 27 remaining Independent Power Producer (IPP) agreements. They should redouble their efforts to stop a fifth round of renewables.

Not so green

Finally, insufficiently considered are the huge negative environmental effects. The blades and motors have a large toxic content on disposal. The extensive wind farms, ultimately required, affecting over 100 000 square kilometres, will decimate bats and large rare birds. Together with the scenic intrusion, they will negatively affect the tourist industry. They are far from being environmentally friendly.

Those who write in and warn government not to sign such agreements are perfectly correct. Further renewables will prove to be a costly burden for the country. It has been estimated that approximately 60% of expenditure will go to foreign interests. The planned renewable build programme over the next 20 years will cost the country over R1.4trn. This means over R800bn will be spent on imported components and foreign payments.

South Africa will be committed to long-term purchase agreements of high-tech renewable imports for decades to come, whilst creating minimal ongoing employment in this country, if it follows this path. It will bring rich smiles to the faces of German and foreign suppliers and their vested financial supporters.

This route will not be making use of South Africa’s major assets. Instead, it will deprive its citizens of the value of these major assets, including its human resources and its commodities, uranium and coal.

Finally, it will financially ruin one of its major commercial and energy assets, namely Eskom. The government should be very wary of listening too closely to the vested idealistic and financial foreign interests of the vultures currently circling its major prey. If South Africa goes ahead on its current path it will slow economic growth, insidiously increase poverty and inequity, and ultimately lead South Africa to political and social instability.

In this case it is the weary consumer, the poor and the economy that will be the major losers. Indeed, South Africa and its citizens will be facing a dark future.

  • Rob Jeffrey is an independent economic risk consultant and the former MD of Econometrix. Views expressed are his own.

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rob jeffrey  |  renewable energy  |  reippp  |  energy
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