SA battles energy demons

Several recent announcements around SA's energy situation have raised questions about energy security, investment in renewables, and plans to meet projected demand going forward.

And the debate is set to continue, following the release of the draft Integrated Resource Plan for Electricity (IRP 2010), late last month. The IRP 2010 outlines how SA's future energy mix will be distributed between coal, nuclear, gas, hydro and other renewable energies for the next 20 years. A series of public hearings are planned for late November and early December.

Eskom CEO Brian Dames recently warned that the country's electricity supply forecast looks gloomy, given delays in bringing the Medupi and Kusile power stations online.

Despite continuing problems, SA's power issue has still not been dealt with, adds RBC Capital Markets analyst Leon Esterhuizen, in a report entitled 'Keeping the lights on in SA is not that easy'.

“Two years after the collapse of the power grid in 2008, the country is still drafting plans to address what is now acknowledged to be a very tight power supply situation over the next five years.”

EE Publishers MD Chris Yelland says SA's problems don't stem from limited capacity, as the country has an abundance of energy. “The crisis hasn't been one of energy, but of management.”

This applies not only to Eskom, he adds, but to the highest levels of government, including Cabinet, the Department of Energy, municipalities, and the broader regulatory environment.

According to Yelland, this lapse in management is demonstrated by the fact that a national plan for electricity precedes a long-term integrated energy resources policy.

“Only when you know where energy comes from and who is responsible for it can you begin setting prices for electricity,” he explains.

“What we have is a draft IRP for electricity, which has yet to be finalised, before even having an over-arching energy document in place.”

There has been much talk recently around the development of renewables, and their role in SA's future supply. Government has pointed to SA's high level of renewable energy (RE) potential, and requested information on prospective RE projects. It has also unveiled plans for major wind and solar initiatives, and earmarked funding for R&D in alternative energy technologies.

According to environmental affairs department spokesperson Albi Modise, the draft IRP 2010 provides for a significant proportion of renewable energy as well as generous RE feed-in tariffs and energy efficiency incentives.

“Through the implementation of the IRP, SA will undertake a significant departure from its traditional and historical fossil fuel-based economy,” he says.

The crisis hasn't been one of energy, but of management.

Chris Yelland, MD, EE Publishers

Yet, renewable energy will remain a minor contributor to electricity supply for at least the next 10 years, as stated in both the draft IRP and by industry analysts.

Cornelis van der Waal, Frost & Sullivan's energy and power systems programme manager for Africa, says there's been a lot of talk and little action when it comes to renewable energy in SA.

Going forward, however, renewables will be an important segment of the national energy mix, he adds.

The Department of Energy says the proposed IRP 2010 aims to achieve a balance between an affordable electricity price, a more sustainable economy, the demand on scarce resources, and the need to meet national emission targets in line with global commitments.

SA has a renewable-energy target of 10 000GWh by 2013, and has pledged to reduce its carbon dioxide emissions by 34% below business as usual by 2020 and 42% by 2025.

However, Yelland notes the draft planning is dominated to a significant extent by coal and other sources of electricity generation until 2030.

“The IRP 2010 suggests the country requires around 52 gigawatts (GW) of new generation capacity in order to meet the demand for electricity in the next 20 years. Of this 52GW, around one-third will come from coal, most via new power stations including Medupi and Kusile, and a small percent from return to service of old mothball power stations.”

The question is, what can the country afford?

Chris Yelland, MD, EE Publishers

Nuclear makes up the next biggest chunk, at close to 20%, while nearly 17% will come from gas and diesel. The remaining portion is allocated to renewables with the major focus on hydro and wind power.

Van der Waal explains that coal will remain a dominant feature of the energy mix, for the next few decades at least, as there's a lot of vested interest in infrastructure, such as the Medupi and Kusile power stations. “Also, coal is a technology we know well in SA and we have an abundance of it, so it's still the cheapest form of electricity generation.”

However, Van der Waal adds it's not a sustainable source and also has a huge impact on the environment.

“We're sitting in a situation where the plan is to go from 80% of base load from coal, to 48% of base load by 2030, with 14% coming from nuclear and 16% from renewables.”

He adds that allocated investments for all new power projects also indicate a move away from coal towards nuclear.

At the end of October, government announced plans for what is set to be the world's biggest solar power plant, to be built in the Northern Cape, to eventually meet around a tenth of SA's current energy needs.

Some 400 international investors and industry insiders descended on Upington to discuss the construction of the ambitious solar project, which plans to generate 5 000 megawatts (MW) of electricity annually by 2020.

The project involves giant mirrors and solar panels being installed across the Northern Cape province, which government says is among the sunniest 3% of regions across the globe. A recent feasibility study by the Clinton Climate Initiative also described SA's solar resource as among the best in the world.

Government hopes the solar park, estimated to cost around R200 billion, will help reduce carbon emissions, and contribute to the national grid by the end of 2012.

But Yelland questions why the project plans to generate 5 000MW when the draft IRP 2010 only allocates 600MW to solar. He says renewables are still expensive and relatively immature technologies to be used for utility-scale power generation.

He adds they're starting to make an entrance, and that small solar photovoltaic initiatives can be useful in the enterprise sector, or for households not connected to the grid.

The number of households still without electricity stands at an estimated three million, president Jacob Zuma pointed out in his recent Cabinet reshuffle. According to Dames, Eskom will also begin procurement processes for its wind farm and solar power plants.

Van der Waal says the outlook for solar in the long-term is positive, as there's an abundance of sunlight, not just in the Northern Cape but throughout SA. But while there's significant potential to develop large-scale applications, he adds the price associated with solar technologies is still high.

“You can't just implement it haphazardly. You need to move towards making it affordable while keeping in mind certain realities. Moving away from cheap electricity requires making up for losses economically, and in SA we don't have the resources, skills, capital and infrastructure required.”

He adds that suddenly making electricity more expensive risks punishing businesses and sectors that are vital to keeping a developing country like SA going.

“Moving from a coal-dependent economy to one based more on hydro and nuclear is not something that happens overnight.”

Yelland notes that renewable energies are viewed as a way to reduce the country's carbon dioxide (CO2) emissions, as SA has pledged to do. “If we carry on as usual with coal being the dominant source, we won't be able to meet these commitments.”

The department has proposed the revised balanced scenario, which will result in significant emissions reductions (30%), at an 8% price premium, costing R860 billion. There is a lower cost scenario, but it results in the highest emissions, and doesn't factor in external costs such as international penalties for being a high carbon emitter, says Yelland. “It may be the least-cost route in terms of rands (R790 billion) but it will bring economic consequences.”

According to Yelland, it all comes down to what people are willing to pay. “If you want reduced emissions, you're going to have to pay more. If you want to carry on as usual, it'll be cheaper, but you'll have higher emissions. The question is, what can the country afford?”

He anticipates some minor tinkering to the draft IRP as the public hearings resume, but believes the energy mix proposed in the balanced scenario will remain largely intact.

However, SA doesn't face an easy road ahead, even with a finalised policy in place, notes Yelland. “The next couple of years will be critical and nothing happens very quickly, least of all government policy.”

Van der Waal echoes this, adding there's a real possibility the country will again face the load-shedding experienced in 2008. “The first issue is reliability of supply, which requires additional megawatts, and renewable energies could play a potential role there. The second is to keep prices affordable while adding megawatts - the government is going to have a tough time balancing the two.”

One positive outcome of the recent crises, however, is that government is now more aware than ever before of the importance of energy security, says Yelland.

“It's been a big wake up call of the dire economic consequences of not ensuring electricity supply. What this has done is push energy much higher on the agenda than it's been in the past and if we get our act together and implement the IRP, it's possible to overcome problems in future.”