South Africa’s draft integrated resources plan 2023's “least cost” trickery
Article for Independent Online
Originally Published in the Mercury.
The draft South African Integrated Resource Plan (IRP) that was published on January 4, 2023, has evoked a diverse range of public reactions. Opinions from “energy experts” vary. From outright criticism by individuals who seemingly always criticize any coal, natural gas and nuclear power plant without reservations, to a more nuanced perspective from economists that the Integrated Resources Plan might be a step back to realism. In my view it is lacking in major detail and the process is systemically flawed.
Before delving into the technical details, I have questions about the procedure of the Integrated Resources Plan (IRP) and why it should be open to public consultation at all. Why is the Department of Minerals and Energy (DMRE) responsible for the IRP rather than Eskom's System Operator? Wouldn't the individual closest to the issue possess a better understanding of South Africa’s future electricity needs? Why can't Eskom take the lead in formulating the IRP by engaging directly with diverse stakeholders in the energy sector?
Can a government department, regardless of its competence and integrity, truly comprehend the intricacies of determining a country's future energy mix? Is it realistic for them to consider all the variables and accurately predict the economic landscape for the next 5 or 10 years? The failure of the 2019 Integrated Resources Plan to predict South Africa’s electricity mix in 2023 should raise significant doubts about the viability and integrity of this process and prompt if the process even makes sense at all.
Minister Mantashe's office should focus on establishing broad policies, such as prioritizing energy security, cost-effectiveness, and decarbonization. However, dictating the specific details of the electricity mix accurately should not be the function of DMRE. I regard the way that the IRP is determined as a root cause of loadshedding, because it puts the task of finding solutions in the hands of those that are too far removed from the problem.
I appeal to the Minister to consider relinquishing the powers of the Department of Minerals and Energy and transferring them to Eskom’s System Operator. Eskom, as the entity directly involved in electricity generation, should be entrusted with setting tenders, determining the electricity mix, and deciding whether South Africa should invest in transmission lines, maintain the coal fleet, or engage in power purchase agreements. This shift of responsibility will enhance the efficiency and empower Eskom’s management to solve the problems more directly. The minister should appoint Eskom’s board of directors, but his office should not be involved in executing the energy policy. It is bound to cause more loadshedding and more importantly result in corruption, whose root cause is too much discretionary power in the hands of officials, particularly those setting the tenders.
Furthermore, the IRP concludes that there is a “least cost pathway” for the next 5 years titled Horizon 1. This makes no sense, because the procurement of large rotational plants are often beyond a 5-year window. In 5 years down the line, the IRP will conclude again that there is another “5-year plan”. This approach incentivizes the prioritization of short-term solutions over long term solutions. It is a systemic failure of the process where the rules are written to favour certain outcomes.
The IRP delineates two-time horizons: Horizon 1, extending to 2030, and Horizon 2, covering the period from 2031 to 2050. The question arises about the relevance of the Horizon 2 scenarios and how the “planners” can seriously predict a least cost pathway so far into the future, considering it might become obsolete by the time the subsequent IRP is conducted. This raises concerns, especially among those who favor a high renewable or nuclear pathway, who should regard the nature of the process with skepticism.
If the “reference scenario” is the one that will be implemented, and if it does not include a significant number of new renewables or nuclear, including the planned 2500MW reactor which NERSA gave concurrence then there is no purpose in the multiple pathways presented for Horizon 2.
Regarding the technical details, the IRP2023 marks a positive step forward in contrast to the 2019 IRP, which encountered technical challenges, such as a failure to recognize that South Africa cannot prioritize decarbonization at the expense of energy security. The IRP2019 significantly overestimated South Africa's capacity to integrate renewable electricity sources on a large scale, particularly in light of grid constraints.
Incidentally, to meet the newer, but lower, targets of the IRP2023 for renewables, South Africa would need to construct approximately 14,000 km of transmission lines in 10 years—a distance equivalent to around 40% of the Earth's circumference. Lack of transmission is an obstacle for the rapid uptake of renewables. Between 2013 and 2022 just more than 400km of transmission lines were built per year; the current grid shortfall is 14,000km. Unfortunately, this extensive infrastructure development is not feasible in the immediate future which is why I argue that South Africa in the absence of a viable plan will pivot back to energy realism – that means going back to burning “dirty” king coal.
What the IRP gets Right
· The IRP mentions coal life extensions as a sensible policy option. South Africa’s electricity mix is more comparable to Asia’s. Like them we should also do life extensions on their coal fleet, even if that means a lower utilization rate like in China.
· The IRP rightfully acknowledges that Liquefied Natural Gas (LNG) is necessary if renewables are going to be integrated en mass. The IRP envisages 6GW of Gas to Power (GTP), 3GW from Eskom and 3GW from subcontractors.
· The IRP has published the names and dates that each coal power station is going to be retired on. This is important as it will signal to Eskom when to do life extensions or open the grid space for subcontractors (branded as “independent” power providers).
· The IRP rightfully envisages no new nuclear SMR within this decade. Despite the prospects, the technology is unfortunately not yet ready for a mass rollout.
· The IRP predicts loadshedding to continue until 2027. It’s a realistic admission of the difficulty in expanding transmission lines and getting new capacity onto the grid while maintaining system reliability.
· Horizon 2 sensibly has various scenarios set out that include renewable, nuclear and LNG expansion.
What the IRP lacks.
· There is no assessment on why the 2019 IRP failed.
· There is no assessment if the Monte Carlo Simulations, differential equations or Plexos software is suitable at all for the applications involved. The quality control procedure and model stress tests are not made public.
· The names of the modelers, their qualifications and those who did the assessment is also lacking.
· The IRP does not speak to Eskom’s reserve margin (Eskom needs at least 5GW in excess of demand before the coal fleet can be overhauled).
· The IRP makes no prevision for a more disastrous outcome such as a rapid decline in Eskom’s EAF. Ignoring a black swan risk is reckless.
· The IRP does not speak to the abandoned coal stations. Fixing them is the quickest way to alleviate load shedding.
· A EAF breakdown for each plant and unit is lacking.
· The IRP does not take into account the predicted expansion of rooftop solar (2000 MW per year according to the electrical engineer Chris Yelland).
· The IRP uses a pathway that includes 2500 MW for new Nuclear Power, but this number effectively locks out vendors such as South Korea and France with 2800 MW and 32000 MW respectively. But if the reference scenario is going to be implemented, what is the purpose of a nuclear scenario at all?
· The amount of anticipated GTP of 6GW is too low, South Africa needs at least 13GW.
· The government’s spreadsheet numbers regarding nuclear power does not consider successive economies of scale and therefore it significantly overestimates the cost of nuclear power.
· The government relies on Lazard as a benchmark, but it has been shown by independent analysts that Lazard contradicts audited accounts for offshore wind and nuclear power in particular. It makes the former look too affordable and the latter too expensive.
· The spreadsheet ‘s data is not well organized and unfortunately difficult to read.
· The cost of renewables does not seem to include the cost of transmission lines.
· The pace of building 6000km of transmission lines per year as per the minister of electricity seems to be ambitious?
· The IRP has identified carbon capture and storage (CCUS) as a potential option for decarbonization, but the cost of this policy and its economic feasibility remains elusive.
· The IRP does not take expanding South Africa’s pumped storage potential seriously. South Africa can easily advance 5GW of pumped storage and it can be brought online within 10 years or less. This will help in integrating renewables en masse.
· The IRP should to an assessment for the impact of renewables on the full system cost of electricity for a 10%, 25% and 50% penetration.
· The IRP should make a provision for SMRs. Either through a potential revival of the Pebble Bed Modular Reactor, through partnering with local companies or by partnering with China and/or the United States.
· The impact of the Namibian Orange Basin Discovery and the Mozambique Gas on new Gas to Power is not even mentioned.
Broadly speaking, the IRP2023 has shortcomings and the process itself is systemically flawed. They need to be address before it can be finalized. What I do credit the IRP for is that it softly speaks to a return to realism and a non-aligned energy policy, but it fails to choose any of these pathways because of the “least coast” trickery in horizon 2. Advocates are likely going to abuse it and use another court order to block a nuclear procurement!
The major shortcoming of the IRP is that it simply cannot conclude that the reference pathway is the most affordable. In fact, there shouldn’t be a least coast reference pathway, but rather multiple options to choose from with a multi-dimensional matric that includes cost, affordability, resilience and other options.
The IRP2023 should bring South Africa's energy policies in line with what the energy author Robert Bryce terms the Iron Law of Electricity. This principle asserts that nations lacking energy security will ignore decarbonization in the immediate future and prioritize any source that can reliably contribute to the power grid. Embracing a diverse mix of energy sources is a pragmatic step towards ensuring a stable and secure energy future for South Africa.
The Integrated Resource Plan should strive to establish a balanced compromise among diverse energy sources, encompassing coal, nuclear, wind, solar, hydropower, oil, and natural gas. This approach aligns with South Africa's democratic traditions by emphasizing the importance of finding compromises among various stakeholders as opposed to adhering to a rigid "one-size-fits-all" energy strategy.
The “least cost” reference scenario makes no sense and therefore the IRP be rejected by everyone who cares about South Africa’s energy future.