The Integrated Resource Plan (IRP)
The IRP for 2010 – 2030 was published in March 2011. It contains an overall assessment of all aspects which are relevant for determining future electricity requirements and how future electricity demand should be addressed. The 2011 IRP provided for, in addition to all existing and committed power plants (including 10 000MW committed coal), 9 600MW nuclear, 6 300MW coal, 17 800MW renewables and 8 900MW other generation sources. An update to this IRP was completed in November 2013 (even if apparently never approved by Cabinet), which referred to the fact that the electricity demand outlook had changed dramatically from that expected in 2010.
The 2013 updated IRP also stated, inter alia:
• The nuclear decision can possibly be delayed. The revised demand projections suggest that no new nuclear base-load capacity is required until after 2025 (and for lower demand not until at earliest 2035) and that there are alternative options, such as regional hydro, that can fulfil the requirement and allow further exploration of the shale gas potential before prematurely committing to a technology that may be redundant if the electricity demand expectations do not materialise.
• Considering the changes in consumption patterns and technology costs over the past three years it is imperative that the IRP should be updated on a regular basis (possibly even annually), while flexibility in decisions should be the priority to favour decisions of least regret. This would suggest that commitments to long range large-scale investment decisions should be avoided.
• If, and only if, electricity net-send out is greater than 265 TWh in 2014 (or 270 TWh in 2015) AND there is no expectation of large-scale gas development, then the nuclear procurement should proceed. However, if it is clear that there is no commitment to a nuclear capital cost below $6500/kW then the procurement should be abandoned as the additional cost would suggest an alternative technology instead.
Eskom’s 2015/2016 annual report states that its energy output in the financial year 2015/2016 amounted to 219 979GWh of electricity - i.e. 219.97TWh and that this equates to approximately 90% of the electricity used in South Africa. It is therefore clear that the threshold levels set by the IRP have not been exceeded and Eskom’s own statistics further show that its total electricity sales have decreased by 4.5% over the period 2011/2012 to 2015/2016. Regarding the capital cost level of USD6500/kW mentioned, clarity will only be obtained once responses have been received to the RFP. The second brief deals with capital cost issues in more detail.
The question therefore arises as to why no updated IRP has been completed since the last update in 2013 and why the absence of an updated IRP during this period has only now led to a delay in the issuing of a Request for Proposal (RFP). This is especially so since out-dated IRPs may have limited relevance in the light of changes in electricity consumption, new alternative technologies and changing forecasts regarding economic growth and electricity demand - hence the statement in the 2013 updated IRP above that the IRP should be updated regularly. In addition, the Minister of Energy is required by section 3 of the National Energy Act, No. 34 of 2008, to publish an analysis on an annual basis, forecasting energy supply and demand for no less than 20 years, together with different scenarios and must also publish all assumptions used in the regard. This legislative requirement has not been complied with. It is also interesting to note that Section 6 of the same Act requires the Minister to publish an Integrated Energy Plan on an annual basis, based on the analysis envisaged in Section 3 of the Act (referred to above) - but for some reason, Section 6 remains the only section in that Act that has not come into force.
The answer to this question as to the absence of recent updates to the IRP is to be found in Government’s overly hasty approach to a subject that requires careful consideration, planning and meticulous compliance with legal requirements.
It is also surprising that the Department of Energy nevertheless continues to proceed with presentations, as the one to Parliament’s Portfolio Committee on 11 October 2016, which show an “Execution Plan” with a first new nuclear unit to be commissioned in 2023. This presentation was made directly after the Minister of Energy’s more careful and nuanced approach was conveyed to the Parliament’s Portfolio Committee on Energy. For some reason, the cart therefore continues to be placed before the horse.
Against this background, the following is taken from an article in Business Day of 25 October 2016 by Professor Anton Eberhard of the University of Cape Town’s Graduate School of Business:
It is crystal-clear: a least-cost electricity plan for SA does not include nuclear energy, even if a carbon emissions cap is imposed that would enable us to meet our climate change mitigation obligations. Thus if Eskom proceeds with the procurement of nuclear power stations, it will not be a rational decision and almost certainly will be subject to legal challenge. The original decision by the Cabinet to opt for nuclear energy is already in the courts.
Eskom executives have launched a concerted public relations campaign in recent months, arguing that renewable energy is too expensive. They are correct that the first generation of IPPs in SA were costly, but they omit the inconvenient fact that prices for solar and wind in the latest IPP bid rounds have dropped dramatically and are now down to 62c/kWh, cheaper than Eskom’s average cost of supply at 84c/kWh and far cheaper than Medupi or Kusile or new nuclear power. The recent coal IPPs, announced by the department, are also cheaper than Eskom’s new build. Of course, we should not consider only the costs of individual supply technologies, but also the system costs to ensure reliable supply. Solar and wind resources are variable and need to be complemented with flexible power sources such as gas, hydroelectricity, storage or demand-side management. The blended cost of solar plus wind plus flexible system resources is cheaper than Eskom coal or nuclear.
In summary, in analysing the conclusions of an updated IRP, these are some of the questions which need to be answered:
• Are the estimates of economic growth and future electricity demand based on reasonable assumptions?
• How are forecast construction cost comparisons arrived at? (See also the discussion in the next and final brief on the topic of construction costs.)
• Have cost comparisons between various technologies been dealt with in a satisfactory manner (and this relates to both all-in construction cost and operating cost)?
• Is an increase in nuclear power capacity necessary? If so, what is this based on?
Who is responsible for policy?
This question arises from comments made by former Eskom CEO Brian Molefe, who is quoted in the Sunday Times of 24 July 2016 as follows:
It [the IRP] was supposed to be revised every two years, but it hasn't been. The fact is, the current IRP on which the renewables programme is based is outdated and I don't think renewables are contributing as much as people say they are. I don't buy the argument that they have contributed to a reduction of load shedding. If anything, they've increased the burden. We have to buy solar and wind even when the wind generates at 2am. There's nothing we can do with it at that time. And of the installed capacity of wind and solar energy, availability is only 30%. If you have 2000MW installed, there is only 600MW available at any one time, yet we pay for 2000MW.
The Minister of Energy stated in a press statement on 17 August 2016 that she:
wishes to reiterate that South Africa is pursuing a diversified energy mix which includes Independent Power Producers and the Nuclear New Build Programme in support of the Government's programme of economic growth and development. Again we must emphasise that there is no "nuclear deal".
More recently, in her address to Parliament’s Portfolio Committee on Energy on 11 October 2016, the Minister of Energy said that her Department is committed to renewable energy and will bring the project to full closure and that:
the CEO of Eskom is not making policy decisions but business decisions that need to ensure the country has sustainable and cost-related tariffs.
Eskom has now formally been designated by Government as the procurer for the new nuclear build programme, which would seem to be reasonable on the assumption that Eskom has greater internal resources and experience to draw on in this area than the Department of Energy. However, there is a very real potential for a conflict of interest when a monopolistic public utility which provides an essential service (such as Eskom), gets involved in laying down government policy in its own field of activity.
Anton van Dalsen
Legal Counsellor
anton@hsf.org.za
