Electricity: New roadmap warns of a glut

2013-12-08 14:00

The prospect of South Africa soon having too much electricity seems like an outlandish idea, but it is the main theme in the new update of the country’s Integrated Resource Plan (IRP), which was released for comment last week.

The IRP is the energy department’s roadmap for new power-generation investments up to 2030. It represents billions of rands of future commitments by Eskom and independent power producers.

The new update of the 2010 IRP has come to several startling conclusions. These are mostly based on South Africa’s dip in demand for electricity since 2010.

One consequence is that the ambitious plan for new nuclear power stations may be dropped.

The IRP now only projects electricity demand in 2030 to be 345 terawatt per hour to 416TWh instead of the 454TWh it estimated in 2010.

The peak demand at 5pm will possibly be 6?600 megawatts less than the first IRP estimated at 61?200MW?–?a difference far larger than a Medupi-sized power station (4?800MW) and representing several billions of rands of possible futile expenditure.

The “decision tree” for nuclear energy now reads that new reactors will be considered “if, and only if” electricity demand surpasses the threshold of 265kWh in 2014 or 270kWh in 2015 “and there is no expectation of large-scale gas development”.

The IRP update says nuclear power will be shelved if the cost of new capacity rises above $6?500 (R67?897) per installed kW.

Similar thresholds of demand will determine decisions around new coal-power stations after the completion of the Medupi and Kusile stations.

The reasons for lower demand are debatable, but crucial. Economic growth has slowed dramatically, cutting power use in the manufacturing sector.

The IRP says the lower demand for power relates in part to “suppressed demand” by users, which could recover quickly if power became available. At the same time, energy-intensive users like smelters are starting to leave the country to find cheaper power elsewhere, it adds.

Power prices may finally have reached the point where they affect demand. This will represent a longer-term effect tantamount to deindustrialisation.

“Quantifying the impact of prices on electricity demand into the future is almost impossible,” warns the IRP.

The most likely victim of the new, more modest forecasts is the nuclear-build programme.

The case for extending the life of Eskom’s coal stations is also improving, although it will require a long-term coal-supply plan and exemptions from air-quality requirements for older stations.

Given the uncertainty, the IRP suggests that all “long-range, large-scale investment decisions should be avoided”.

On Thursday, outgoing Eskom CEO Brian Dames would not be drawn on the new IRP update.

Carbon taxes

Among the IRP update’s startling findings is that the carbon taxes will do nothing whatsoever to deter Eskom’s choice of technology and will instead

increase costs.

In a massive boost for the generally negative reception of Treasury’s carbon tax policy, the IRP estimates that even the full R117 a ton in 2025 “is not sufficient to make the optimisation model alter technology choices”.

If the plan for a nationwide emissions cap “is withdrawn and replaced with a carbon tax as the only instrument, then the preferred option is to continue building cheaper coal-fired generators and pay the tax to the authorities, but not to reduce carbon emissions in any meaningful way”, concludes the IRP update.

It then suggests that South Africa should pursue either the tax or a system of carbon budgeting, “but not both”.

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