Exposing the country’s draft Integrated Resources Plan 2023’s ‘least cost’ trickery
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 criticise any coal, natural gas and nuclear power plant without reservations, to a more nuanced perspective from economists that the IRP 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 IRP and why it should be open to public consultation at all.
Why is the Department of Mineral Resources 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 five or 10 years using a computer model?
The failure of the 2019 IRP 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. I appeal to the Minister to consider relinquishing the powers of the DMRE 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 load shedding 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 five years titled Horizon 1. This makes no sense, because the procurement of large rotational plants are often beyond a five-year window. In five years down the line, the IRP will conclude again that there is another “five-year plan”.
This approach incentivises the prioritisation 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 pathways 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 favour a high renewable or nuclear pathway, who should regard the nature of the process with scepticism.
If the “reference pathway one” is the one that will be implemented, and if it does not include a significant number of new renewables or nuclear, including the planned 2 500-megawatt which the National Energy Regulator of South Africa (Nersa) gave concurrence then there is no purpose in the multiple pathways that is 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 recognise that South Africa cannot prioritise decarbonisation 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 about 14 000km of transmission lines in 10 years – a distance equivalent to around 40% of the Earth's circumference. Transmission is an inhibitor for the rapid uptake of renewables.
Between 2013 and 2022 just more than 400km of transmission lines was 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 is pivoting back to energy realism – that means burning “dirty” king coal.
What the IRP gets right
The IRP mentions a coal life extension 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 loader utilisation rate like in China.
The IRP rightfully acknowledges that Liquefied Natural Gas (LNG) is necessary if renewables are going to be integrated en masse. 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 small modular reactors within this decade. Despite the prospects, the technology is unfortunately not yet ready for mass roll-out.
The IRP predicts load shedding 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 reflection on why the 2019 IRP failed.
There is no reflection if the Monte Carlo Simulations, differential equations or Plexos software is suitable for the applications involved. The quality control procedure and model stress tests are not made public.
The names of the modellers, their qualifications and those who did the assessment are 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 a rapid decline in Eskom's Energy Availability Factor (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 (2 000MW per year according to the electrical engineer Chris Yelland).
The IRP uses a pathway that includes 2 500MW for new nuclear power, but this number effectively locks out vendors such as South Korea and France with 2 800MW and 32 000MW 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 organised and unfortunately difficult to read.
The cost of renewables does not seem to include the cost of transmission lines.
The pace of building 6 000km 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 decarbonisation, 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 do an assessment for the impact of renewables on the full system cost of electricity for 10%, 25% and 50% threshold.
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 US.
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 realistic pathways in horizon 2 – but unfortunately, they lack adequate refinement. However, because of the prioritisation of the “least cost scenario”, the process itself is systemically flawed. The integrity of the process should be brought into question.
They need to be addressed before it can be finalised. Incidentally, environmental advocates are likely going to abuse this scenario and use another court order to block a new nuclear procurement. Why are the rules set up for a predetermined outcome?
The major shortcoming of the IR is that it simply cannot conclude that the reference pathway is the most affordable. In fact, there shouldn't be a least cost reference pathway at all, but rather multiple options to choose from.
The “least cost” reference scenario appears like trickery and therefore the IRP2023 should be rejected by everyone who cares about South Africa's energy future. Minister Mantashe's office should focus on establishing broad policies, such as prioritising energy security, cost effectiveness, and decarbonisation.