New coal plants will not impact future electricity cost
The government’s plan to go ahead with two new coal plants built by independent power producers (IPPs) will have only a small effect on the cost of electricity in the future, say top government officials.
Energy minister Jeff Radebe and his top officials addressed parliament’s energy committee, responding to some of the key criticisms of the new Integrated Resource Plan (IRP), the government’s energy plan until 2030, published last week.
One of the big questions to emerge so far is whether the government should proceed with the two coal IPPs of 500MW each that were commissioned two years ago.
While the bidders have been selected, work has not yet begun on the plants, prompting critics to urge that the government abandon them in preference for cheaper and cleaner renewable energy.
The idea behind the IRP methodology is to produce “the least-cost plan” to provide the cheapest electricity. Policymakers frequently make “policy adjustments” for reasons other than cost, which then alter the cost profile.
The department’s deputy director-general Jacob Mbele said that the “policy adjustments” made to the plan, which included retaining the coal IPPs, amounted to no more than 5c/kWh, on a projected price of R1.15/kWh.
Deputy energy minister Thembi Majola said that “the coal IPPs had been included in the IRP because the bidders had already been selected”.
She said it was incorrect to describe this as “forcing coal” into the least-cost model.
Energy expert Grové Steyn, managing director of consultancy Meridian Economics, writing in Business Day on September 3, said the government should cut its losses on the coal IPPs and move ahead into a low-coal future.
“SA simply does not need new, expensive, inflexible coalbased IPPs. The economic rationale for these planned coalfired stations has vanished. We should thank the developers for their effort, negotiate a severance deal and invite them to develop renewables projects”.
A second criticism of the IRP is that there is a lull in commissioning new, renewable-energy IPPs. While the projects already commissioned will go ahead and be brought into operation over the next four years, the next round of renewableenergy projects after that is only envisaged to occur in 2025.
From an industry perspective, this means it will be difficult for the manufacturing of renewable-energy hardware to take off again, given the three-year lull on the horizon.
Mbele said that the IRP modellers had already made “a policy adjustment” and shortened this lull from five to three years, adding, “There is an additional cost on the least-cost option.”
The additional cost for shortening the timeframe was included in the 5c/kWh premium on the future price, he said.
Radebe said the plan remained open for public comment for 60 days. Parliament will also hold public hearings on the plan.