Updated electricity plan must adapt to reality

THE government is updating its Integrated Resource Plan (IRP) for electricity, and a report is expected soon. This will inform plans and budgets for bulk electricity supply for the next 25 years. Sound judgment and acumen are required, as poor decisions could prove very costly.

The new IRP will update plans produced in 2010 and 2013 that differed widely in forecasting future capacity requirements. The 2010 IRP suggested SA would need to double existing generating capacity to 89GW by 2030. The 2013 IRP adjusted required capacity in 2030 to 81GW, while the New Power Plan produced in 2013 for the National Planning Commission suggests needed capacity will be just 61GW.

The three plans also differ on how future demand should be met, in particular the role of nuclear power. The 2010 IRP believed SA would need 9.6GW of nuclear energy by 2024, but the 2013 IRP concluded that nuclear energy would not be needed before 2035. The New Power Plan believes the earliest it may be needed is 2040, if at all. These last two plans both suggest SA can meet its international commitments to reduce carbon dioxide emissions without building new nuclear power stations.

The different forecasts arise from different assumptions about how fast the economy will grow and how energy-intensive it will be. Gross domestic product (GDP) growth has been much lower than previously predicted, so the 2013 forecasts were lower than the 2010 forecasts and these downward revisions will be magnified in this year’s update.

Large price increases and unreliable supply have reduced electricity usage far more than was imagined in 2010. There has also been greater efficiency in electricity usage, as well as increased self-generation. Major electricity users such as gold mines have closed. The result is that demand today is lower than in 2007, while GDP per unit of electricity generated has risen 25%.

Proposals for the best energy mix also differ in the three plans. This is due to changing perspectives on the relative costs of energy generation from nuclear, coal, gas and renewable sources. The prices of wind and solar energy have fallen substantially since 2010. The fuel costs of coal and gas have also fallen, possibly permanently.

The likely cost of nuclear is more controversial. Both the 2013 IRP and the New Power Plan show far greater construction and installation costs than was assumed in 2010. Hence their preferences for other technologies.

The 2015 update will adjust these calculations of relative costs much further upward following the considerable fall in the rand’s purchasing power for technologies that need to be imported.

A further question is whether future supply is best met by a few megaprojects that bring large increases in capacity in one go, or by dozens of smaller projects that increase capacity incrementally over time. The experience of Medupi and Kusile warns that relying on megaprojects is very risky. Not only do such projects (whether built on behalf of the government or by the private sector) almost always run substantially over budget, lengthy delays in their commissioning also compromise their ability to meet demand. Nuclear plants carry similar and possibly even greater delivery risks.

So, the New Power Plan emphasises the advantages of technologies that add small amounts of supply within relatively short periods of time. The rollout plan is more flexible and adjustments can be made quickly to accommodate unexpected changes in demand. In particular, this makes new gas and renewable plants a better bet as they can provide steady, small increases in capacity that can be accelerated or delayed as needs change.

How the new IRP accommodates SA’s changed electricity demand and supply realities will be watched with interest. Credible projections of future demand will certainly be lower than previously predicted.

Less certain is what the cost projections will be of alternative technologies. These must be closely interrogated to ensure costly mistakes are avoided. It is crucial that SA gets both the budgetary maths and the physical delivery of power right.

The 2015 update will adjust calculations of relative costs further upward following a considerable fall in the rand’s purchasing power

Keeton is with the economics department at Rhodes University.

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