Critics claim IRP 2010 underestimates energy crisis; energy could shrink by 5%

South Africa could face an energy shortfall between 2011 and 2016 of 42 000 gigawatt hours, which could cost the economy R3.15 trillion if not remedied, warned Cornelis van der Waal, Frost & Sullivan energy business unit leader, during a Web presentation on South Africa’s Integrated Resource Plan (IRP2010).

“That loss to the economy could be R525 billion per annum to the economy, which is around 25% of the annual gross domestic product,” he said.

“If we assess that cost at R10 (instead of R75 per GWh), which is more reflective of energy use versus gross domestic product output, we are still looking at a large number – probably closer to 5% of GDP without interventions – which presents a very bleak picture.”

The solutions as outlined in the IRP2010, called “own generation” – which would require companies to solve 54% of the energy shortages in the form of diesel generation – could prove troublesome.

“It is not practical,” Van der Waal said. “Diesel generation is expensive and certainly not productive in terms of competitiveness on a global stage.”

The Frost & Sullivan energy expert warned that the suggested move from energy-intensive industries to commercial and service-orientated industry may not be achievable.

“We don’t necessarily have the skills and systems in place to move rapidly from industrial activity to commercial and service-orientated industries.”

He added there is a glaring lack of alignment between South Africa’s power road map and the country’s jobs, industrial development and growth ambitions as outlined in the New Growth Path (NGP).

Van der Waal said that while the electricity plan assumed a lowering of the economy’s power intensity between 2010 and 2030, he was uncertain whether South Africa had the necessary skills in place to support such an immediate shift.

“It is very clear we have insufficient capacity to create the number of jobs that is required as per the New Growth Path. Only for short periods of time will there be enough energy to create those jobs,” he said.

A longer implementation period required

Van der Waal said too much emphasis is placed on carbon dioxide (and the potential danger thereof).

“We are a developing economy; we realise that we must be more sustainable. But you cannot force sustainability in such a short period,” he said.

“A better plan should be to incorporate sustainable ideas, but implement it over a longer period.

“I am not saying we should not invest in renewable energy. We should try and double the investments in renewable energy. But we cannot move away from coal too rapidly – wind doesn’t always blow, the sun does not always shine,” noted Van der Waal.

“We don’t have sufficient technologies to capture all the energy that is available.

“In order to support industry as well over period, in making some of the changes for them to remain active, we need to have a balanced way. The government should have opened the door for more coal investments, with a potential investment horizon of 15 to 20 years,” he said.

Coal-based generation options

Notwithstanding that constraint, the NGP, which is still in draft form, was targeting the creation of five million jobs by 2020, a revitalisation of South Africa’s manufacturing base, an increase in infrastructure investment, and growth in mining, agriculture and green industries.

To achieve this, Van der Waal said the Department of Energy would have to give a favourable hearing to generation options currently not listed in the IRP2010, including coal-based generation options.

But the authorities should review the price path assumptions contained within the IRP2010, which suggested that electricity prices would have to rise from around 40c per kilowatt hour currently, to over 110c/kWh by 2020. Such a rapid rise, he argued, could “break” a number of industries core to the aspirations of the NGP.

It was important that the government moved to close the gap between the IRP2010 and NGP, and proposed climate and environmental policies, Van der Waal said. (Source: Engineering News, January 2011)

MaNoa’s warning to industry

According to MaNoa director Esmé Bluff, the IRP’s scenario planning assumes that business and South Africans in general will become vastly more energy efficient over the next short while.

“However, if this is not the case, the power cuts we’re expecting to begin from next year (and run up until 2016) will be far worse than even the Medium Term Risk Mitigation (MTRM) Plan suggests,” she told FTW Online (www.ftnow.co.za). “Companies need to be aware of the risk this presents and start doing something about it.”

Although Bluff lauded the IRP for its bold move this year in consulting with a broad range of stakeholders for the first time, she expressed her concern that the plan, which is thorough in many ways, may be underestimating the extent of the energy crisis.

“The IRP has used historical figures regarding electricity usage to arrive at predicted future electricity demand, which would be okay if it weren’t that South Africa had experienced rolling blackouts in 2008/2009,” she said.

Eskom’s plans

Eskom is currently estimating that South Africa will consume 228 terawatt hours during its 2010/11 financial year to 31 March 2011 – up from 218TWh in the recession-afflicted 2009/10 period – and for demand to grow by an average of 2% a year in 2012 and 2013 from that post-recession base. (Source: Engineering News, 8 October 2010)

Eskom operations and planning division managing director Kannan Lakmeeharan said that the risks presented in the MTRM Plan are “serious”, but described them as a “worst-case scenario”.

The state-owned utility is calculating a “peak-risk” shortfall of 9TWh in 2012 or 2013, but remains hopeful that a combination of solutions could be brought to bear to ensure load shedding is avoided ahead of the introduction of new base-load capacity.

The 9TWh gap is more or less equivalent to the continuous operation, over a year, of one unit at the 1 800-megawatt Koeberg Power Station, which comprises two 900-megawatt units.

Lakmeeharan acknowledged that urgent policy, legislative and regulatory interventions were required to ensure the mitigation plans were effectively deployed.

Drafted by a team comprising government, business, labour and officials from Eskom, the MTRM document examines various scenarios, and bases its mitigation solutions on something called “Scenario 3”.

Under this scenario, Eskom “will be hard-pressed” to achieve an 85% energy availability factor over the coming years, owing to a lack of maintenance time and ongoing coal quality problems.

Furthermore, it factors in delays to the introduction of the Medupi and Kusile coal-fired projects, which are being built in the Limpopo and Mpumalanga provinces respectively.

Rolling blackouts are likely, the plan says, unless South Africa departs from “business as usual” and clears the current policy, legislative, regulatory and financial constraints to the introduction of non-Eskom related generation capacity, and accelerates energy efficiency and energy conservation programmes. (Source: Engineering News, 8 October 2010; www.waterresource.co.za, 27 October 2010)

Refit projects to the rescue?

The MTRM Plan argues that investment in non-Eskom generation “is urgently required to make up for the shortfall in supply”, and that “well-advanced co-generation and own-generation projects can produce between 1 000MW and 1 500MW by 2014”.

Furthermore, renewable generation of 1 025MW, using funds approved under the current tariff system for renewable energy feed-in-tariff (Refit) aligned projects, could be brought into operation from 2012 onward.

Lakmeeharan believes that 1 000MW of co-generated and own-generated capacity is realistic, particularly given the advanced work being done by companies such as Anglo American and Xstrata on generation from discard-coal in Mpumalanga. (www.waterresource.co.za, 27 October 2010)

The Refit projects will be introduced but, owing to delays in finalising the bidding process, most of this capacity is likely to be introduced in the 2014–2016 period. 

Fanie Heyns