Draft Integrated Resource Plan 2018: Minister of Energy briefing; with Deputy Minister

Energy

04 September 2018
Chairperson: Mr F Majola (ANC)
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Meeting Summary

Relevant documents:
Draft Integrated Resource Plan 2018
Forecasts for Electricity Demand in South Africa (2017-2050) using CSIR Sectoral Regression Model
Power Generation Technology Data
Report on High Level Costing for Collector Stations for Generation
Socio-Economic Impact Assessment System (SEIAS)

The Minister of Energy introduced the draft new Integrated Resource Plan (IRP), the government’s energy plan until 2030. He said the electricity generation and distribution landscape in South Africa was changing at a rapid pace, and electricity demand was therefore no longer captive to the national grid, which impacted on the current and projected electricity supply and demand planning. Rising electricity prices were of concern, as they threatened to reverse energy-access gains. These cost pressures affected not only households, but also industry, therefore in June of this year the Department had approved a framework which enabled Eskom and the National Energy Regulator (NERSA) to consider temporary special pricing agreements to help avoid companies closing down, and its attendant job losses. The special pricing framework would help in curbing Eskom’s falling electricity sales volumes. The electricity planning philosophy aimed at minimising the cost of electricity while keeping up with environmental commitments.

A number of assumptions used in the IRP 2010 had changed or not materialised, including the fact that electricity demand on the grid continued to decline on an annual basis, and the actual total electricity consumed was about 30% less than what had been projected, while the cost of new generation technologies had also come down significantly. The Department had started the IRP review and update process in 2015, and published the assumptions for public consultation between December 2016 and March 2017. Key comments received from those consultations had been incorporated. Outside of the IRP update process, the Department would also be looking at changing the electricity industry and would look at the levels of participation of the previously marginalised South Africans in the energy sector. A “just transition” required that while there was a need to move with speed to respond to the changing landscape, no-one should be left behind.

Members welcomed the fact that the IRP had been gazetted, and said that a debt of gratitude was owed to Mr Nene, the former Finance Minister, who had refused the nuclear deal. However, they had a problem with the fact that coal represented 46% of power generation, saying they could not see government carrying on with new coal-fired plants because of the high water costs of coal fired plants in a country with limited water resources, and because of coal’s pollution costs. Members said that the country could save money by decommissioning coal-fired power plants, and asked why the two independent power producer (IPP) coal projects that would be R20 billion more than the least cost option had been forced into the draft IRP. Why was battery storage not a feature of the plan?

Members said the cost of renewable energy had dropped by 40%, and wanted to know if the draft IRP provided for grid access for renewable energy generators. Renewable energy generators were major players, but there was no clear policy for renewable energy, or even for gas. If gas prices increased, then nobody would be able to afford it. What were the various options regarding gas supply, and to what extent would dependence on gas supply make South Africa vulnerable? What was the SA government’s role in the Southern African Development Community (SADC) gas master plan?

On the Grand Inga project in the Democratic Republic of Congo (DRC), Members asked what the cost of electricity would be, as this and the two coal projects were not the least cost options. How would South Africans, especially the youth, benefit? Was South Africa guaranteed the megawatts envisaged in the draft IRP, as the build of the Grand Inga project was not completely in South Africa’s hands?

Meeting report

Integrate Resource Plan: Minister’s briefing

Mr Jeff Radebe, Minister of Energy, introduced the new draft Integrated Resource Plan (IRP), the government’s energy plan until 2030, which was published the previous week. He said the electricity generation and distribution landscape in South Africa was changing at a rapid pace compared to the period before 2010. The country had introduced renewable energy through independent power producers, and end users were generating their own electricity. Electricity demand was therefore no longer captive to the national grid, and this impacted on the current and projected electricity supply and demand planning.

Rising electricity prices were of concern, as they threatened to reverse energy-access gains, with many people struggling to pay for electricity services and reverting to using wood for cooking. These cost pressures not only affected households, but also industry, with some on the verge of closing down, so in June of this year the Department had approved a framework developed in consultation with the National Energy Regulator of South Africa (NERSA). This enabled Eskom and NERSA to consider temporary special pricing agreements to help avoid companies closing down, and the attendant job losses. The special pricing framework would help in curbing Eskom’s falling electricity sales volumes. The electricity planning philosophy therefore aimed to minimise the cost of electricity, while keeping up with environmental commitments.

He said a number of assumptions used in the first IRP -- IRP 2010 -- had changed or not materialised. For instance, the electricity demand on the grid continued to decline on an annual basis, and the actual total electricity consumed was about 30% less than what had been projected in the IRP 2010. Eskom’s existing generation plant performance was also not at expected levels. To date, an additional 18 000 megawatts of new generation capacity had been committed to, while the cost of new generation technologies had come down significantly.  He said the IRP review and update process, which the Department had started in 2015, had four milestones:

  • The development of the input assumptions;
  • The modelling of a reference case or base case and scenario cases, including analysis of results;
  • The production of a balanced scenario; and
  • Policy adjustment, taking into account government priorities, policies and commitments.

The Department had published the assumptions for public consultation between December 2016 and March 2017. Key comments received from those consultations had been mainly on the consultation process, the projected electricity demand, assumed technology costs, as well as the imposition of annual build limits on renewable technologies. The technology costs used in the plan had been updated. The draft report, where applicable, had considered public input and comments on the assumptions. After consultations, time had been spent modelling and analysing the various scenarios and their impact on the energy mix going into the future. This modelling showed that:
 
a) The pace and scale of new capacity developments needed up to the year 2030 needed to be curtailed, compared to what had been projected in the IRP 2010;
b) Imposing annual build limits on renewables did not impact the total installed capacity of renewable energy technology for the period up to 2030;
c) Without a policy intervention, some of the technologies in the IRP 2010, together with new technologies, would not be deployed, as the “Least Cost” plan contained photo-voltaic (PV), wind and gas only; and
d) There would a be significant change in the energy mix after 2030, mainly because of the decommissioning of old coal power plants that had reached their end of life.

While the IRP review had considered a period up to the year 2050, the approach taken in the draft updated IRP was to adopt a plan for the period ending 2030, and for detailed studies and engagements to be undertaken to better inform the energy mix after 2030. This would provide policy certainty. The recommended plan for the period ending 2030 used the least cost plan as a starting point, but incorporated the following policy adjustments:

i) The retention of annual build limits for the period up to 2030, which would provide for a consistent and sustained roll out of renewable energy for the period.
ii) The utilisation the existing PV, wind and gas allocations in the plan;  
iii) The allocations of 200MW per annum for certain categories of generation-for-own-use of between 1MW to 10MW, starting in 2018. These allocations would be considered during the issuing of Ministerial determinations;
iv) The inclusion of 2 500MW of hydro power in 2030 to facilitate the South Africa-Democratic Republic of Congo (DRC) treaty on the Inga hydro power project. The project was key to energising and unlocking regional industrialisation.

The Minister said the Department would be closely monitoring the IRP update assumptions through the medium-term system adequacy outlook filed with NERSA annually by Eskom. Outside of the
IRP update process, the Department would also be looking at changing the electricity industry and would look at the levels of participation of previously marginalised South Africans in the energy sector and the structure of the industry, taking into account the decentralisation of electricity demand, and the sustainability of licensed electricity distributors in view of emerging trends such as micro-grids. He said a “just transition” required that while there was a need to move with speed to respond to the changing landscape, no-one should be left behind.

Discussion

The Chairperson thanked the Minister for the presentation, and commented that there were two months for the public to make their comments on the draft plan. There had been many calls for public hearings regarding the nuclear build programme, but because nuclear plans were determined by the IRP, which did not include additional nuclear energy, these hearings would be subsumed by the IRP hearings and there was therefore no need for the Committee to have public hearings on nuclear. The Committee would advertise when public hearings on the IRP would take place so that the public would have an opportunity to give input.

Mr J Esterhuizen (IFP) said the IRP was overdue, but he had a problem with the fact that coal represented 46% of the power generation. This did not mean that he was against coal and coal mining, but that coal caused health problems. He could not see government carrying on with new coal-fired plants because of their high water costs in a country that had few water resources, and because of coal’s pollution costs. He added that the cost of renewable energy had dropped by 40%. The cost per kilowatt hour for energy generated by coal-powered power stations did not include the carbon and environmental taxes or the water cost to the country, so renewable energy was the correct solution. On gas generated power, he said that if gas prices increased, then nobody would be able to afford it. He asked if the draft IRP provided for grid access for renewable energy generators. Renewable energy generators were major players, but there was no clear policy for renewable energy or even for gas.

Mr G Davis (DA) welcomed the fact that the IRP had been gazetted, and said that a debt of gratitude was owed to Mr Nene, the former Finance Minister, who had refused the nuclear deal. He said there were rumours that members of the Minister’s family had interests in renewables, and asked if this could be clarified. He asked why the two independent power producer (IPP) coal projects had been forced into the draft IRP, and how much this deviation would cost. He asked what the cost of electricity from the Grand Inga hydro electric project would be, as this and the two coal projects were not the least cost options.

Another issue was bid window five for renewable energy, which was set for 2025. Was there not a danger that momentum in the renewable energy field would be lost and result in the loss of consequent investments?

He said that Meridian Economics had said that the country could save money by decommissioning coal-fired power plants. Why was battery storage not a feature of the plan? What were the various options regarding gas supply, and to what extent would the dependence on gas supply make South Africa vulnerable? When would the next IRP be announced and would there be a schedule for IPPs so that there would be no delays?
 
Mr M Matlala (ANC) asked in which provinces consultations had been done. How would South Africans, especially the youth, benefit from the Grand Inga project, because it was a big one? When would the old coal-powered plants be replaced? He said there were 60 days for submissions to be made on the draft IRP, and asked if the document had also been written in the African languages. If it had not been done, could it be done and sent to municipalities? Was any thought given to using local radio stations to transmit the message? Were billboards and taxis considered, so that people could access the message?

The Chairperson wanted to know more about the status of the Grand Inga project. Was South Africa guaranteed the megawatts envisaged in the draft plan, as the build of the Inga project was not completely in South Africa’s hands, as the project was situated in the DRC.

Department of Energy’s response

Mr Jacob Mbele, Chief Director: Electricity, responding on grid access, said the IRP had taken into account the possible costs associated with electricity transmission.

On the question of the additional costs related to the two coal projects, he said one was looking at approximately R20billion. The costs had to be seen with reference to the volume of coal used and had to be seen in the context of the model, where any change to the least cost plan would affect the costs of all the other inputs.

On the decommissioning of coal-powered plants, he said Eskom had a plan of when each unit would be scheduled for decommissioning.

Battery storage was not cheap at this point in time. Renewables should be looked at as a proxy for all technologies if the cost was approximate to the least cost.

On when the next IRP would be issued, he said the IRP was based on a set of assumptions, so the assumptions should be monitored, and the IRP would change only if the assumptions changed significantly.

Mr Thabane Zulu, Director General: Department of Energy, said that the Department had held consultations in all nine provinces.

Ms Thembisile Majola, Deputy Minister, said that factors regarding the least cost had been factored into the calculations, and there was one Concentrated Solar Power (CSP) plant which included battery storage, but this was very expensive.

She said the IPP offices dealt not only with renewables, but also other technologies such as biogas and coal. The two coal projects had already been included as projects, as had the Grand Inga project, which in any case was clean energy.

On the translation of the document into other languages, she said she knew it was in the two official languages but was not sure whether this had been translated into all the other African languages, and it was a matter that had to be looked at. She said it would be helpful if Members of Parliament (MPs) passed on the message to their constituents.

Regarding the consultation period of 60 days, the Minister said that he was concerned that formal public processes would take a long time, and that it would be preferable if interested parties could respond in writing

He said the responsibility for the restructuring of the electricity industry lay with the Department and the legislature.

It was true that gas costs were very expensive, and he would be having a meeting with the Minister of Energy of Mozambique on the gas agreement between South Africa, Mozambique and SASOL, because many issues needed to be tackled. In June he had convened a meeting of the Ministers of the Southern African Development Community (SADC) on the issue of gas. and that meeting had decided to develop a SADC gas masterplan for the benefit of consumers. This recommendation to the heads of state of SADC had been adopted.

He said the Inga project was part of key projects to light up Africa. It was a key project for the President of the African Development Bank, Dr Akinwumi Adesina.  The person in charge of Inga was a former DRC Minister of Energy. Two companies had been appointed to start the project -- a Spanish and a Chinese company.

He said carbon capture, storage and utilisation was a key aspect, and was covered in the draft document.

Regarding rumours of a conflict of interest, he gave an assurance that he had no conflict of interest. His wife was involved in the mining industry, not the energy industry. Regarding the 27 IPP projects, he said these were projects that had been approved three years ago by the former Minister, Ms Tina Joemat-Pettersson, but that there had been no implementation of these projects. His first task when he came into office had been to ensure implementation of these 27 IPP projects worth R56 billion of investments and huge benefits to the country. If at any point there was a conflict of interest, he would do the right thing. He signed a Parliamentary declaration of his interests every year.

Regarding the plans for gas, the Deputy Minister said the Department was working on a gas masterplan and reviewing the 2001 Gas Act. The high cost of inputs was a reality, and SASOL had a monopoly. The Department was looking at opening the sector to build up competition in the sector.

The Chairperson said that the Committee had said that as soon as there was an IRP, the Committee would have a discussion on the structure of the electricity industry in South Africa. Now that the IRP was imminent, the Committee was getting closer to that discussion.

He said the issue of gas was frustrating, and it seemed as if not enough attention was being paid to gas and South Africa’s relationship with Mozambique, because gas would play a crucial role in the energy sector.

On Inga, he said the question posed by Committee Members was not around clean energy. For him, the frustrating matter was the progress being made on the Grand Inga project, which was not happening at the necessary speed.

What was the SA government’s role in the SADC gas masterplan?

Referring to the IRP as a ‘living plan’, Mr Davis said that waiting for assumptions to change was subjective, and the IRPs should be scheduled. He questioned what the downside of scheduling the IRPs was. He asked how much the Grand Inga project deviation would cost and what the date for the finalisation of the project was. Why had the two coal projects of more than R20 billion been forced into the plan? Why was the roll out of renewables not smoothed out, and why were there significant delays?

Mr Esterhuizen said that NERSA in 2008 had been told to produce a renewable feed-in tariff which had initially been too low, and then later too high. He said Eskom had different sales prices for rural areas compared to metros, and that if prices increased, demand would collapse. He had repeatedly said that the nuclear energy option was the cheapest energy, but that the nuclear build programme could not happen because of corruption in the country. Renewable energy made good sense, and was good for consumers and mines.

The Minister said he could not give a date regarding the Grand Inga project until he had had a meeting with the head of the Grand Inga project. The Grand Inga project and the DRC needed South Africa, as it would be a critical offtake partner.

He said the Committee had an oversight role regarding Eskom, while the Department had a policy role. The Department would consult with the Committee on the IRP.

Mr Mbele reiterated that any policy adjustment or deviation from the least cost plan added costs, and that the smoothing of renewables would add costs. Overall, smoothing would add 5% more to the least cost option.

Regarding the Grand Inga project, he said it would add an additional 2-3 cents more, and the same with coal.

The Chairperson said the draft IRP was before the Committee and could be engaged with. The plan was moving in the right direction, so the Department needed to be commended for this and would be held to account for the plan. He assured the Department that the Committee would not go beyond the prescribed two months for public hearings.

The meeting was adjourned.


 

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