Draft Integrated Resource Plan 2018: public hearings


17 October 2018
Chairperson: Mr F Majola (ANC)
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Meeting Summary

The Committee continued with public hearings on the draft Integrated Resource Plan 2018 (IRP). Members did not engage with the organisations but listened to their submissions.

Organisations informed the Committee that the estimates made in the IRP were too high and unrealistic and should be revised. Organizations expressed serious concern over Eskom’s declining plant reliability and its ability to cost effectively meet demand in the next 5 years. Some organisations supported the transition to a lower-carbon future and recommended that future coal roll-outs should incorporate clean/carbon abatement technologies. One organisation was particularly concerned about the proposed reduction of coal usage in the proposed mix, highlighting the huge coal reserves that the country posses. Organisations supported the need for further studies to be undertaken in order to improve the IRP modelling and assumption.

Meeting report

Opening remarks
The Chairperson welcomed everyone present and indicated that the appreciated the presence of the stakeholders and their input was valued by the Committee on this draft Integrated Resource Plan (IRP). He then handed over to the stakeholders to make their submissions.

Briefing by the Energy Intensive Users Group of Southern Africa (EIUG)
Ms Seeralan Chinaboo, Deputy Chairperson, EIUG Council, took the Members through the presentation. She indicated that the use of medium plant performance forecast in the short term is unrealistic because the high planned and unplanned outages as well as outage slippages are eating away into operating reserves. Eskom is already frequently dispatching the expensive emergency reserves in order to meet the daily demands and avoid load shedding. This is coupled with the current coal shortages, poor management of coal stock levels and concomitant primary energy cost and the lack of sufficient capital investment to sustain the existing fleet. EIUG is concerned about Eskom’s ability to cost effectively meet demand in the next 5 years – and this performance is a key input parameter into the IRP model. EUIG recommends that the lower plant performance projections be used for the short to medium term, in order to reflect the current reality and progressively monitor/raise the performance to this IRP aspirational level.
In terms of the technology, this IRP has updated the RE cost and the outcome of which indicates clearly that a Wind, Solar PV and Gas energy mix is the least-cost option going forward. EIUG’s concern is that the flexibility of the current fleet to balance renewables is already becoming problematic; for example, at times Eskom has to order wind generators when the coal fleet cannot be cut back deep/fast enough to make way for wind supply on the system. The problem is that we still have to pay for the wind power not delivered, according to the ‘take/pay’ PPAs.  This problem will obviously grow when more RE plants achieve commercial operation. These curtailments are increasing system cost – and need to be accommodated in the just transition. Therefore, in absence of an in-depth Flexibility study, EIUG recommends that a cost risk allowance be built in the IRP model to account for grid stability cost.

In terms of coal roll out, the country has already made international environmental commitments. EIUG supports the view that the country must transition to a lower-carbon future. It recommends that future coal roll-outs should incorporate clean/carbon abatement technologies.
The IRP Policy price path is misleading as it does not take a number of factors into account:
-Changing power consumption patterns - Eskom already experiences extreme financial and operational challenges in managing the changing daily consumption patterns due to base load demand reductions, compounded by poor plant availability. Eskom is struggling to consistently meet the maximum expected demand, having to dispatch expensive emergency reserves to avert load shedding;
-Cost of grid stability – with increasing penetration of renewable and decommissioning of synchronous machines, it would require the system operator to make some investment in managing grid inertia and frequency control
-Plant decommissioning cost
-The impact of IPPs PPA pricing structure at which electricity is sold to Eskom at prices above Eskom’s marginal cost of supply  - this must be reviewed under the ‘just transition’ studies, as it has a negative impact on rate payers because Eskom recovers this cost from the tariffs.
-Possibility of a low GDP growth
-However, the IRP 2018 in its draft format has failed to address the current transition by delaying this to the medium term – there is no deep dive into the current ESI structural issues that are the root causes of declining demand and tariff hikes. The price path price ranges are unsustainable for mining & industry
-Continuing the status quo will require the customer base to fund, via unacceptably high tariffs, the inefficiencies and shortcomings of the current industry structure with potentially disastrous consequences. What is evident is the current Electricity Industry business model is not meeting the needs of South Africa.

In conclusion, she indicated that the EIUG supports the need for further studies to be undertaken in order to improve the IRP modelling and assumption.
Briefing by Business Unity South Africa (BUSA)
An Official from BUSA reported that it was pleased to note that the draft IRP appeared to have addressed the majority of the key challenges with the previous version. In particular it was pleased to note that the draft IRP 2018:
-Recognised that an unconstrained renewable technology scenario was the least-cost option to 2030;
-Provided flexibility, recognising that forecasts would need to be reviewed regularly;
-Provided information on the policy adjustment scenarios allowing for a better understanding of their rationale

In terms of embedded generation, energy efficiency and fuel switching on demand, Busa reported that it is likely that the impact of these developments has been underestimated. An indication from its members on embedded generation projects is that the current pending applications for deviation from the current promulgated IRP2010 were already in excess of the 200MW/annum allocation.

It is acknowledged that:
-The data informing these developments in the draft IRP is lacking.
-The inclusion of these developments was done in recognition of the impact on overall electricity demand and intensity and must be therefore considered when projecting future demand and supply of electricity.
-There is no technical or rational basis for the 200MW/annum allocation for embedded generation.

Deep penetration of embedded generation that is not accounted for could lead to over building of other capacity, therefore BUSA proposes that the allocation be increased to at least 500MW/annum to provide for current and possible additional projects, which may be in excess of 10MW each. BUSA further proposes that work to capture accurate and current information is urgently undertaken reduce uncertainty in the next IRP review in two years.

In terms of technology, fuel and externality costs, overall, the technology costs used are more accurate and rational than the previous version of the plan and clearly indicate that the least-cost energy mix is one of Wind, Solar PV and Gas. BUSA accepts that for the period modeled, this mix is least-cost and will have the least impact on the environment. The technology costs for renewable technologies have been updated to reflect the more recent Renewable Energy Independent Power Producer Programme (REIPPP) published costs (BidWindow4). It is accepted that these costs continue to decline, and it would be impractical to continue updating the IRP as costs change. Biennial reviews of the IRP should be able to capture the trend.

Briefing by General Electric (GE)
A GE representative said in South Africa, 80% of Eskom’s power stations have installed GE steam turbines and 30% have GE boilers. We have an additional 2x 9E Gas turbines installed at Sasol’s Secunda Plant and a further 2x 970MW installed in Africa’s only Nuclear power plant, Koeberg. It is with a significant amount of investment and understanding of the SA Power sector that GE provides its comments and recommendations to the draft IRP. GE wants to reiterate its support to the SA government as it strives for a balanced approach to curb emissions and address the need for economic growth, job creation and poverty alleviation, whilst achieving a well-considered energy mix for the country.

GE recommends that the final IRP retain the balance of the 1600MW determination, using Ultra Super Critical technology (USC).

-The concern around the flexibility of coal to meet load variability and a higher penetration of renewables on the grid is also addressable using this technology. Today’s coal plants are capable of efficiently turning down to 30% load without the need for start-up liquid fuels (not just mid-merit Gas plants).
-Through a balanced approach to decommissioning, the adaptation of advance cleaner coal technologies such as ultra-super-critical, there is a potential to support the reduction of carbon emissions and meeting the country’s obligations to COP21. By developing retrofitted and new coal power plants South Africa can continue to leverage coal as an indigenous resource that is not prone to foreign risks and other externalities.
-South Africa should not leave the discard coal environmental challenge in its current state, but rather harness it for job creation and infrastructure development.
-As existing projects like Kusile and Medupi ramp down, South Africa must prevent the loss of skills, knowledge and jobs by retaining them for new projects. Our localization strategy has brought about great benefits. To date, R882 million has been spent on procurement from local businesses empowering more than 120 businesses and developing hundreds within local communities through skills transfer.
-Due to rapid advancement in technology and market volatility, we recommend that the IRP be reviewed in three year cycles and notten, bringing about “improved decision making, which will in turn ensure easier access to capital” as envisioned in the NDP 2030.

Briefing by MG Global & ESC
Mr Neil Jackson took the Members through the presentation, and outlined the issue statement of the organisation that the proposed IRP 2018 Page 74 and 75 restricts private enterprise from generating more than 10 Mw for self use without growing via a 3rdparty which increases the cost for no gain. The Heidelberg project needs to generate 350 Mw for self use in Phase 1 and has the capacity to supply others process near with 500 Mw which can grow to 1,3 Gw. The proposed IRP 2018 does little to encourage a green clean gas industry badly needed by logistic companies and industrialist for manufacturing processes. The proposed IRP-2018 puts the use of fossil fuel (coal) as a priority. ESC has no problem with that, as long as it is subject to Carbon Capture technology and Carbon Taxation from the start. And states clearly to the public before it starts, the monthly water usage which will be extremely high. The IRP does little to encourage South Africa to manufacture its own sustainable power generation equipment and prefers to import major equipment creating jobs in other countries.

-If government is truly interested in creating jobs and driving the economy, it should simply open up the market and no limits should be imposed on renewable energy generation. A fair asset recovery fee should be charged on distribution. This would encourage Foreign Direct Investment in manufacturing hubs with 1000’s of jobs being created.
-Government should sell off its aging power station fleet to private enterprise on the bases that the polluting plants are closed, but the license is transferred to renewable energy in a micro format. So that power/energy can be generated closer to the needs. Coal could then be exported at double the revenue that Eskom offers.

- Further the Government should level the playing fields by insuring all power/energy generation if not renewable at the very least employs Carbon clean up technology.

Energy Research Centre – University of Cape Town
Professor Herald Winkler took the Members through the presentation and stated that the demand projections for IRP continue to be too high, even lower projections likely to be higher than actual. The demand side management is only in the glossary but not in the draft IRP, and there is a lack of CSIR forecasts for electricity demand.

In terms of distributed generation, it was good seeing embedded generation including SSEG, but the Plan should also look at NPC energy paper on broader shifts to decentralized systems. With regards to coal, the draft IRP shifts away from coal in the long term to 20%, but this has been energy policy since 1998 and nothing has happened. But then the draft IRP adds 1000 MW of coal from IPPs, and these add costs and greenhouse gas emission, and the emissions would undo effects of carbon tax. Therefore, a managed decline is needed to protect the livelihoods of workers and communities in coal areas. Coal IPPs raise costs.

Coega Development Corporation
The representative outlined the following as energy plan for inclusive growth:
-Access to reliable energy for industrialization
-Sustainable energy local industry and associated value chain
-Investment in Gas to drive Economy
-Capacity and ecosystem to implement transformative programs
-Leverage efforts to build readiness by private and public sector
-Leverage innovation and business ecosystems; and
-Remain relevant to the developmental trajectory of South Africa

[See document for a detailed graphical analysis]

South African Energy Storage Association (SAESA)
Ms Jo Dean stated that the draft IRP 2018 recognises that an unconstrained renewable technology scenario is the least-cost option till 2030 which we applaud. Furthermore, policy adjustment scenarios are mostly unpacked in the document to allow a fuller understanding of the rationale. Up to 2030 there is no specific allocation for any other storage technologies and our enquiries on the matter has revealed that distributed energy storage capacity has been ‘lumped in’ with the 200 MW per year (2600 MW by 2030) allocation for embedded generation. We have made our comments based on this assumption.
In general, the success of this IRP plan depends on the restructuring of the industry which currently is unsustainable.

As an association, SAESA welcomes the agreement between Eskom and its financiers (the World Bank) to invest in 175MW/800 MWh of energy storage systems in lieu of the abandoned CSP project which was a condition on part of the new build loans. However, we do not see this capacity mentioned anywhere in the draft IRP. This is a significant, committed investment that already has an impact on the price of Eskom power and therefore should be included in the plan. \

Specific recommendations to the IRP
-Create a separate, new allocation for Distributed Energy Storage
-Reallocate a portion of the Gas Peaking Plant allocation to the Distributed Energy Storage allocation
-Dimensioning the allocation for Distributed Energy Storage
-Separate the allocations for gas into Centralized Gas Generation and Distributed Gas Generation.
-Use up to date costs for energy storage and incorporate learning rates for future years

SAESA supports an IRP for electricity that is a rational, mechanistic, techno-economic planning process that determines the optimal mix of generation technologies and capacities, at the least cost to the economy, necessary to meet the projected demand for electricity in the years ahead, with adequate security of supply, while also meeting government policy and socio-economic requirements and constraints.

South African Photovoltaic Industry Association  (SAPVIA)
Ms Dean also presented general comments from SAPVIA, and said it acknowledges and accolades the DoE on achieving a draft IRP where:
-the approach was rational in nature,
-the least cost scenario was considered as a basis,
-the growth forecasts were more appropriate,
-the transparency was far greater that previous versions,
-the clearly defined scenario descriptions were presented, and
-“value for money” could be seen through the costing of scenarios

SAPVIA believes that there are several key disruptive risks that the IRP has not considered adequately:
-The effect of EV penetration on electricity demand
-The future deployment of battery storage
-The pent-up demand in the small-scale embedded generation (SSEG) market. SAPVIA is aware of the existing backlog at NERSA which will exhaust the entire allocation for the next 4 years.

SAPVIA proposes:
-Increasing the 2019 allocation for SSEG to 500MW and ramp up over the next 5 years
-Quantifying the backlog at NERSA awaiting approval and deal separately.

Aspects not detailed in the modeling of the IRP:
-Cost and technical parameter tables (“as used” in the model) are not made available – cost assumptions for Solar PV fixed tilt and tracking are expensive and out dated
-The recommended plan does not report energy shares (only capacity) which makes it difficult to assess how much gas volumes are required in the recommended plan
-Very conservative assumptions make the cost differential between scenarios seem smaller than they are
-Very high costs assumed for the grid connection of renewables, very low costs for coal/nuclear
-Very low-cost reduction assumed for renewables until 2050

-SAPVIA requests clarity on the 1800MW determined by the Minister of Energy for round 4.5 turned round 5 which is not evident in the IRP 2018 draft
-SAPVIA requests clarity on the awarded SPP projects which are not committed or allocated in the Draft IRP 2018
-To create the viable market that RE is capable of, consistent commitment is required year on year.
-We propose an even distribution of the Solar PV allocations over the next 12 years until 2030 thereby eliminating the 2023-2024 vacuum
-SAPVIA proposes additional comments be considered post the release of the Eskom Medium Term result projections and that the situation around the Coal IPP, be evaluated and a decision of their future be made.
-The Renewable sector is the only one, with the ability for accelerated uptake, and this should be noted as an optimal path in the IRP

South African Renewable Energy Council (SAREC)
Ms Dean then presented the SAREC presentation and outlined its concerns stating that whilst the IRP is rational in its choices; however, there are some overly optimistic choices which are:
-The “sunk cost” economic logic of Medupi and Kusile Power Stations
-The ability of 2 new coal IPPs being able to overcome legal and financing challenges in a bid to reach financial close
-The affordability of the Eskom’s decommissioning plan being used for the IRP 2018 analysis
-The medium-term system adequacy due to issues around the timing and availability of the new build assets;
-and coal IPPs as well as primary energy constraints.
A further major concern is that IRP comments are to be submitted prior to the publication of the delayed ESKOM MTSO Report and SAREC strongly feels the commenting period should be extended to allow for sight and inputs on it and included in final comments to be submitted.

-Concerns on Input Assumptions in IRP 2018 Modeling
- Reporting of the input assumptions needs clarification
-Cost and technical parameter tables (“as used” in the model) are not made available
-The recommended plan does not report energy shares (only capacity) which makes it difficult to assess how much gas volumes are required in the recommended plan, especially as they are deemed as “place holder” for other technologies that can compete but not listed.
-Very conservative assumptions make the cost differential between scenarios seem smaller than reality will prove
-Very high costs assumed for the grid connection of renewables, yet very low costs for coal/nuclear
-Very low cost reduction assumed for renewables until 2050

Detail is important in better understanding the contribution possibilities of all technologies going forward.

Nuclear Industry Association of South Africa (NIASA)
Dr Anthonie Cilliers, Regional and National Coordinator, AFRA-NEST, SAN-NEST, indicated that in terms of the findings in the IRP the draft attempts to provide a number of least-cost planning scenarios based on various growth paths and policy adjustments for South Africa. Generally, the plan fails to meet the least-cost planning objectives as it ignores all costs associated with socio-economics of various options as well as the transition costs. It does not judge all energy sources on the same merit. It does not even attempt to do that. Rather than being technology neutral, it appears the plan has been developed with certain policy outcomes in mind with the least-cost planning method used as a tool to achieve this. The least-cost outcome it proposes however, has been internationally demonstrated to be uncertain, expensive and in most cases ineffective in achieving its goals – primarily that of decarbonising the electricity sector.

It is notable that in depth research, in particular on the socio-economic impact of nuclear programmes has been conducted such as:
-“Economic Impact of the Koeberg Nuclear Power Station”, March 2017 by Eskom
-“The economic benefits of the nuclear build for the Eastern Cape” by Coega Development Corporation

The authors of the Draft_IRP are seemingly unaware of these studies. The draft IRP does not compare costs between various technologies on an even playing field:
-Fully indexed power purchase agreement prices (for wind and solar PV)
-Calculated costs discounted over time for nuclear and other energy sources
This needs to be corrected. A Request for Proposals (RFP) from nuclear vendors should be issued to determine the correct costs of nuclear.

Therefore, the IRP should be redrafted to incorporate:
-The information that the authors were previously unaware of,
-The correct and full definition of the least-cost analysis,
-Treat costing of energy sources equally.

South African Young Nuclear Professionals Society (SAYNAPS)
Mr Gaopalelwe Santswere, Executive Chairperson, SAYNAPS, stated that the organisation advocates for nuclear energy and specifically with the objective of educating and raising awareness in society (especially the youth) of the benefits of peaceful use of nuclear technology. It also strives to encourage career choices in nuclear sector for university and FET institutions students with an advocacy and advisory role to policy makers and implementers in determining the future of the youth of South Africa in nuclear sector.

In terms of advantages of nuclear power energy, he outlined the following:
-Highly Regulated by National Nuclear Regulator - NNR (Locally) and IAEA- International Atomic Energy Agency (Internationally) helps mitigate nuclear accidents.
-Nuclear Power is safe and Reliable as Base Load Electrical Power in SA.
-No Carbon (GHG) footprint thus mitigating Global Warming and Ozone Layer Degradation.
-Generation III+ Plants Operates for up to 60 years.
-Low Cost of generation during operation of a plant. (Koeberg has lowest operating costs among Eskom fleet).
-As part of Electricity Generation mix, it ensures Diversity and Security of Supply.

Risks of lack of nuclear power energy in 2018 outlined were:
-Loss of Nuclear Skills in the country.
-Job Losses in the Nuclear Sector.
-Policy Uncertainty
-SA loses its No.1 Position as Nuclear Technology leader in the Continent.
-Slow Economic Growth (Knock on effects) – Investors need certainty in solid Electricity Supply.
-Generation Mix cannot be guaranteed thus risk security of supply
-Eskom fleet of Fossil Power Plants approaching end of life thus a challenge on Base Load.

In conclusion, half of Eskom coal fleet will not be in operation beyond 2030. (EOL) – Average useful life of 40 years. Half of Base Load current electricity will be decommissioned, and natural gas is imported and future prices cannot be guaranteed. The Cost of Gas maybe passed to the Consumer, and that is not desirable. Base Load is necessary to stabilize the Electricity Grid and only Coal and Nuclear can provide the Assurance. The useful life of Nuclear Plant is 60 years. Nuclear has High Capital Costs during Construction but Low Operating Costs and delaying the decision until beyond 2030 does not guarantee Costs will be Low.

National Union of Mineworkers (NUM)
Mr Khangela Baloyi, Shop Steward, NUM, indicated that the only way to achieve the security of supply as a country is to have reliable base load electricity. The proposed energy mix proposed in the draft IRP 2018 does not in any way provide a reliable and stable base load. Base load is defined as the energy plants or power stations that are able to produce energy at a constant or near constant rate. The proposed mix of only 46% coal is not going to assist in achieving the security of supply. The present draft IRP relies more on wind and solar energy. It proposes gas to compensate for when there is no wind and sun. South Africa does not have gas at present. 

In terms of the cost of electricity, the proposed plan will fail to minimise the cost of electricity. This is due to the proposed structure of the IPPs having to sell electricity to Eskom based on the signed Power Purchase Agreements (PPAs). The present agreement compels Eskom to buy electricity from the IPPs at R2.14 and sell it at R0.90. This arrangement will force Eskom to increase the price of Electricity so that it can be able to cover the shortfall. At the end the consumers will have to pay more for the electricity. This will defeat the first aim of the IRP 2018. Most sources of energy are expensive to construct but very cheap during operation, therefore when the cost analysis is conducted it must take that into account. In South Africa today Koeberg Nuclear Power Station produces the cheapest electricity.

With regards to water usage, research has shown that water usage for the generation of electricity can be reduced by the new coal and nuclear technology. Medupi and Kusile will use less water that Grootvei and Komati. In South Africa agriculture alone uses 63% of water, domestic usage amounts to 31% and industries including electricity generation use only 6%. It is just irrational that we focus on power generation when we talk to reduction of water usage. Reducing of water usage cannot be the reason why we cannot use coal and nuclear. It only used to justify the case for solar and wind.

NUM submits that the reduction of coal in the mix be reversed. South Africa is one of the countries which still has huge coal reserves. We can’t just stop using this strategic resource. What we suggest is that we venture into clean coal technology. South Africa is exporting 92% of coal used in Africa. Eskom states on its website that South Africa has more than 200 years’ worth of coal left. According to the Department of Mineral Resources South Africa has more than 67 tons of coal reserves. The reduction of coal usage in the proposed mix means that we will use less coal in South Africa to produce electricity. What worries us is that the mining of coal is not going to stop. Coal will be mined and exported to other countries like China who are going to burn the coal to the very atmosphere we are trying to save.

NUM is not in support of the concept of pass through. It believes this method will bankrupt Eskom and render it insolvent if it continues. The government and the IPPs must find other ways of collecting revenue than using Eskom. It cannot be correct and be allowed to continue that Eskom will buy electricity at R2.14 and sell it at R0.98. This arrangement is not sustainable, it will bankrupt Eskom. We suggest that let the big minds in the electricity space come together to find another way which is not going to destroy Eskom.

WWF South Africa
Ms Louise Scholtz acknowledged that the IRP 2018 made significant improvements on its predecessor, notable are:

-No new Nuclear until 2030
-Increased support for Renewable Energy
-More diversity in the energy mix
-Carbon budget factored in some scenarios
-Improved assumptions in scenario building
-Least-cost option by 2030 and 2050: based on no annual build limits for Renewable Energy
-Acknowledge the need to phase out coal-fired power plants

The IRP has a huge potential impact on municipalities’ capability to provide affordable energy services. Least cost energy services supply to consumers and affordability are the key concerns for local government. IRP needs to provide stronger and clear commitment to a flexible system base on renewable energy and rapid phase out of coal.

The Chairperson thanked everyone present and declared the meeting adjourned.

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