Draft Integrated Resource Plan 2018: public hearings

Energy

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

The Committee heard the last batch of oral submissions on the Integrated Resource Plan 2018 (IRP). The South African Local Government Association (SALGA), South African Wind Energy Association (SAWEA), National Society of Black Engineers of SA (NSBESA), Black Business Council (BBC) jointly with the SA Energy Forum (SAEF), Organisation Undoing Tax Abuse (OUTA) and the Fossil Fuel Foundation (FFF) made submissions.

SALGA welcomed the major improvements in least cost technology choices in the IRP. This was a significant improvement from previous versions. Municipalities acknowledged the importance of job protection and retention related to coal-fired power. However, higher costs will have serious ramifications for consumers and the country as a whole. SALGA also welcomed the inclusion of Embedded Generation and connecting that supply into the electricity network. However, there was no substantial evidence on how the IRP arrived at the allocation of 200MW. The allocation of 200MW per year, for both private and public installations, is insufficient. Individual municipalities say they can account for from 200-300MW alone. There is currently 1500MW awaiting generation licenses already. SALGA suggested that the outstanding 1500MW awaiting ministerial determination should rather be resolved first. Future studies should investigate if a limit on embedded generation is necessary, if it can provide a benefit to municipalities and in turn their customers. Municipal owned or contracted renewable embedded generation will assist municipalities in reducing debt to Eskom and support achievement of climate change commitments.

SAWEA recommended that the IRP should be adjusted to smooth out and accelerate procurement of wind and photo-voltaic energy allocations of at least a gigawatt per annum between 2021 and 2030. This would minimise market risks. SAWEA further recommended that the IRP1 scenario be rerun to test the following sensitivities: reconsider coal-related investment costs particularly those relevant to climate policy; realistically lower Eskom fleet availability, without the last two units of Kusile; exclude the two new coal IPPs; consider the power system effect of Electric Vehicles, demand-side flexibility, and earlier decommissioning of the existing coal fleet due to environmental constraints, and the effect of carbon tax on the short-run marginal cost. The resulting model findings would be likely to favour new wind capacity allocations of between 1.5 to 2.5 GW per annum.

NSBESA said the IRP must be amended as it will negatively impact NSBESA members and families, will lead to job losses, compromise security of supply, reverse empowerment gains, and compromise sovereignty of the state. Therefore, it was recommended as follows: 75% be base load coal, nuclear and solar, and 25% be wind and solar supported by gas/battery storage; Eskom should maintain a greater than 70% control of the electricity supply industry; 100% job preservation as the old plants are decommissioned, extend life of old plants and alternatives to absorb jobs be established. NSBESA further recommended 51% localization and the creation of export ready black industrialists.

OUTA acknowledged and welcomed the Department of Energy’s (DOE) endeavours to pursue a cleaner and least cost energy mix for the future in line with the reduction in deployment and generation costs of renewable energy technologies and moving towards a more a low carbon energy economy in line with meeting the country’s climate change obligations under the Paris Agreement and a more sustainable energy sector. A balanced approach should be adopted when applying the IRP’s assumptions to ensure that an objective long-term planning and they be reviewed at three year intervals. Government needed to provide clarity on nuclear, the 25000MW from Independent Power Producers. Additional scenarios on growth assumptions must be undertaken to reflect on the current realities of very low economic growth levels to the highest and factor socio-economic implications. There should be clarity about the following: whether the coal determination will be applicable in the foreseeable future or it will be rescinded; Eskom plant decommissioning schedule versus replacement new generation capacity construction lead times (build programme). To ensure alignment between retired capacity and commissioned new capacity [i.e. quantities of renewables procured and to-be constructed (ready for dispatch) equivalent to the existing coal capacity to be decommissioned. Further, additional scenarios on growth assumptions must be undertaken to reflect on the current realities of very low economic growth (GDP) levels to the highest, and detailed studies and analysis of the impact of gas still had to be undertaken. OUTA expressed concern that a huge allocation (16%) had been given for open cycle gas turbine (OCGT) without proper cost benefit analysis and due diligence undertaken.

The BBC, in joint submission with SAEF, said it had been determined that the newly released Draft IRP 2018-2030 has major shortcomings. The extent of the shortcomings were so significant that they could have serious implications for the developmental agenda of the country and efforts to improve socioeconomic conditions. It is also not forward-looking and not aligned to the aspirational aspects of the NDP. Instead it displays lack of ambition by relying on past trends during a period when the country has been in an economic depression. The Draft IRP was lacking in detail for a document of that importance and several conclusions/decisions were made without serious consideration of the context of the country, detailed risk analysis, accurate costing and transparency. The Draft IRP is also meant to be an update of the previous plan; however it appears to be a total overhaul and reflects lack of consultation with stakeholders in the process of compilation. The rationale and assumptions used to arrive at the conclusion and thus an energy mix are also flawed.

The FFF called for an intense review of all energy sources, as the current IRP draft dealt almost solely with solar and wind. The organisation wanted the government to appoint appropriate experts to undertake studies into all energy sources to ensure the most appropriate energy mix. Coal total coal sales, both local and exported, generated R120 billion in 2017 and was the country’s highest foreign exchange earner. It was the largest mining income earner, beating gold, platinum and diamonds. She argued that the coal industry has 225 000 direct employees in coal mining, power generation, Sasol and metallurgical industries. The FFF further advocated for circulating fluidised-bed combustion (CFBC) technology, a clean coal technology with lower emissions to be implemented. Carbon dioxide emissions are significantly reduced when coal is co-fired with biomass. The use of clean coal in Kenya’s Amu ‘Clean Coal’ power station was an example of how things could work in South Africa. The power station significantly reduces nitrogen oxide and sulphur oxide emissions. The cost implications of reducing coal needs to be carefully considered, as this would reduce the foreign exchange earned by coal. Another item to be carefully considered is the need to cost out the implications of adjusting boilers for flexible ramping.

The Committee would hold roundtable discussions on the draft IRP 2018 the following week.
 

Meeting report

The Chairperson welcomed everyone to the last batch of public hearings on the draft IRP. He invited the presentations from stakeholders.

South African Local Government Association (SALGA) submission

Mr Thami Ngubane, Chairperson: Energy Working Group, SALGA, appreciated and applauded the Minister and the Department for the substantial amount of work done. He stated that the 2018 version of the Integrated Resource Plan was not least-cost based, and that this would have major financial repercussions for municipalities. By introducing self-determined limits to the amount of renewable energy that could be introduced to the energy mix each year, the IRP might worsen existing challenges. These include grid defection (where users are independent of the electricity grid) as well as consumer and municipal debt.

SALGA welcomed the major improvements in least cost technology choices in the IRP for the year 2018. This was a significant improvement from previous versions. Municipalities acknowledged the importance of job protection and retention related to coal-fired power. However, higher costs will have serious ramifications for consumers and the country as a whole. SALGA also welcomed the inclusion of Embedded Generation and connecting that supply into the electricity network. However, there was no substantial evidence on how the IRP arrived at the allocation of 200MW. The allocation of 200MW per year, for both private and public installations, is insufficient. Individual municipalities say they can account for 200-300MW alone. There is currently 1500MW awaiting generation licenses already. SALGA suggested that the outstanding 1500MW awaiting ministerial determination should rather be resolved first. Future studies should investigate if a limit on embedded generation is necessary, if it can provide a benefit to municipalities and in turn their customers. Municipal owned or contracted renewable embedded generation will assist municipalities in reducing debt to Eskom and support achievement of climate change commitments.

South African Wind Energy Association (SAWEA) submission

Ms Brenda Martin, CEO, SAWEA, expressed concern about the effects of stop-start procurement on employment and on local manufacturing sector growth. The procurement gap has a direct and immediate impact on employment as it would result in many manufacturing facilities and support services planning for closure or retrenchments. HR investments made to-date in training and skills development, especially by manufacturing facilities, will be lost. The sudden spike in the commissioning of new wind from 2026 to 2030 would then create an enormous bottleneck for local manufacturing demand. On local manufacturing industry impacts, a three-year procurement gap is not supportive of government’s commitment to creating an employment-intensive local manufacturing sector.

SAWEA recommended that the IRP should be adjusted to smooth out and accelerate procurement of wind and photo-voltaic energy allocations of at least a gigawatt per annum between 2021 and 2030. This would minimise market risks. SAWEA further recommended that the IRP1 scenario be re-run to test the following sensitivities: reconsider coal-related investment costs particularly those relevant to climate policy; realistically lower Eskom fleet availability, without the last two units of Kusile; exclude the two new coal IPPs; consider the power system effect of Electric Vehicles, demand-side flexibility, and earlier decommissioning of the existing coal fleet due to environmental constraints, and the effect of carbon tax on the short-run marginal cost. The resulting model findings would be likely to favour new wind capacity allocations of between 1.5 to 2.5 GW per annum.

National Society of Black Engineers of SA (NSBESA) submission

Ms Seponono Kekana, Professional Engineer, NSBESA, identified a number of shortcomings in the draft IRP. Based on her analysis, these were: loss of context; inadequate risk analysis; unemployment considerations;

Output needs to be sanitized to ensure that context is not lost; and inconsistent costing basis. Context ensures the minimisation of unintended project consequences, and therefore it should not be lost. On costing considerations, the method used for cost comparison to arrive to least cost option was flawed. Accurate costing requires a defined user requirements specifications, and it costs very little to obtain accurate costing. NSBESA therefore questioned why accurate costing was not obtained. More so, risk consideration had been inadequate as the economic contribution of power stations earmarked for decommissioning was vast. The combined impact on GPD, government revenue, employment as well as households ran into billions of rand.

In conclusion, IRP 2018 must be amended as it will negatively impact NSBESA members and families, will lead to job losses, compromise security of supply, reverse empowerment gains, and compromise sovereignty of the state. Therefore, it was recommended as follows: 75% should be base load coal, nuclear and solar, and 25% be wind and solar supported by gas/battery storage; Eskom should maintain a greater than 70% control of the electricity supply industry; 100% job preservation as the old plants are decommissioned, extend life of old plants and alternatives to absorb jobs be established. NSBESA further recommended 51% localization and the creation of export ready black industrialists.

Organisation Undoing Tax Abuse (OUTA) submission

Mr Ronald Chauke, Energy Portfolio Manager, OUTA, acknowledged and welcomed the Department of Energy’s (DOE) endeavours to pursue a cleaner and least cost energy mix for the future in line with the reduction in deployment and generation costs of renewable energy technologies and moving towards a more a low carbon energy economy in line with meeting the country’s climate change obligations under the Paris Agreement and a more sustainable energy sector. A balanced approach should be adopted when applying the IRP’s assumptions to ensure that an objective long-term planning and they be reviewed at three year intervals. Government needed to provide clarity on nuclear, the 25000MW from Independent Power Producers. Additional scenarios on growth assumptions must be undertaken to reflect on the current realities of very low economic growth levels to the highest and factor socio-economic implications. There should be clarity about the following: whether the coal determination will be applicable in the foreseeable future or it will be rescinded; Eskom plant decommissioning schedule versus replacement new generation capacity construction lead times (build programme). To ensure alignment between retired capacity and commissioned new capacity [i.e. quantities of renewables procured and to-be constructed (ready for dispatch) equivalent to the existing coal capacity to be decommissioned. Further, additional scenarios on growth assumptions must be undertaken to reflect on the current realities of very low economic growth (GDP) levels to the highest, and detailed studies and analysis of the impact of gas still had to be undertaken. OUTA expressed concern that a huge allocation (16%) had been given for open cycle gas turbine (OCGT) without proper cost benefit analysis and due diligence undertaken.

On funding new coal build, the Department and National Treasury must consider formulating a policy position on future construction and financing of new coal-fired power stations (similar to how Standard Bank announced its position of no longer financing coal plants). Eskom must also submit to DoE its abatement retrofit programme/schedule of identified power plants and this should be factored into the IRP planning process.

Black Business Council (BCC) and SA Energy Forum (SAEF) submission

The BBC in joint submission with SAEF said it had been determined that the newly released Draft IRP 2018-2030 has major shortcomings. The extent of the shortcomings were so significant that they could have serious implications for the developmental agenda of the country and efforts to improve socioeconomic conditions. It is also not forward-looking and not aligned to the aspirational aspects of the NDP. Instead it displays a lack of ambition by relying on past trends during a period when the country has been in an economic depression. The Draft IRP 2018-2030 was lacking in detail for a document of that importance and several conclusions/decisions were made without serious consideration of the context of the country, detailed risk analysis, accurate costing and transparency. The Draft IRP is also meant to be an update of IRP 2010; however it appears to be a total overhaul and reflects lack of consultation with stakeholders in the process of compilation. The rationale and assumptions used to arrive at the conclusion and thus an energy mix are also flawed.

Based on the above analysis, BBC and SAEF believed that the current draft IRP 2018 is biased towards imported renewable energy. IRP 2018 is very vague and it was likely to be subjected to continuous manipulation because there are still critical pending studies to be conducted to complete the risk assessment. It is forcing a non-developmental direction of the economy in the long-term. There is misalignment between IRP 2018 with the objectives of the NDP and is likely to escalate the deteriorating socio-economic issues and hamper transformation. IRP 2018 only addresses a few of the key elements of IRP objectives set out in the introduction section of this document above. This in essence will risk investor confidence into South Africa and for them to make necessary preparation plans to invest in the economy. This preparation concerns also affects the education system, local industry and indirect investors like property developers, infrastructure and secondary related industries.

In a nutshell, the revised Draft IRP must be reviewed to incorporate all relevant technologies in the needed energy mix and must present a balance view to secure realistic energy security of supply infused with specific goals of the NDP which includes industrialization, technology transfer, job creation and socio-economic development and others. All the deficiencies as outlined must be adequately addressed in the final IRP 2018-2030.

Fossil Fuel Foundation (FFF) submission

Dr Nandi Malumbazo, Senior Scientist, Council for Geoscience, called for an intense review of all energy sources, as the current IRP draft dealt almost solely with solar and wind. The FFF wanted the government to appoint appropriate experts to undertake studies into all energy sources to ensure the most appropriate energy mix. Coal total coal sales, both local and exported, generated R120 billion in 2017 and was the country’s highest foreign exchange earner. It was the largest mining income earner, beating gold, platinum and diamonds. The coal industry has 225 000 direct employees in coal mining, power generation, Sasol and metallurgical industries. The FFF further advocated for circulating fluidised-bed combustion (CFBC) technology, a clean coal technology with lower emissions to be implemented. Carbon dioxide emissions are significantly reduced when coal is co-fired with biomass. The use of clean coal in Kenya’s Amu ‘Clean Coal’ power station was an example of how things could work in South Africa. The power station significantly reduces nitrogen oxide and sulphur oxide emissions. The cost implications of reducing coal needs to be carefully considered, as this would reduce the foreign exchange earned by coal. Another item to be carefully considered is the need to cost out the implications of adjusting boilers for flexible ramping.

The FFF identified items which needed to be carefully considered in the IRP 2018 as follows: the cost implications of reducing coal –reduces export=reduces foreign exchange and Gross GDP income; need to cost out the implications of adjusting boilers for flexible ramping; need to ensure base-load power for the country on a secure and reliable basis including adding coal-fired (CFBC) IPPs and Eskom retrofits (after closing old inefficient power plants); need to ensure the needs and availability of coal for heat, power and carbon (as a chemical) are met for industrial users of coal; need to re-evaluate the LCOE given the benefits of CFBC (EPRI and CSIR calculations need further scrutiny); need to ensure South Africa joins the rest of the industrially developing world in using best most appropriate mix in technology and “own” primary energy sources (coal) wisely and for the benefit of all. Contrary to popular belief that “coal is dead”, SA’s coal resources are abundant and can provide low-emitting, cost effective, reliable and sustainable power well into the future with the correct technology–and can work in co-firing with renewables.

Notwithstanding the limitations and criticisms of the Draft IRP, the FFF supports it. However, it was strongly recommended that, after promulgation, the following steps be taken:

  • Intense review of all energy sources undertaken (the current draft deals almost solely with solar and wind)
  • Appropriate experts appointed to undertake relevant studies in all energy sources in order to ensure most appropriate energy mix in future
  • The proposed 10-year plan recommended by the NDP be adopted with 2-year reviews in order to enable future energy plans for South Africa to remain appropriate, relevant, suitable and secure.
  • Serious scenario planning undertaken in order to assess and adjudicate the relevant risks in the Draft IRP 2018. It would appear that, at this stage, the economic, practical, technological, socio-economic and long-term financial risks have not been fully evaluated.
  • In-depth calculations (regression, modelling) using broadly agreed assumptions and a wider data base undertaken to achieve a more realistic, balanced and effective IRP as opposed to the high-level, limited assessments undertaken in this Draft IRP to date.

The Chairperson appreciated the submissions and indicated the Committee would hold roundtable discussions on the draft IRP 2018 the following week.

The meeting was adjourned.

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