The Committee received a briefing on the 2019 Integrated Resource Plan. The Minister of Mineral Resources and Energy was in attendance.
In his opening remarks, the Minister explained that the Plan considered a combination of supply-side and demand-side resources over a specified future period. The Plan was developed taking into account government objectives towards affordable electricity, reduced greenhouse gas (GHG) emissions, reduced water consumption, diversified electricity generation resources as well as localisation and regional development.
The Department informed the Committee that the first IRP for South Africa, commonly referred to as the IRP 2010, was promulgated in March 2011. The assumptions made in the IRP 2010-30 were changed and therefore this necessitated an overall update of the plan. The electricity demand outlook as forecasted in the IRP 2010-30 had not been realized; electricity prices had significantly increased while the electricity intensity had significantly dropped. There was also an increase in the use of Distributed Generation. Cabinet approved the draft IRP 2018 and it was published in August 2018 and subjected to written public input between October 2018 and November 2018 (60 days). There were a total of 5 929 comments received, with 242 of them being substantive submissions. The Portfolio Committee on Energy also conducted public input sessions. The Nedlac partners were engaged in a separate process.
To address some of the concerns raised in public comments, the demand forecast was adjusted to reflect 2018 actuals as a starting point while maintaining previously projected demand growth rate. Where information received was representative of costs from similar projects and technologies, this information was adopted and necessary updates on the IRP were made. Also, Eskom submitted revised system availability projections, a revised plant shutdown schedule and a minimum emission standard compliance schedule. These adjustments were incorporated into the latest plan.
The DMRE indicated that there was additional capacity brought online from the power stations: 18 000 megawatts (MW) had been committed to date; this comprised of 9 564MW of coal power at Medupi and Kusile as well as 1 333 MW of pumped storage at Ingula. Independent power producers (IPPs) had also contributed about 6 422MW of renewable energy. Another 1 005MW came from diesel-fired peaking plants - Dedisa and Avon. However, these were still lower than the expected aggregate Eskom plant performance.
Members welcomed the promulgation of the IRP and said it was long overdue; it would give a roadmap for the future of South African (SA) energy resources. They asked the Department to outline its resolutions for updating the plan henceforth. How frequently will it be updated?
Members pointed out that the Department had not conducted a socio-economic impact study on the decommissioning of the plants - thus overlooking the collateral effect of job losses and the blackouts that would be caused by generation incapacity.
Members recounted that the 2010 IRP included electricity demand estimations that were based on demand trends and economic growth projections. The economy did not grow as projected and this effectively invalidated the estimations. Why should the IRP data be credible?
Members noted the IRP plans for the Grand Inga Project to start providing electricity by 2030. However, the Memorandum of Understanding (MoU) between SA and the Democratic Republic of Congo (DRC) would expire in 2023. The consortium that was undertaking the construction of the project was also falling apart mainly due to the feud between the Chinese and the Spanish. How likely is it that there will be any energy produced from the project? The cost of building the transmission lines from the Grand Inga Hydropower plant was estimated at about R4.3bn; has this been factored into the costing of electricity from the plant?
The Chairperson proposed that SA should consider its participation in the Grand Inga project as part of its responsibility and contribution towards building a better Africa, beyond colonial borders that segregated the African states. He questioned the realisticity of the IRP’s projected success, citing that the plan did not demonstrate any control over the energy generation it sook to achieve. To what extent is there an interaction between the DMRE and key stakeholders, such as ESKOM, to address the possible impediments of the IRP’s end goal?
Opening Remarks by Chairperson
The Chairperson shared that the Business Day ePaper had headlined the current crisis of illegal mining - that it had reached its highest proportions. Legal mining was being targeted to an extent that gold was being stolen from legal companies and their employees were being held hostage. It was evidently becoming more dangerous to be part of the sector because of the criminality levels. The Committee would have to get involved in the mission to combat this problem.
The Chairperson said that considering that the Department of Mineral Resources and Energy (DMRE) had indicated that the IRP process would be finalised in September 2019, the Committee requested the Department, through the Minister, to come and brief it. This would help Members to get acquainted with the plan.
Remarks by Minister
Mr Gwede Mantashe, Minister of Mineral Resources and Energy, said that the National Development Plan (NDP) identified the need for South Africa to invest in a strong network of economic infrastructure designed to support the country’s medium and long-term economic and social objectives. Energy infrastructure was a critical component that underpinned economic activity and growth across the country. It needed to be robust and extensive enough to meet industrial, commercial and household needs. The IRP, as contemplated under the Electricity Regulation Act, was a legal instrument for an electricity generation plan that met forecasted annual peak and energy demand as well as some established reserve margin. It considered a combination of supply-side and demand-side resources over a specified future period. The plan was driven by a set of predetermined objectives.
The plan was developed taking into account government objectives towards affordable electricity, reduced greenhouse gas (GHG) emissions, reduced water consumption, diversified electricity generation resources as well as localisation and regional development. It was within this context that the DMRE electricity planning philosophy aimed to balance supply and demand while minimising the cost of electricity and keeping up with environmental commitments.
Briefing by Department of Mineral Resources and Energy
Mr Jacob Mbele, Deputy Director-General (DDG): Programming and Projects, DMRE, said that the first IRP for South Africa, commonly referred to as the IRP 2010, was promulgated in March 2011. The assumptions made in the IRP 2010-30 were changed and therefore this necessitated an overall update of the plan. The electricity demand outlook as forecasted in the IRP 2010-30 had not been realised; electricity prices had significantly increased while the electricity intensity had significantly dropped. There was also an increase in the use of Distributed Generation. Cabinet approved the draft IRP 2018 and it was published in August 2018 and subjected to written public input in October and November 2018 (60 days). There were a total of 5 929 comments received, with 242 of them being substantive submissions. The Portfolio Committee on Energy also conducted public input sessions. The Nedlac partners were engaged in a separate process.
Concerning the recommended published draft IRP 2018, the key issues that were raised by the public included the extent of the energy mix, the exclusion of new nuclear capacity before year 2030 and deviation from the IRP 2010-2030. Some felt that the demand forecast was overstated, while some argued that it was understated and that it ignored suppressed demand. The impact of coal on the health of communities close to power stations was deemed detrimental. The inclusion of coal and hydropower capacity through policy adjustment was criticised on the basis it is a deviation from the least cost path. There were also concerns about the practical implementation aspects and the risks associated with gas-based generation, taking into account the extent of the capacity recommended in the plan. The annual allocation for distributed generation was said to be too low; and the three-year gap from year 2022 for wind energy was said to be bad for investment and localization. The cost assumptions for some technologies were also questioned.
To address these concerns, the demand forecast was adjusted to reflect 2018 actuals as a starting point while maintaining previously projected demand growth rate. Where information received was representative of costs from similar projects and technologies, this information was adopted and necessary updates on the IRP were made. Also, Eskom submitted revised system availability projections, a revised plant shutdown schedule and an MES compliance schedule. These were incorporated into the latest plan.
Mr Mbele indicated that there was additional capacity brought online from the power stations: 18 000 megawatts (MW) had been committed to date; this comprised of 9 564MW of coal power at Medupi and Kusile as well as 1 333 MW of pumped storage at Ingula. Independent power producers (IPPs) had also contributed about 6 422MW of renewable energy. Another 1 005MW came from diesel-fired peaking plants - Dedisa and Avon. However, these were still lower than the expected aggregate Eskom plant performance.
Mr Mbele said that one of the key observations of the IRP was that the power system simulations showed that due to the low energy availability factor (EAF) of Eskom’s generation plants and the shutdown of nonperforming units at Grootvlei, Komati and Hendrina, there was inadequate capacity reserved for emergency plant breakdowns. Also, the continued underperformance of Medupi and Kusile units would exacerbate the load shedding risk. Decommissioning the Koeberg plant in 2024, in line with its 40-year end of lifecycle, would also worsen the situation. The energy shortages were expected to get worse over a possible shutdown of units should Eskom fail to comply with air quality minimum emissions standards (MES).
Mr Mbele said that the IRP outlined key action plans and categorised them into nine decisions. He then detailed each of the decisions.
Mr K Mileham (DA) welcomed the promulgation of the IRP and said it was long overdue; it would give a roadmap for the future of SA energy resources. He then asked the Department to outline its resolutions for updating the plan henceforth. How frequently will it be updated?
Mr Mileham noted that the IRP plans for the Grand Inga project is to start providing electricity by 2030. However, the Memorandum of Understanding (MoU) between SA and the Democratic Republic of Congo (DRC) would expire in 2023. The entire scheme appeared to be collapsing, with the DRC government considering a production downgrade from over 40GW to just about 4GW. The consortium that was undertaking the construction of the project was also falling apart mainly due to the feud between the Chinese and the Spanish. How likely is it that there will be any energy produced from the project? The cost of building the transmission lines from the Grand Inga Hydropower plant was estimated at about R4.3bn; has this been factored into the costing of electricity from the plant?
Mr Mileham noted that decision three of the IRP resolved to support Eskom to comply with the MES. One of the proposed solutions to facilitate this was the process of flue gas desulphurisation (FSD). What is the cost of implementing FSD unit to existing Eskom plants? Has this been costed into the utility’s financial model?
Mr Mileham recognised that there was a total of about 3000MW of solar power that was procured in 2019. However, there were no further plans included in the IRP for this resource, in the coming years. What is the reason for this?
Mr Mileham acknowledged the plan to decommission six coal-fired power stations within the next seven years, most particularly the ones that were deemed to be underperforming – Grootvlei, Komati and Hendrina. He pointed out that the statistics on the EAF per plant contradicted this claim and showed that two of the three plants, Grootvlei and Komati, were operating with the highest efficiencies, generating amongst the biggest capacities. He asked what procurement plans were put in place to replace the capacity that these plants were generating. Why are these plants being decommissioned if they are actually working? Has life extension been considered for them?
Mr Mileham said that he IRP also identified self-generation as an option for municipalities. He indicated that there was currently a court case between the DMRE and the City of Cape Town regarding this method and Section 34 determinations. Has the Department considered authorising the municipalities to self-generate? If not, why?
Mr Mileham indicated that recent pricing models revealed renewable energy sources to be amongst the cheapest according to cost per kilowatt-hour (R/KWh). He asked why the DMRE was not endorsing the prioritisation of these sources, given that there was an immediate term crisis of supply anticipated for the next four years, where they would be no reserve margin.
Ms C Phillips (DA) asked how the IRP could be effectuated without first addressing the high electricity cost. This cost was resulting in the bleeding of companies that were using electricity, ultimately leading to job losses.
Ms Phillips asked if the data on the new capacity of the IRP reflected the current reality of local power plants. She reckoned that it was more viable and beneficial for SA to invest in its own gas-based generation instead of sending funds to the Grand Inga project. Is the expected demand being inflated to justify supporting this project? When will the Department finalise the gas utilisation masterplan?
Mr D Mthenjane (EFF) viewed the IRP as government’s strategy for implementing long term privatisation of ESKOM. He said that the decommissioning of the power stations would result in job losses and affect the families that were residing in the surrounding areas. The closure would cause extended blackouts over significant parts of Mpumalanga province. He suggested that the Department should come up with ways to use alternative energy sources in the same plants and retrain the workers with the necessary skills so they would adapt and not lose their jobs.
Mr M Mahlaule (ANC) welcomed the IRP and said it was a well-balanced document.
Mr Mahlaule acknowledged that the decommissioning of the plants was due to the findings of the environmental impact study of coal; that the ultimate goal of DMRE was for the utility to transition from using detrimental fossil fuels towards cleaner, renewable resources. He pointed out that the Department had not conducted a socio-economic impact study on the decommissioning of the plants - thus overlooking the collateral effect of job losses and the blackouts that would be caused by generation incapacity.
Mr Mahlaule recounted that the IRP commissioned in 2010 included electricity demand estimations that were based on demand trends and economic growth projections. The economy did not grow as projected and this effectively invalidated the estimations. Why should the IRP data be credible?
Mr Mahlaule highlighted the acknowledgement, by the DMRE, of the 900MW of electrical power that had already been procured but had not materialised because of legal and financing challenges. This admission further stated that there was no likelihood of future coal being used to power up capacity due to projected financial constraints. How is the Department planning to address these matters?
Mr Mahlaule noted the decrease in the planned gas-based generation, from 8000MW to 3830MW in 2018. IRP projections for subsequent years showed a fluctuant downtrend in the capacity of this energy resource. Is this an admission by the DMRE that there would not be enough gas in the years to come?
Minister Mantashe indicated that the Director-General of the DMRE was at a meeting in China to discuss the Grand Inga project. The feud between China and Spain was being mischaracterised and exaggerated by media. He said that the project was expected to come online and supply the DRC and neighbouring countries involved in the project, including SA. Therefore, there would be transmission line costs incurred.
Minister Mantashe explained that ESKOM had already notified the DMRE that the three power stations were going to be decommissioned. The Department would engage the executive management of the entity on possibly extending the lifecycle of the plants.
Minister Mantashe said he would not comment on the court case between the City of Cape Town and the DMRE. He replied that he had not received any self-generation applications from municipalities since the beginning of his tenure at the Department. When tracing back to 2018 and 2017, the Department discovered that there was a backlog of applications from 17 different entities, including those based in Cape Town. Following the promulgation of the IRP, these applications would now be assessed on their merits. The Department did not want to make any assumptions about any of the alternative energy resources. Renewables were not an emergency resource and needed to be given time to grow naturally, to ultimately compete in the economy.
Minister Mantashe explained that increases in the price of electricity were determined by the National Energy Regulator of South Africa (NERSA). By principle, regulators were independent of the DMRE. However, the Department had begun engagements with coal miners and independent power producers to persuade them to reduce their electricity prices while extending their contracts for long enough to recoup their capital costs and generate profit. If the DMRE succeeds in doing so, it will then engage ESKOM and NERSA on officially reducing the prices, especially for industrial consumers.
Minister Mantashe explained that the viability of power generation investments was based on the evaluations of the risks versus the returns. The DMRE did not have a simple choice between investing in the Grand Inga project and gas generation. However, gas was expected to become more prominent. There were already a few potential gas depots that the Department was considering, including those that were expected to be in Ermelo and Virginia.
Mr Mantashe said that the IRP included initiatives that would facilitate a just transition in the aftermath of the decommissioning of the plants. There would be detailed, developmental economic plans for the workers and the communities of the surrounding areas. To do this, the DMRE would collaborate with departments such as the Department of Trade and Industry (DTI) and the Department of Environment, Forestry and Fisheries (DEFF).
Minister Mantashe said that retraining was not conducted in a vacuum but rather when there were activities; otherwise the training would be too theoretical. The training would consist of redesigned facilities that would assimilate a practical work environment.
Minister Mantashe explained that the Department’s goal was to promote a transition from high emissions to low emissions of substances resulting from coal combustion. If coal were to be cleaned, it would remain as the primary energy resources for power generation; the Council for Geoscience (CGS) and the South African National Energy Development Institute (SANEDI) were undertaking studies, trying to discover cleaner coal technologies.
Mr Mbele explained that the longer any long-term planning process takes, the higher the likelihood of changes in the data which is being used; what is most critical is the robustness of the plan – in adjusting to the changing inputs. The IRP had a modular approach to building infrastructure in order to allow flexibility for adjustments when needs arose.
Mr Mbele said that the Department was not overestimating the demand to consider other factors. The estimations were conservative because there was an annual average energy demand of about 1.8%.
Mr Mbele indicated that the cost of complying with minimum emission standards was approximately R180bn. This cost was for retrofitting the power stations for the compliance. The concentrated solar power (CSP) systems were not considered because they were comparatively expensive; multiple least cost analyses proved them to not be viable.
Mr Mbele said that the DMRE did factor the cost of energy transmission from the Grand Inga. The vision for the project was always to produce 40GW; phase three of the project had always to generate about 4.8GW.
Mr Mbele explained that there was a difference between shutting down units and decommissioning an entire power plant; the IRP provided for the former. The EAFs which were included in the IRP had already discounted the units that were deemed problematic.
Follow up questions and comments
The Chairperson provoked a political conversation. He opined that some of the levels of underdevelopment across Africa were exacerbated by the civil wars which were waged by the previous regimes. These wars destabilised parts of the continent so much that certain states could no longer function optimally and independently. He quoted a question that was trending on social media: “Russia, China, the UK and USA all had a plan for Africa. Does Africa have a plan for Africa?”
The Chairperson then proposed that SA should consider its participation in the Grand Inga project as part of its responsibility and contribution towards building a better Africa, beyond colonial borders that segregated the African states. He reckoned that the consequence management for the potential mismanagement of public finances was stifling the country’s confidence in partaking in continental initiatives. The country was not maximising its impact through its membership in the African Union.
The Chairperson said that SA’s role in propelling the economic development agenda within the continent should be clearly defined. He questioned the realisticity of the IRP’s projected success, citing that the plan did not demonstrate any control over the energy generation it sook to achieve. To what extent is there an interaction between the DMRE and key stakeholders, such as ESKOM, to address the possible impediments of the IRP’s end goal?
Mr Mahlaule asked how power plants that had reached the end of their lifecycle could be revitalised or reinstated into the grid.
Mr Mahlaule appreciated the transition plan from high to low carbon emissions which was outlined in the IRP. He reckoned that the consideration of clean technology for coal-based generation was the solution, instead of abandoning an energy resource which the country had in abundance. The discoveries should be accompanied by models for the retraining of workers, for them to adjust and be equipped with the necessary skills in order to not lose their jobs.
Mr Mahlaule noted that the Minister had said that gas, as an energy resource, had the potential to play a major role in SA’s energy generation– provided that there were certain future discoveries about the resources. He then recounted that the CGS had found that the primary hindrance for discoveries was the limited investment into energy exploration and research. This hindrance was caused by the budgetary restrictions that were imposed by the budget vote for the council. The implementation of the IRP could be improved through the empowerment of research institutions, such as SANEDI, to explore and research on emerging technologies.
Mr Mthenjane responded to the quote that was shared by the Chairperson, saying that Africa had its own plan through the late President Muammar Gaddafi, who was killed for his vision of unifying the continent. The plan was to now be championed by the EFF; this was why the party was driving the nationalisation of mining companies.
Ms V Malinga (ANC) welcomed the IRP and expressed that she was pleased with its conclusion; it gave her hope. She found comfort in that the DMRE was engaging coal producers to reduce prices and hopefully sustain some of the plants that had reached the end of their lifecycles. She expressed support of decision six of the key actions in the IRP.
Ms Malinga asked what consequences would be imposed on ESKOM if it did not comply with MES over time.
Ms Phillips reckoned that Committee would be doing SA citizens a disservice by driving political agenda solely because access to electrical power affects everyone. Parliament’s job was to ensure that people had the best possible access to it, while minimising the associated costs.
Ms Phillips asked if the Department had investigated the implications and impact of the Grand Inga project on the people who resided near it. How many DRC citizens are going to benefit from it by getting access to electricity?
Mr Mileham denounced the possibility of clean coal and said it was an unproven technology. The mining and production as well as the combustion of coal both had severely detrimental environmental impact. Even the best technology into ESKOM’s plants would not capture most of the carbon emissions. Given the state’s obligation to climate change and health, the Department should be highly sceptical of the myth that coal could be cleaned to the extent of making it a viable long term resource for power generation.
Mr Mileham clarified that he meant that the production of the Grand Inga unit three was to be reduced from 10GW down to 4.8GW. However, the Spanish-Chinese consortium indicated that this reduction made the unit economically unfeasible. If this is the case, are we ever going to have any electricity being produced from the Grand Inga? If not, why has the project been included as a confirmed source of energy by the year 2030?
Mr Mileham said it was factually untrue that the Minister could not make Section 34 determinations because of not having an IRP in place. He said that there was an IRP that existed and there were determinations made for it. Why is the Ministry not authorising the municipalities which have the capacity for self-generation?
Minister Mantashe said he was worried that Mr Mileham seemed to demotivate every other technology besides renewable energy resources. Disregarding the other resources would limit options and therefore the potential capacity of energy that could be generated. He reiterated that the main goal was to reduce carbon emissions through the use of cleaner technology – even if that would involve the use of coal.
Minister Mantashe said that SA had as much a responsibility for the African continent as any other African country. Vision 2063 was a plan developed by African leaders. The footprint of the African Continental Free Trade Area (AfCFTA) initiative was also growing. These were some of the work being done to unify the continent.
Minister Mantashe said that economic performance must be prioritised and it should translate into job creation. This would be inclusive of the retraining of workers to ensure that they have the necessary skills to adapt to their jobs. The primary objective of private sector was to generate profit, not to promote social welfare.
Minister Mantashe verified that Komati had reached the end of its lifecycle. He added that the discontinued plants could be recycled and converted to accommodate different forms of generation. These possibilities diversified the scope of the IRP.
Minister Mantashe said that during the budget vote, the Department had set out its ambition of improving its world exploration investment up to 5% of the vote. This would also require the Department to expand its capacity and do more work to increase its revenues, in order to invest more into exploration.
Minister Mantashe said that ESKOM’s failure to comply with the MES could result in the closure of its plants which were not complying.
Minister Mantashe indicated that the DRC government was very much involved in the discussions concerning the Grand Inga Project. It also conducted its own surveys within the country to ascertain the impact of the project on its citizens.
Minister Mantashe said that the DMRE was hoping that the Grand Inga project would yield electricity for SA by 2030. The Department was planning to dedicate specialised teams that would work with teams from other countries to ensure that the project would be accelerated.
Mr Mbele echoed the Minister’s words, saying that the use of cleaner technologies was about reducing carbon emissions, in line with the nationally determined contributions. The technology already existed and the Organisation for Economic Cooperation and Development (OECD), along with commercial banks, had already indicated that they would fund coal technologies - as long as they were in the category of high efficiency and low emissions.
The Chairperson said that the Committee planned to have a meeting with the Department to discuss the Grand Inga, South Sudan and Saudi Arabia matters. The topics would include the evaluation of the investment value for money and the risk areas. The Committee also planned to meet the Department and the Minerals Council of South Africa to try and find ways to address illegal mining.
The Chairperson said that the predominant experience of the African continent was the plundering of resources. A contextual dilemma was SA not sufficiently taking responsibility and playing its role in the development of the continent.
The Chairperson thanked the Minister and Department delegation for the presentation and the responses to comments and questions from Members.
The meeting was adjourned.
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