‘Risk is in planning too little energy’

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While the draft Integrated Resource Plan (IRP) released at the beginning of this month suggested that South Africa might run the risk of overbuilding its energy capacity, industry commentators say there is a greater risk in not building fixed capacity.

The draft IRP reduced the 2030 energy demand outlook to between 345 and 416 terawatt hours (TWh) from 454 TWh initially forecast in 2010.

The reduction in consumption by energy-intensive industries was a major contributor to falling demand projections. The assumption is that these industries will have dramatically reduced the electricity intensity of the economy by 2030.

The new demand outlook suggests that peak demand will be 6 600 megawatts lower than the initial projections.

The Department of Energy has now said some capacity building plans would have to be revised. It suggested that instead of building fixed capacity, a more flexible approach should be adopted. There were prospects for more gas to be added into the mix as finds are made in the region.

The fact that the initial IRP based the demand outlook on a scenario of 5.4 percent annual economic growth, as envisioned by the National Development Plan, creates a strong possibility that the new demand outlook could fall further because growth this year is expected to be around 2 percent.

Cornelis Van der Waal, an electricity analyst at Frost & Sullivan, said yesterday that while the original IRP carried a significant risk of creating overcapacity, South Africa needed to complete the building plans it had put in place and must not deviate from them.

“Yes, the plan based on a 5.4 percent growth scenario is not realistic, taking into consideration that we are coming from the 2008 economic recession,” Van der Waal said.

“But things could turn around and we could experience higher economic growth. The problem with energy projects is that they take [a long time] to complete.”

He said that if South Africa wanted to pause the building of any new fixed capacity, it should look at building contingency capacity in other countries. It could do this by signing agreements with its neighbours that allowed it to buy gas and hydro power when its reserve margins became tight.

Mike Schüssler, the chief economist at Economists.co.za, said heavy industries had put energy-intensive projects on hold, which was part of the reason demand had stagnated.

He said if there was not enough capacity in future, the country ran the risk of losing out on those investments.

“Overcapitalising a bit is not the problem. We must be careful not to undercapitalise… Beneficiating our minerals, as our industrialisation policy envisages, is going to require more energy.”

Schüssler said government policies were not in accord. The latest IRP draft contrasted with the Industrial Policy Action Plan, which suggested new electricity generating capacity would be needed.

The draft IRP suggested that a decision on nuclear power should be delayed and that Eskom’s Coal 3 project should not be pursued as a mega-scale facility but as a number of smaller plants, each with capacity of between 1 000MW and 1 500MW. It suggested that regional and domestic gas options be pursued and shale exploration be stepped up.

It also suggested the renewable energy bid programme should have additional rounds of 1 000MW for photovoltaic capacity, 1 000MW for wind capacity and 200MW for concentrated solar power capacity.

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