It’s important to note that nuclear cost is dependent on the options available to economic decision-makers, writes Matshela Koko.
December 2016 will mark five years since South Africa unveiled Bid Window 1 of the renewable energy programme. Since then, a total of 6 300 megawatts (MW) of renewable energy has been procured through the REIPPP programme.
Out of that amount, 2 500MW has been installed and is in commercial operation. This programme has placed South Africa as one of the global leaders in the renewable energy sector. Going forward, and if managed properly, our country will be well on its way to decarbonise the electricity supply sector, but at what cost.
Analysts often refer to the cost benefit review of the renewable energy programme as published in August 2015 by Dr Tobias Bischof-Niemz, Crescent Mushwana and Joanne Calitz of the Council of Scientific and Industrial Research (CSIR).
Eskom agrees that renewables had a net economic benefit of R3.97 billion for the first six months in 2015. This benefit was attained in a constrained energy environment where there was unserved energy that resulted in load curtailment.
For this first six months of 2015, the total financial benefits amounted to R8.27bn. From this figure, renewable energy tariff cost R4.30bn, which resulted in a net economic benefit of R3.97bn.
Turned around
Eskom has since turned around its operational performance and no longer operates in a constrained energy environment. As a result of this improvement in performance, renewable Independent Power Producers (IPPs) have not had a similar economic impact as they did last year. In 2016, using the same methodology as above, the total financial benefits amounted to R1.2bn. From this figure, renewable energy tariff cost R5.47bn which, this time, resulted in a net economic loss of R4.27bn.
It is expected that the renewable IPPs’ economic cost, under Bid Window 1 to 3.5, will continue to rise in an unconstrained energy environment.
This situation therefore demands us to engage a different thought process on how to fund historical Bid Windows instead of unfairly passing costs through to the consumer.
It must be highlighted that Bid Windows 1 to 3.5 have resulted in exorbitant tariffs which will continue for the next 20 years.
Eskom must, as a result, buy 7 210 gigawatt hours (GW/h) at a cost of R 15.5bn for the 2016/17 financial year from renewable IPPs, at an average unit cost of 214c/kW/h.
In return, Eskom can only sell at an average price of 83c/kW/h (including transmission and distribution). What makes this situation even more untenable is the fact that electricity from the said IPPs is available mainly when Eskom has sufficient capacity to meet demand.
The issues raised above have nothing to do with generation technologies that will be deployed in future. In fact, it makes sense to strengthen renewable technologies going forward, given that they have reached grid parity.
The scale of renewables is, however, a matter that should be covered in the Integrated Resource Plan (IRP), which is currently under review. The good work by Bischof-Niemz and Mushwana is always quoted, but often out of context. It is often erroneously suggested that their work conclusively demonstrated that wind, solar and gas are substitutes for coal and nuclear.
Bischof-Niemz and Mushwana purely undertook a “thought experiment on building a new power system from scratch”. In their paper, they modelled a 30 gigawatt (GW) energy mix that would supply 8GW of base load capacity to meet an annual demand of 70 terawatt hours.
Of the 30GW installed capacity, 8GW was made up of a flexible generation option, for example gas, biogas, pumped hydro and concentrated solar power. They concluded that this energy mix would come at a blended cost of 100c/kW/h based on wind, solar and flexible generation cost of 69c, 87c and 200c/kW/h respectively.
In order to simulate the current conditions of the country, they scaled up their model to 120GW in order to supply South Africa’s 40GW peak demand. The 120GW consisted of wind, solar and flexible power at 65, 25, and 35GW respectively. This translated to 261 terawatt hours consisting of 70 percent wind, 16 percent solar and 14 percent flexible power. The energy mix model does not include coal and nuclear.
In reality, the practical implementation of this thought experiment is 20 to 30 years away. In fact, system stability cannot be guaranteed under their suggested energy mix. In the short term Bischof-Niemz and Mushwana envisage using Eskom peaking stations, coal fleet and gas IPPs as the flexible generation to support renewables. In their publication, they have included research questions which suggest additional analysis is required.
Irrational
It is therefore irrational for some thought leaders to conclude that coal and nuclear should be excluded from the future energy mix based on a thought experiment. The model is, however, useful in stimulating debate and highlighting areas that require further research.
A possible catalyst to a solution is the conclusion of the IRP, based on realistic and proven technologies that guarantee grid stability. It therefore makes no sense to increase renewable energy IPPs until the conclusion of the revised IRP, which is based on accurate costs. The nuclear industry cost data is the only cost currently outstanding.
It is important to note that nuclear cost is dependent on the options available to economic decision-makers and on a range of factors subject to considerable future uncertainty.
This therefore means that building a new plant in Finland, China, United Arab Emirates, US, UK or anywhere else in the world will not cost the same.
* Matshela Koko is Eskom’s group executive for generation.
* The views expressed here do not necessarily reflect those of Independent Media.
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