The price of solar and wind energy has dropped so dramatically in South Africa (SA), it is now almost half the cost of coal electricity. So why is government’s new energy plan biased towards expensive nuclear plants, and leaving renewable sources as an afterthought? asks Leonie Joubert. If RE industrialisation doesn’t take off in SA, it will be slow across the rest of the subcontinent.
This is a defining year for South Africa. In 2017, the government will decide how many nuclear, gas, and renewable energy plants it will add to its already coal-dominated grid. But the current plan – the 2016 Integrated Resource Plan (IRP 2016) – which is out for public comment now and will be finalised later this year, is biased towards nuclear because it was drawn up based on modelling that used out-of-date information on the cost of renewables.
This is the view coming from energy experts, including the Minister of Energy’s own advisory panel (the Ministerial Advisory Council on Energy, or MACE), and the Council for Scientific and Industrial Research (CSIR).
When the Department of Energy (DoE) drew up the draft energy plan, it selected an energy scenario that was based on a modelling process which used the cost of solar PV and wind energy from 2014, when the price per kilowatt hour of this technology was about equal that of coal electricity.
Since 2014, the price of these renewables has dropped globally, owing to increased manufacturing efficiency, economies of scale, technology improvements, and growing competitiveness.
Now, solar PV and wind in SA are almost half the price of coal power.
A CSIR report shows that in April 2014, solar PV cost R3.29 a kilowatt hour (kWh) and wind was R1.36 per kWh. Now, however, the price of both these technologies is R0.62 per kWh. Today, coal comes in at R1.03 per kWh in today’s terms. (These figures need to be adjusted to be comparable with today’s coal electricity prices by accounting for inflation and the CPI-index, and deducting the cost of carbon emissions, explains the CSIR’s Dr Tobias Bischof-Niemz.)
The minister’s advisers and the CSIR have shown through their own modelling that when today’s solar PV and wind energy prices are fed into the model, instead of 2014’s prices, there is no need to invest in building new nuclear stations.
Because the current plan sidelines renewables, it means the renewable energy industries won’t grow quickly in SA, which will stall similar industrialisation across Southern Africa.
The national utility skews the policy
There’s a circular logic in why the DoE is ignoring today’s cheaper solar PV and wind energy technologies, these advisers explain. It’s partly to do with bureaucratic holdups at the national utility, Eskom, which have distorted the energy mix in the draft IRP towards costly nuclear.
In 2011, the DoE started a process of commissioning a series of nearly 100 new renewable power plants – mostly concentrated solar power, PV, and wind, but also biomass, landfill, and small hydro plants – to be build and run by private energy firms. This is called REIPPP, the Renewable Energy Independent Power Producer Procurement programme.
The rollout is happening in five phases, or ‘bid windows’: Rounds 1, 2, 3, 4, and 4.5 (or “four-extended”). Half of the total number of plants, mostly from the first two phases, are already built and operational, and construction is underway on most of the phase-three plants. But new plants under Rounds 4 and 4.5 are on hold, because of Eskom.
Here’s why: after the energy department has approved a plant, Eskom must sign a contract with each firm, in which they agree to the price that the national utility will pay for the resulting electricity over the next two decades that the plant is operational. These power purchase agreements (PPAs) have been concluded on all the Rounds 1, 2, and 3 plants. But Eskom has delayed signing the PPAs for the Rounds 4 and 4.5 plants for almost two years now, meaning construction can’t begin. Some of the firms involved are threatened with massive financial losses as a result.
The draft energy policy, which is being finalised this year, is based on modelling using costs from 2014, the Round 3 contract prices. But the Round 4 contracts are based on the dramatically lower prices which reflect today’s cost of solar and wind energy. But because the PPA contracts haven’t been finalised by Eskom’s upper management, the DoE says it can’t use those figures in the draft IRP.
Here’s the circular logic: Eskom is delaying signing the PPAs on the next two phases of the REIPPP programme, and therefore the DoE maintains that it can’t include these new, cheaper prices in the IRP. The model therefore is biased towards coal and nuclear, and renewables get sidelined.
There’s a large campaign happening in SA now to try and force Eskom to sign the agreements and free up this bottleneck which stalls the construction of the final REIPPP plants, which in turn determines whether or not our draft energy policy gets corrected.
If this faulty pricing assumption isn’t adjusted in the final IRP which Cabinet will be asked to approve late this year, the country will be locked into a development trajectory that will be costly and high-carbon, in a changing geo-political climate where global markets are calling for low-carbon economies and penalising those that break rank with this trend. Future generations of South Africans will be saddled with paying off cripplingly costly nuclear mega-projects and RE industrialisation will be stalled across Southern Africa.
What happens at a policy level in South Africa in 2017 will cast a shadow across the entire region’s social and economic landscape for decades to come.
Leonie Joubert is a science writer and journalist based in Cape Town, South Africa. Her work focuses on climate change, energy policy, urban food security, and giving communications support to various academic and civil society organisations.