South Africa’s energy future, embodied in the new Integrated Resource Plan ( IRP2) , is being fast-tracked at breakneck speed with the first round of responses due this Sunday.
A draft document goes out for public comment next month and the new law is to be gazetted in September. The process, which is dominated by Eskom and heavy users of electricity, has this Sunday May 23 as the cut-off point for the draft parameters needed to create the models that will form the basis of the IRP2.
The IRP2, which will map out the country’s 20-year energy plan, is being developed by the department of energy — a department that, as numerous experts inside and outside government have stated, is short on expertise and capacity. The process is largely driven by state utility Eskom.
In briefings to reporters, Eskom has indicated that little role is envisaged for large-scale private projects to help meet the country’s growing energy needs. Private producers are envisaged to produce only 450 megawatts (MW) of power in terms of the IRP2.
Participants in the process have doubts about key assumptions, including that Eskom will bring its giant new coal-fired power plants, Medupi and Kusile, on stream on schedule and that a plan to roll out one million solar water heaters will bring about massive energy savings.
Eskom has had almost no success to date with its solar water heater programme and, although government has inaugurated the roll-out, it has yet to release details of how the programme will work and how it will be funded.
While observers have been keen to see projects such as the Botswana-based 1 200MW Mmamabula project included in the country’s energy plans — because it is at a relatively advanced stage of planning and because it can help reduce the risk of electricity shortfalls — insiders say it is not included in the IRP2.
There is also concern that although the IRP2 includes renewable energies for the first time and there is a queue of providers keen to contribute, regulatory uncertainty remains and the mooted targets are relatively unambitious. A major area of concern is that the country’s heavy dependence on coal could see its exports taxed in the near future as concern over global warming increases globally.
An input document to the IRP2 process notes that the treasury has suggested carbon taxes to be imposed locally. This could be as soon as next year with an eff ective tax rate of 40% of 2009 electricity prices. In the meantime the country is facing an energy crunch and decisions will have to be made urgently.
At an address given to the South African National Energy Association, Kannan Lakmeeharan, managing director of system operations and planning at Eskom, pointed to six key decisions to be made by the end of 2010.
The decisions that will have an impact during the period for 2010 to 2013 are: ensuring the demand side management programme (DSM) works; enabling critical power purchase agreements; and enabling the power conservation programme for large users.
From 2014 to 2017, when Kusile comes on line, a decision needs to be made on pursuing import options as a back up — should Kusile be delayed, which looks likely. For 2018 to 2020 decisions need to be made on whether more imports should be pursued to add to capacity, or whether new plants, such as gas or coal, should be built — either by Eskom or independent power providers.
Finally from 2021 onwards a longterm base-load option needs to be decided on as well as the possibility of extending the life of the existing, but ageing, coal fleet. For a more competitive and sustainable energy market Eskom’s monopoly needs to end and independent power producers need to be able to enter the market.
To create this ‘enabling environment” a number of issues need to be addressed, Lakmeeharan said, such as that of a defi nitive energy policy and integrated resource plan. Ideally, he noted, this means a 20-year IRP ‘with clear options for independent power producers identified” aligned to the greater country plan — such as Vision 2025 at present being drafted by the National Planning Commission.
Further issues include questions on the cost recovery mechanism, government guarantees, the tariff path, the regulatory environment and the problem of having Eskom as the single buyer of electricity. Each issue is rife with its own challenges.
When it comes to government guarantees, for instance, Eskom as a whole has guarantees of R176-billion. But independent power producers will not want to, or will not be able to, enter into contracts with a company, the financial health of which is in serious dispute.
Guarantees will have to be offered for power purchase agreements signed with large proposed independent power producer projects. Government must decide where this money will come from. When it comes to independent power producers, six projects have been identified.
According to Lakmeeharan, two contracts need to be signed-off by Nersa, two are with the independent power producers for final review and negotiations are under way in the remaining two. These projects were aimed at addressing the immediate power crisis and some observers have argued that they are simply self-generation projects for large business and should have happened years ago.
There is no real movement towards large independent power producer contracts with non-Eskom producers of base-load capacity. Perhaps the most hotly debated element of the new IRP2 is the future for renewables.
Government has set a target of 10 000 gigawatt hours for renewable generation by 2013 — or 4% of projected demand. The renewable feed-in tariff s have been set by the National Energy Regulator of South Africa.
But it still needs to publish the draft version of a power purchase agreement for this sector, as well as the selection criteria for renewable projects. But, most importantly, the department of energy, through the IRP2, needs to determine the capacity allocation for each technology — thus setting the renewable targets the country can or should be achieving.
Renewables were once much more expensive than coal-fired power stations. But South Africa will have to factor in the cost of carbon dioxide emissions.
Whether these costs come in the form of carbon taxes or more indirectly through border taxes, these external costs have the potential to increase tariff s at a detrimental rate.