/ 17 August 2016

Renewable energy makes financial and environmental sense, and is a threat to Eskom

Solar power in De Aar.
Solar power in De Aar.


Recent comments by Brian Molefe, Eskom’s chief executive, might lead an impartial person to wonder whether there is an orchestrated effort to undermine renewable energy deployment in South Africa.

If there is, it would not be surprising that the power utility leads the charge, trying to resist the development of more efficient and independent competitors. The same has happened in every country around the world where decision-makers and members of the public have decided, based on sound science and economics, to dismantle the outdated state-controlled electricity generation model in favour of a more cost-effective, transparent and efficient model that includes less dependency on fossil fuels.

Our system is particularly backward. Eskom, while making a R40-billion profit a year, is the sole buyer of wholesale electricity. But it is also a generator, “selling” power to itself alongside other independent power producers (IPPs). What kind of a normal market is that? What on earth would encourage Eskom to buy power from its competitors when it makes a profit from generating power itself?

In 2011, the IPP programme was reluctantly accepted by Eskom because it could not produce enough power to meet demand. It had no argument against an alternative. While the IPPs built a new fleet of power stations in record time at dazzlingly low prices, Eskom raised its prices to pay for its over-budget power stations, contributing to a decline in economic activity by large energy users, which subsequently reduced energy demand.

Now that the demand constraint is gone (partially thanks to Eskom for retarding our economic growth), the utility is back at the pulpit demonising the renewable sector to regain its turf.

The National Energy Regulator of South Africa is meant to regulate Eskom and prevent conflicts of interest, but Nersa’s ability to do so is constrained by meagre budgets and political pressure on its members.

The mix of our power supply should not be controlled by an entity that stands to benefit from a particular outcome. It should be modelled in the interests of the ultimate funders: the consumers. South Africa already has that modelling process – it’s called theIntegrated Resource Plan (IRP). After considerable public participation, the energy mix is calculated based on a computer model that simulates the best value for money in achieving security of supply at the lowest cost, both financial and environmental.

Environmental costs

The environmental costs of coal-generated power are directly related to increased health costs from air pollution in big coal areas (ask the residents of Sekunda) and the effects of global warming, leading to more extreme weather patterns, have a direct effect on agriculture and water supply (ask every farmer in South Africa).

The World Health Organisation reported in 2008 that more than one million people had their lives shortened by coal mining and burning activities each year. Over the past 200 years, the 10 warmest have all occurred in the past 18 years.

The calculations of the costs of the electricity, measured as an incremental cost per kilowatt hour kWh of coal produced energy, range from 25c to 92c per kWh, which, conservatively, costs South Africa R50-billion a year.

But we needn’t debate whether the excessive use of fossil fuels is bad for South Africa – that has already been accepted, which is why President Jacob Zuma announced the country’s voluntary participation in the reduction of greenhouse gas emissions as part of the United Nations Framework Convention on Climate Change’s Kyoto protocol in 2011. When applied to electricity, and balanced against our constraints as a developing country, that commitment results in the limitation of carbon dioxide emissions to 275-million tonnes of carbon dioxide a year after 2024 (IRP 2010). As a country, we are contractually and morally bound to reduce the amount of carbon dioxide we produce, and that reduction is very much in the interests of ourselves and our children.

Even with the success of our renewable energy programme to date, more than 80% of South Africa’s energy is still sourced from coal or other fossil fuels. South Africa is on a par with China as one of the worst countries in terms of emissions per unit of gross domestic product.

Financial costs

The simulator used in the IRP modelling process tries to find a balance of technologies that leads to the lowest cost per kWh for the consumer, given the imposed environmental constraints but still meeting the demand requirements. It is for this reason that, in 2010, 18 gigawatts (GW) of renewable energy was earmarked for procurement by 2030.

Although electricity demand forecasts are now lower than what was modelled in 2010, the actual cost of solar and wind power is also dramatically lower than what was modelled at that time. The model, when updated with a new demand forecast in 2013, still resulted in 18GW of renewable energy, although solar photovoltaic (PV) and concentrated solar power (CSP) allocations were increased.

The outcome of such a model is the only scientifically robust way to determine the optimal mix of energy for our country. The updated IRP draft proposal, which has not yet been promulgated, recommended to “continue with the current renewable bid programme, with additional annual rounds (of 1 000MW PV capacity, 1 000MW wind capacity and 200MW CSP capacity), with the potential for hydro at competitive rates”.

An updated IRP is meant to be adopted every two years but it has not been done since 2010. Why? Because the objective outcome of the model does not favour big build programmes and nuclear energy. The IRP is the responsibility of the department of energy and it is now more important than ever that it be finalised.

Reliability vs variability

Detractors often argue than renewable energy offers no value to a grid system because it is intermittent and not flexible enough to provide energy when it is needed.

What they fail to clarify is that no energy source, except for perhaps very large-scale hydro power, which South Africa does not have, has the ability to be cheap and completely flexible.

To have on-demand energy, for instance, from an open-cycle gas turbine requires you to pay eight times more for a kWh than you would for a kWh of solar energy. All grid systems are made up of a combination of cheap inflexible power and more expensive flexible power, and system operators have a merit order to determine which sources are deployed first to optimise the cost of a kWh at any time.

What renewables lack in flexibility they make up for in pricing certainty. Solar and wind plants are able to commit contractually to fixed energy costs for 20 years. The same is not possible for fossil fuels because their price cannot be fixed by more than a few years. Can anyone say with any reliability what the price of oil, gas or coal might be next month, let alone 20 years from now, or how it might vary between now and then?

It is not because green activists are lobbying economically ignorant governments to adopt cleaner solutions that renewable energy is experiencing global exponential growth. It’s growing because it makes technical, financial and environmental sense. Many people have spent significant efforts in establishing and contributing to what is regarded internationally as a highly successful renewable programme in South Africa – and as a country we should be proud that we are leading the way globally.

We should also be proud that in just five years our renewables have created more than 20 000 new jobs, have saved us more than R3.5-billion in offset diesel and coal costs and have displaced more than five million tonnes of carbon dioxide. Perhaps the detractors should bear this in mind.

Dr Chris Haw is cofounder and director of Aurora Power Group, a 100% South African-owned group of companies operating in the IPP and embedded solar PV industry. Aurora was a founding member of the South African Photovoltaic Industry Association