/ 11 April 2022

Why gas-fired power will be a ‘costly mistake’ for South Africa

South African Renewable Energy At Gouda Wind Facility
There are environment-friendly interventions that will ensure that South Africa will have sufficient renewable power supply domestically as well as for export. (Dwayne Senior/Bloomberg via Getty Images)

South Africa is potentially on the verge of a gas investment flurry that could prove to be a “very expensive mistake” for its people, a recent report has found.

Developing an extensive gas-to-power sector from scratch would involve significant investment in both gas-supply infrastructure and power plants, the International Institute for Sustainable Development (IISD), an independent think tank, argued in its report.

It cited how, just to introduce the first 3 000 megawatts of gas capacity and gas supply by 2030, will cost at least R47-billion, which could be “functionally squeezed” out by cheaper, low-carbon alternatives.

Revolutions in renewable, battery-storage costs 

Its report says there “used to be a rational” view that fossil gas would be necessary either during a transition to low-carbon energy or as part of the long-term energy mix for electricity production, but cuts in renewable-energy costs and then in battery-storage costs have upended this outlook. 

Renewable energy, particularly wind and solar, is now “easily the cheapest source of bulk supply, while battery storage is increasingly considered the most affordable, and widely deployable, new-build peaking technology”, the report said. 

Modelling of the electricity system shows that gas supply “is not technically necessary until at least 2035, if ever”, it added. 

Foot off the gas

Many of the strong indications that South Africa is on the verge of a gas investment rush “come from economically and politically powerful gas interests, including interests inside [the] government”, according to the report.

The IISD argued that the government should hold off on developing a gas-to-power sector and instead focus on significantly increasing renewables and storage capacity to address power-system problems. 

Its research found that wind and solar farms are 57% cheaper than gas plants for bulk electricity supply, and that battery storage is 30% cheaper than gas to cover peak power demand.

“South Africa should focus on low-risk, future-proof strategies to end load-shedding and curb electricity price hikes. The short-term focus must, therefore, be centred on a rapid addition of least-cost renewable capacity, coupled with storage and increasing energy efficiency.” 

To solve load-shedding as quickly as possible, and to build the foundation of an optimal, low-cost future energy mix, the government should significantly ramp up its investments in solar, wind, storage and technologies that integrate renewables into the grid, said Richard Halsey, a policy adviser at the IISD and co-author of the report. 

“Since renewables contribute only a small part of the electricity mix, a combination of existing pumped storage, liquid-fuel generators, grid-integration methods, and the remaining coal fleet can provide the balancing function for at least the next 13 years,” he said.

Gas risks

In recent years, either the risks associated with gas have increased, or the understanding of existing risks has increased, according to the IISD. “Consequently, South Africa, may see significant negative outcomes from developing a large gas-to-power system now. 

“The trend toward decarbonisation, coupled with cost reductions for renewable energy and storage, creates risks for gas investment. Investment in gas can reasonably be expected to lead to higher costs for consumers, just-transition challenges for workers, and losses for investors.” 

Given the methane emissions across the value chain, gas power could be as detrimental to the climate as coal. “Choosing gas-to-power over lower-carbon alternatives will make it harder to meet international climate change commitments and reach net zero by 2050,” according to the report.

The IISD said a decision on a future requirement for gas should be revisited in about 2030, based on available technologies and costs at that time. “In the meantime, a moratorium should be placed on the development of the gas-to-power sector.” 

Stranded assets

Countries should slash oil and gas use by 60% and 70%, respectively, by 2050 to keep within the Paris Agreement targets, according to the Intergovernmental Panel on Climate latest report from the Intergovernmental Panel on Climate Change (IPCC) on avoiding and reducing emissions.

It said the combined global discounted value of the unburned fossil fuels and stranded fossil-fuel infrastructure has been projected to be about “$1-trillion to $4-trillion from 2015 to 2050 to limit global warming to [about] 2⁰C and it will be higher if global warming is limited to [about] 1.5⁰C”. 

“In this context, coal assets are projected to be at risk of being stranded before 2030, while oil and gas assets are projected to be more at risk of being stranded toward mid-century. A low-emission energy-sector transition is projected to reduce international trade in fossil fuels.”

Unit cost reductions in key technologies, notably wind power, solar power and storage, have “increased the economic attractiveness of low-emission energy-sector transitions through 2030”, the IPCC report said, noting that electricity systems powered largely by renewables are becoming increasingly viable.

“Electricity systems in some countries and regions are already predominantly powered by renewables. It will be more challenging to supply the entire energy system with renewable energy. Even though operational, technological, economic, regulatory and social challenges remain, a variety of systemic solutions to accommodate large shares of renewables in the energy system have emerged,” the IPCC report stated.

“A broad portfolio of options, such as integrating systems, coupling sectors, energy storage, smart grids, demand-side management, sustainable biofuels, electrolytic hydrogen and derivatives and others will ultimately be needed to accommodate large shares of renewables in energy systems.”