The new IRP for electricity, and the future of coal in the electricity generation mix of SA

May 30th, 2018, Published in Articles: EE Publishers, Articles: Energize

A keynote presentation by Chris Yelland, managing director and investigative editor at EE Publishers, at the workshop on Air Quality, Emissions and the Low Carbon Economy hosted by the Fossil Fuel Foundation (FFF) in Johannesburg on 30 May 2018.

On 16 May 2018, I made a keynote presentation at the annual conference of the National Nuclear Regulator (NNR) of South Africa [1], which covered a similar topic to my presentation here today. In dealing with the IRP and the energy mix, it focused more on issues pertaining to the nuclear sector audience, while also covering coal, gas and renewable energy as part of the electricity generation mix for South Africa in the years ahead.

However, in view of the topic of today’s workshop on Air Quality, Emissions and the Low Carbon Economy, this presentation will focus more on the burning of coal for power generation, and the role of coal within the technology mix of the Integrated Resource Plan (IRP) for electricity in the years ahead to 2050.

The history of “black gold”

From the earliest days of the Brakpan and Vereeniging power stations, and through the years of growth and expansion of electricity supply to the current fleet of Eskom power stations, coal has formed the mainstay of primary energy for electricity generation [2], accounting for some 85% of electricity used in South Africa today.

The techno-economic paradigm of coal-fired power relied upon exploiting economies of scale, and power stations were always increasing in size, with higher steam temperatures and pressures, and therefore also greater complexity, to become the mega coal-fired Eskom power stations we see today [3], which are among the biggest in the world.

Since the early days of electricity in South Africa, when there was little or no consideration given to the environmental consequences, carbon emissions and health impacts from mining, transportation and burning of coal, “black gold” enabled South Africa to generate the cheapest electricity in the world.

Families, communities and towns formed around the mines and the powers stations, and we owe more than just a debt of gratitude to the miners and workers, both skilled and unskilled, and their families and communities, for the role they played in the economic development of South Africa, and the convenience and comforts that electricity has brought us. But all of that is history.

Where we are now

Today, even taking into account their long plant lifetimes and high load factors, the levelised cost of electricity from new coal [3, 4] and new nuclear power [5], which takes into account the full capital costs, fuel costs and all fixed and variable operating and maintenance costs over the economic lifetime of the plant, are among the most expensive technologies per kWh of electricity delivered.

In addition, the negative environmental, climate change and health impacts resulting from the burning of coal for electricity generation are becoming increasingly evident and important.

At both a technical and economic level, we can now look to a blend of distributed wind, solar PV, gas and energy storage capacity to provide clean, reliable, dispatchable, flexible, baseload generation capacity at least cost [6].

There is no longer any trade-off needed between the requirement for least-cost on the one hand, and providing clean, reliable power that enables carbon reduction targets to be met with low water use and high job creation, on the other. This was not the case a decade ago.

As Eskom notes in its IRP 2017 study for the Department of Energy (DoE) [7]: “The combination of gas (through gas engines and turbines) and renewable energy provides a suitable replacement for traditional baseload generation”.

The decisions required in the new IRP for the electricity mix of the future, will be based on current and future technology costs and demand projections, and not on the past. Our decisions need to be forward thinking and not backward looking.

But, in so doing, we cannot ignore or neglect the fate of the people and the communities that will be displaced by technology shifts in electricity generation, as we move to better, lower-cost alternatives. Fortunately, the energy transition that is required is not an event, but a process that will span several decades.

So, there is plenty of time to plan, fund and execute a just energy transition. Regional renewable energy development zones, or REDZ, can be located appropriately and strategically where needed most, to maximize socio-economic development.

Training, upskilling and a transition to new, cleaner, healthier, quality jobs in the green economy can easily be managed over a period of decades if we put our minds to this.

This will not only provide replacement jobs but will provide much more jobs than the steadily declining job numbers in coal mining, due to mechanisation and automation.

The real issues that the coal sector needs to face

The reality of course is that the coal mining industry is in decline, not just in South Africa, but around the world, and in my view, this is both desirable and irreversible.

The coal majors, with their big market shares, do not see growth prospects or much of a future in coal mining. They understand that the decline is going to accelerate, due to reputational considerations and the increasing environmental pressures from governments, shareholders, civil society and the business and financial communities.

Global institutional investors and pension funds, who historically were agnostic around fossil-fuel investments, are increasingly becoming sustainable investment activists, and are placing pressure on the companies in which they invest to demonstrate plans to transition away from dirty coal mining, coal-fired power generation and other high carbon emission activities.

Anglo, BHP Billiton, South 32, Exxaro and Glencore have seen the writing on the wall for thermal coal for power generation around the world and are already withdrawing and diversifying away from thermal coal.

In the meantime, there is a lot of noise out there, a lot of misinformation and propaganda, with a plethora of different political and ideological agendas – from efforts to preserve jobs in the coal sector, to the pursuit of self-serving commercial and business interests, and the opportunistic scrambling for new business prospects within the changing energy environment.

However, there is a need to cut through all of this noise to identify the real needs and issues facing electricity generation and delivery in South Africa that must be addressed going forward. Issues such as:

  • The need to decarbonise the economy and transition to a clean energy future.
  • The need for safe, clean, healthy, quality jobs, and high job creation.
  • The need for generation technologies that enable South Africa to meet its international carbon emission reduction commitments to mitigate climate change.
  • The need for low water-use generation technologies.
  • The need to minimise ground, water and air pollution, and meet South Africa’s environmental compliance regulations.
  • The need to reduce the negative health impacts and premature deaths resulting from the mining, transportation and burning of coal.
  • The need to be able to access both public and private sector funding, and the need for private sector funding to relieve the fiscus of this burden.
  • The need for short power plant construction times to provide construction flexibility to meet uncertain demand for grid electricity.
  • The need for multiple smaller, simpler projects, with different technologies and a variety of suppliers to mitigate risk.
  • The need for cost and construction time certainty, without cost and time overruns.
  • The need for flexible generation capacity (such as gas-to-power and energy storage) to meet demand peaks and to complement and provide back-up to low-cost variable generation (wind, solar PV).
  • The need for a least-cost electricity price trajectory while meeting the socio-economic and policy imperatives of government.
  • The need for investment in generation assets that are future-proof in respect of becoming stranded assets because of increasingly stringent climate-change policy implementation.

These needs contrast sharply with the reality of large, coal-fired, power projects in an uncertain world where there are disruptive technologies emerging, and where grid electricity demand in the years ahead is highly unpredictable. The realities of coal-fired power include:

  • Large, expensive, centralised, complex mega-projects.
  • Long and inflexible construction programmes.
  • High financial and operational risks, with the real threat and possibility of stranded assets.
  • Low job-creation, with high water use, high CO2 emissions, high levels of ground, water and air pollution, and high negative health impacts.
  • Unclear business model(s) for funding the development of large new coal mines in SA, as well as to extend and expand existing coal mines.
  • Long power plant construction times, with high cost and time overruns (e.g. Medupi and Kusile).
  • High upfront capital cost before the first kWh is produced (i.e. high overnight cost + high interest during construction)
  • Financing and funding difficulties – including public sector, private sector and development finance institution (DFI) funding.
  • Operational inflexibility and a need to run at high load factors at full load to achieve financial viability and recover the high capex and finance costs, and to lower the levelised cost of electricity generated.
  • Long technology commitment in an uncertain world with disruptive technologies emerging (wind, solar PV, energy storage, electric vehicles, distributed generation, micro grid, smart grid)
  • Political interference and corruption prevalent with mega-projects where there are national security of supply considerations, with a lack of procurement transparency.

The need for a transition away from the overdependence of coal in the electricity mix

Most of Eskom’s coal-fired power stations are not environmentally compliant with South Africa’s mandatory minimum emission standards [9], and only operate through temporary postponements of compliance granted by the Department of Environmental Affairs (DEA) in applying the country’s laws and regulations to Eskom. In addition, at least six Eskom coal-fired power stations are past or close to their end-of-life.

Eskom said at its last media briefing it would require some R400-billion to extend the life of its old coal-fired power stations, and to ensure its coal fleet is environmentally compliant in meeting South Africa’s air pollution regulations. Eskom made it quite clear that it simply cannot afford this cost.

In addition, Eskom acknowledged that South Africa cannot meet its international carbon emission reduction commitments unless the utility moves to decommission its old, end-of-life coal-fired power plants, and shift its energy mix away from coal. Government has to decide if takes its international climate change and carbon emission reduction commitments seriously.

Eskom’s old coal-fired power plants, and the coal mines that feed them, are dirty, thirsty, inefficient, unhealthy, non-compliant killers, and just one pollutant – PM2.5 – causes some 2200 premature deaths per annum, and about R30-billion per year in costs associated with the health impacts of burning coal at Eskom power stations alone [10].

Eskom makes a big thing in its annual financial reports of its safety concerns in respect of about ten deaths per year within Eskom. But the utility is publicly quite silent about the pollution, acid mine drainage, health impacts and premature deaths resulting from the coal mining operations that feed its coal-fired power plants, as well as the transportation and burning of coal at its power plants.

If it were non-compliant nuclear power causing 2200 premature deaths a year, there would be a local and international outcry, and the National Nuclear Regulator would shut down the affected reactors immediately. But not so with coal.

In short, my view is that the status quo at Eskom is financially and environmentally unsustainable.

In order to clean up its act and meet the country’s environmental regulations and international carbon emission reduction commitments, I believe there needs to be a phased, just transition away from the old, non-compliant, coal-fired power plants, to cleaner technologies, with no new coal power added to the mix going forward, both by Eskom and by new coal IPPs [16].

The status of the planned new coal IPPs – Thabametsi and Khanyisa

South Africa’s coal IPP procurement programme was launched in 2014, based on new coal capacity envisaged in IRP 2010.

However, since 2010, the electricity sector, and the assumptions on which IRP 2010 was based, have undergone significant changes, in particular changes in the costs of competing supply technologies and fuels, coupled with a decline in demand compared to the increasing demand assumptions of IRP 2010.

An important new research report [16] by the Energy Research Centre (ERC), University of Cape Town, shows that Thabametsi and Khanyisa would cost South Africa an additional R19,68-billion compared to a least-cost energy system.

The new report further shows that the two coal IPPs are not needed to meet South Africa’s medium-term electricity demand, and where future capacity is needed, this is met more cheaply by other electricity sources, such as wind, solar, and flexible gas generation.

The study shows that the two new coal IPP plants would also increase greenhouse gas (GHG) emissions by 205,7 Mt CO2eq over the 30-year period of the power purchase agreements, and negate most of government’s emission mitigation plans, including the expected savings of the entire Energy Efficiency Strategy to 2050.

Furthermore, if the coal IPPs were to operate at the capacities authorised by their environmental authorisations (Thabametsi 1200 MW, Khanyisa 600 MW), the above costs and impacts would increase proportionally, and would be roughly doubled.

The two new coal IPPs would further impact South Africa’s commitments under the Paris Agreement, raising the costs of mitigation dramatically, and requiring significant GHG emission cuts elsewhere in the electricity and other sectors.

Under the coal IPP programme, preferred bidder status has been awarded to Thabametsi and Khanyisa, and the plants are required to commence operating by December 2021. However numerous required licenses and authorisations are still outstanding and/or are currently being challenged in the High Court, and neither project has reached financial close yet.

Former energy minister Mmamoloko Kubayi advised in 2017 that Thabametsi and Khanyisa were on hold pending the finalisation of the new IRP for electricity, after which a full review of the coal IPP procurement programme would be conducted.

Proposed new amendments to the rules on atmospheric emissions in South Africa

On Friday last week, in terms of the Air Quality Act (Act No. 39 of 2004), the Department of Environmental Affairs (DEA) published a notice in the Government Gazette [11] announcing its intention to set new rules on compliance with the minimum emission standards relating (amongst others) to the burning of coal in coal-fired power plants.

The proposed draft amendments are open for public comment for 30 days (until 25 June 2018), and are hugely relevant and significant to Eskom’s fleet of coal-fired power plants, as well as to this Workshop on Air Quality, Emissions and the Low Carbon Economy.

My understanding of the proposed new regulations is as follows:

Firstly, for all existing coal-fired power plants – including Medupi and Kusile – Eskom will no longer be able to apply to postpose compliance with the EXISTING minimum air pollution standards. These standards apply from 1 April 2020.

Thus, all Eskom power plants that have already obtained a five-year postponement MUST comply with the EXISTING air pollution standards by 1 April 2020, some ten years after the DEA announced the minimum emission standards in March 2010 following a multi-stakeholder consultation process of some five years.

Furthermore, only one five-year postponement (until latest 31 March 2025) of the stricter NEW air pollution standards, which come into effect on 1 April 2020, may be granted by the DEA upon successful application for such postponement by 31 March 2019. There are however stringent conditions for a successful application in this regard, the details of which are provided by the legislation.

However, if Eskom intends to decommission a non-compliant coal-fired power plant by 2030, and provides a clear decommissioning schedule for this, Eskom may apply (by no later than 31 March 2019) for a once off “suspension of compliance” with the NEW air pollution standards until decommissioning (no later than 2030).

But even if such application for “suspension of compliance” until decommissioning by 2030 succeeds, Eskom must in the meantime comply with the EXISTING air pollution standards from 1 April 2020 until decommissioning by 2030.

All this indicates that the noose around the neck of Eskom’s aging and environmentally unsustainable fleet of coal-fired power stations is being systematically tightened, and that Eskom is being given a strong signal to significantly clean up its act by 2025, or to decommission its non-compliant coal-fired power plants by 2030.

In my view, Eskom’s intended strategy of rolling postponements – i.e. re-applying for postponements of compliance with the minimum emission standards every five years until eventual decommissioning – will not fly.

The right energy mix for South Africa

The big question of course is: What is the optimal electricity mix for South Africa in terms of its new-build requirement to meet the uncertain demand for grid electricity in the years to 2050?

A challenge, however, is that in this uncertain world we do not really have a clue about the future demand for grid electricity in South Africa, and the planning must take this uncertainty into account.

But there are some things that we do know for sure about South Africa’s current energy mix, namely:

  • There is too much inflexible, baseload power in the mix at present.
  • There is far too much (about 85%) coal-fired power in the mix at present.
  • The renewable energy (wind and solar) in the mix is very low at present, and the grid can easily accommodate much higher levels of renewable energy penetration [12], [13].
  • There is not enough flexible generation capacity, with virtually no gas-to-power in the mix at present.
  • The diesel driven open-cycle gas turbines in the mix at present need to be converted to gas fuel.
  • In this environment, the big elephant in the room is whether any NEW Eskom and IPP coal-fired power is really appropriate for the energy mix of South Africa going forward [16].
  • The last modelling work done by Eskom for the DoE for the new IRP for electricity
  • The last modelling work by Eskom for the DoE for the new IRP for electricity was done in November 2017 [7, 8].

After modelling numerous scenarios, in this final work Eskom focusses on five broad scenario options, referred to in their study as: The Reference scenario; the Optimum scenario; the Low Growth scenario; the Carbon Budget scenario; and the Forced Nuclear scenario.

In four of the above scenarios the amount of PV and wind capacity that may be constructed for the full period to 2050 is artificially (i.e. politically) constrained at an unexplained and arbitrary level of 1000 MW and 1800 MW per annum respectively. Only in these renewable energy constrained scenarios does new coal appear in the generation mix in the years to 2050, and then only after 2030.

However, if these artificial annual constraints on renewable energy are removed (as is the case in the Optimum scenario), or even relaxed to more realistic and rational levels after 2030, no new coal power would appear at all in any of the scenarios modelled to 2050.

The new IRP for electricity

The optimal electricity mix for South Africa in the years ahead is still to be determined by the long-awaited new IRP for electricity.

An IRP for electricity should be a rational, mechanistic, techno-economic planning process that determines the optimal mix of generation technologies and capacities, at least cost to the economy, necessary to meet the projected demand for electricity in the years ahead, with adequate security of supply, while also meeting government policy and socio-economic requirements and constraints.

Such constraints may include: meeting carbon emission reduction commitments; meeting applicable environmental laws and regulations; minimisation of water usage; maximisation of job creation; etc.

In an uncertain world where electricity demand cannot be accurately predicted in the years ahead, and where disruptive new technologies are emerging, the IRP is also about enabling flexible planning decisions of least regret.

In my view, the new IRP is likely to mirror and reflect the work done by Eskom [7], CSIR [6], National Planning Commission [14 ], University of Cape Town Energy Research Centre [15, 16], and other international studies, but with some politically-motivated “policy adjustment” by government.

All the above work by the technocrats has shown that there is no longer any conflict between the requirement for least cost on the one hand, and on the other hand meeting carbon emission reduction commitments, maximising job creation and minimising water usage.

As such, I would expect that the new generation technologies and capacities proposed in the IRP for the years ahead to 2050 will be dominated by a blend of distributed wind, solar PV and flexible gas-to-power capacity, with little or no new coal or nuclear power.

One further comment on my side is that an IRP for electricity that does not model and take into account very significant growth of “behind the meter”, self-dispatched, embedded solar PV and energy storage systems in domestic, commercial and industrial installations in the years to 2050, as well as the expected growth in electric vehicles to 2050, is probably not worth the paper it is written on.

We now await the new IRP for electricity, which according to the Department of Energy is currently being reworked by the new administration following the earlier “Zupta” years and is expected to be approved by the Cabinet in mid-August 2018 after further public consultation.

References

[1] C Yelland: “Thoughts on the optimal electricity-generation mix for South Africa”, EE Publishers, May 2018.

[2] A Morgan: “A symphony or power: the Eskom story, November 2000.

[3] Dr G Steyn: Presentation given at EE Publishers’ open public debate on the restructuring of Eskom, May 2018.

[4] C Yelland: “Understanding the cost of electricity from Medupi, Kusile and IPPs”, EE Publishers, July 2016.

[5] C Yelland: “The cost of electricity from a new-nuclear build in SA under various assumptions”, EE Publishers, August 2016.

[6] CSIR Energy Centre: “Integrated Resource Plan IRP2016 Update – assumptions, base case and observations”, April 2017.

[7] Eskom: “IRP 2017 study report for Department of Energy”, November 2017.

[8] C Yelland: “Eskom’s latest work on the IRP for the DoE rejects nuclear”, EE Publishers, November 2017.

[9] Prof. EK Cairncross: “Status of compliance with Minimum Emission Standards“, a presentation to Parliaments Portfolio Committee on Environmental Affairs, February 2018.

[10] Dr Mike Holland: “Health impacts of coal-fired power plants in South Africa”, March 2017.

[11] Notice No. 516 announcing intention by Department of Environmental Affairs to amend the list of activities which result in atmospheric emissions – Government Gazette, 25 May 2018.

[12]M Pöller: “Discussion of potential limits to variable renewable energy installations“, a GIZ discussion document prepared for IRP 2016 Update, Moeller & Poeller Engineering (MPE), February 2017.

[13] M Obert and M Pöller: “Assessing the impact of increasing shares of variable generation on system operations in South Africa“, a GIZ flexibility study prepared for Eskom and the Department of Energy, Moeller & Poeller Engineering (MPE), September 2017.

[14] National Planning Commission (NPC): “National Planning Commission Discussion Paper on Energy” , January 2018.

[15] “The developing energy landscape in South Africa“, a technical report by Energy Research Centre (ERC), University of Cape Town, October 2017.

[16] G Ireland and J Burton: “An assessment of new coal plants in South Africa’s electricity future”, Energy Research Centre, University of Cape Town, May 2018.

Send your comments to energize@ee.co.za