September 4, 2018 Read More →

Opinion: South Africa’s coal-heavy draft IRP is misguided

Business Day:

The minister of energy, Jeff Radebe, published a draft of [South Africa’s] long-awaited new Integrated Resource Plan (IRP) for the power sector last week. Most observers are relieved that the draft does not include expensive nuclear power being forced into a “policy adjusted” plan with potentially disastrous financial and other consequences for SA, as was standard with the drafts produced during the Zuma years.

While we should indeed be relieved that some sanity has prevailed in the process, this is not the benchmark against which the IRP should be measured. The test is how it fares in meeting the enormous challenges we face in the electricity sector today.

The sector is bankrupt. Long delays and cost overruns in Eskom’s coal-fired power station build programme have resulted in big price increases, consequent reductions in demand and ultimately in Eskom’s liquidity and funding crisis.

And, in a perfect storm, the sector is experiencing a fundamental technological disruption, with lower cost and smaller-scale renewable energy and related technologies that are already eating into Eskom’s market share. Many experts now agree that Eskom’s coal-based business model is not viable and will require large bailouts into the future.

The draft plan, however, does not burden the reader with these unpleasant realities, which, if recognised, would have resulted in a different outcome. It assumes a continued coal power station build programme and the operation of the older coal stations for the remainder of their full 50-year lives. The result is that the plan has to assume Eskom will be able to recover these soaring costs by raising tariffs a further 39% in real terms by 2021.

These numbers simply do not stack up. The plan is not viable — something will have to give.

More: Energy plan’s drafters are stuck in a coal hole and have just kept digging

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