19 October 2010 – Electricity supply, seemingly until a week ago, was a mostly simple matter. Eskom burned coal and we got power. But no more. The government has, in recent days, released the draft Integrated Resource Plan 20 10 (IRP20 10), which sets out a new future for electricity in the country.

Once Eskom’s current build, Medupi and Kusile (assuming the treasury and Eskom finally agree on the funding for Kusile), is complete, we will not build any more coal-fired power stations until 20 27. Coal will be out, while renewables, mainly wind but also solar, and nuclear, will be in. There will be a new focus on energy efficiency, making what we have go further.

The IRP20 10, which sets out an electricity plan for the next 20 years, is a vision of a different regime from the one in current use, but getting there will be another matter entirely. For one thing the key implementing agency, the department of energy, lacks capacity.

 It has, for instance, had to outsource the development of the IRP to Eskom and a technical team of representatives of large energy users. For another, while the IRP may be a 20-year plan, we are already in crisis — a document released with the IRP warned that the country faces rolling blackouts over the next five years if immediate steps are not taken to bring non-Eskom power on to the grid.

Not that there is a shortage of parties who want to sell power. In particular, vendors want to supply green power to the grid in terms of the renewable energy feed-in (Refit) tariff scheme, which aims to bring 1 000MW of renewable energy online. The tariff has been agreed on and money has been set aside in terms of the National Energy Regulator of South Africa’s (Nersa’s) latest price determination.

The vendors, attracted by generous tariffs, would be queuing up, but it is not clear where they should queue or, to be more precise, who the buyer is and where they feed in their power. The treasury, the department and Eskom are in discussions to solve the issue. Kershia Singh, the treasury’s spokesperson, says that a procurement process, led by the department, is under way.

"A request for information was published and the procurement documents, which will include a draft power purchasing agreement (PPA), will be issued by year-end."

The medium-term risk mitigation strategy, which warns of the five years of rolling blackouts, lists six "binding constraints", which need to be resolved as soon as possible.

These include setting equitable rules and costs of energy transport over the grid, ring-fencing and making energy transport tariffs transparent, appointing a single buyer and agreeing on commercial evaluation criteria, standardising the PPA with fair contractual risk allocation, simplifying grid access requirements for small generators and formalising government decisions on non-Eskom generation and demand-side incentives.

These issues are challenging enough, but are intended to be interim, while the electricity landscape is redesigned to set up an independent system operator which both buys electricity from independent producers and sells it to large users. This means dramatic changes to the current legal structure in which Eskom controls all.

Government insiders and private sector outsiders, citing international experience, say these reforms could take 10 years to implement. The IRP20 10 targets see efficiency gains of up to 35% in the coming years as electricity becomes more expensive and policy encourages wiser use. But critics say that while the target is desirable it is too ambitious.

One issue is that the structure the energy department is putting in place to manage the rollout of one million solar water heaters is seen as being too bureaucratic and cumbersome. Solar water heating is seen as the low-hanging fruit in reducing electrical demand, being relatively cheap and easy to implement. The widespread adoption of these heaters could save 3 000MW, the equivalent of a large power station.

The department wants to roll out 200 000 units by March next year and one million by 20 14, but the proposed system will have the installer financing the solar units and then claiming in terms of savings made to the department. But Eskom has said that, since the installer carries the cost for the unit and installation, there are just a few companies in the country financially strong enough to be able to offer this service.

Coal will be scaled back from its current 90% to just 48% in terms of the IRP20 10, the difference being made up by power from renewables and nuclear. But the government is struggling to finalise the funding of Kusile. Nuclear plants typically have longer lead times than coal and higher costs. Critics say that the guidelines set by the IRP20 10 for new nuclear are not achievable based on recent international experience.

Supporters of renewable energy have generally welcomed the emphasis on green power, but some see the target of 16% of total as being too small. Others think that the IRP20 10 wants too much wind power and too little solar. Other concerns raised by experts include that the plan is weak on regional development. For instance, it ignores the possible contribution of the Mmamabula project in Botswana, notwithstanding inter-governmental agreements to the contrary.

It is also seen to be relying too heavily on imported fuels, while the diesel-operated peaker plants are costly to run and unnecessary. There is a debate about energy intensity and competitive beneficiation. One analyst says that the new IRP represents a break with the apartheid past when we coupled cheap power with mineral riches to export commodities at giveaway prices.

The government has recently begun to question the energy intensity of the economy. But the ANC decided at its recent national general council in Durban to promote beneficiation, a process closely associated with energy intensity. We beneficiate imported bauxite into aluminium, which consumes vast amounts of electricity.

This can be thought of as beneficiating low-grade coal and may have made sense in the era of cheap and plentiful power. But now that we face blackouts and have to dig deep into our pockets to pay trillions of rands for new power, policy will have to ensure we do not sell ourselves short. Source: Mail & Guardian Online