Commodities, Emerging Markets, Energy

Solving South Africa’s Energy Crisis

By Steve Hedden

South Africa Power CrisisSustained power cuts, caused by under-investment and a shortage of generating capacity, have damaged the South African economy. The response has been a belated thrust towards more power supply, from a combination of coal-fired power plants, oil and gas, wind and solar, and potentially a fleet of new nuclear power stations.

Fixing South Africa’s energy crisis is not just about generating more electricity, however. More focus is also needed on the transmission and distribution of electricity.

A smarter, more flexible grid would give South Africa a much better return on its energy investments, and make renewables a more significant part of the energy mix. It doesn’t make sense to invest heavily in generation capacity without also rethinking transmission and distribution. To date, however, the key element of how energy moves from generation to consumption has mostly been overlooked.

The Integrated Resource Plan for Electricity 2010–2030 (IRP), adopted in March 2011, did not address the grid at all – though an update in November 2013 includes the impact of the IRP on transmission and the need for new transmission corridors. Grid planning can’t be an afterthought. It has to be built into the planning process from the start.

Planning the grid was much easier when a few big power stations provided energy mostly to a few big cities, with one organisation responsible for the entire system. In South Africa’s case, it was Eskom producing electricity at coal-fired power plants in Mpumalanga, the largest nett supplier, and delivering most of it to the economic heartland of Gauteng, the largest nett consumer.

The source of power is shifting. By 2040, the expansion of Limpopo’s coal-fired plants will make it the largest nett supplier, while new renewable and gas capacity will make the three Cape provinces nett producers of electricity.

Planners must also now consider the addition of independent power producers (IPPs) to the energy mix and small-scale residential generation as citizens, increasingly frustrated by load-shedding and rising electricity prices, start to install their own rooftop solar systems. Further, much of this new capacity is in the form of wind and solar power, which is inherently intermittent.

Electricity generation is thus becoming decentralised, and the line between consumer and producer is beginning to blur. At the same time, the electricity sector is moving away from a monopolistic model. New players are taking on roles and responsibilities historically controlled by Eskom, which is made more complex given the growing number of IPPs.

The contribution of small-scale residential generation is being delayed by an absence of clear policies and regulation. Generation from solar panels could account for 30 GW capacity in South Africa by 2050.

The forecast in the 2013 IRP assumes an average residential installation size of 5 kilowatts (kW). This means the 30 GW of energy in 2050 would come from six million citizens.

Instead of a small number of power stations owned and operated by one utility, South Africa may have millions of producers, each with unique production and consumption patterns, buying and selling electricity at changing prices through the day. Without clear policies, only those wealthy enough to install their own capacity will benefit from this power.

Lack of integrated planning could also constrain the integration of IPPs. South Africa’s planned IPPs could contribute as much as 20 GW of capacity. That is nearly 45% of South Africa’s power-generating capacity from all sources in 2013. Eskom has already connected 32 projects totalling 1.6 GW, but it could become increasingly difficult and expensive to integrate IPPs.

Grid planners will struggle to connect IPPs to the grid if energy planning continues along the same lines of the 2010 IRP and the 2013 update, without planning for the impact of decentralised capacity from the beginning. Part of the problem is that the IRP is written by the Department of Energy while grid planning is done by Eskom.

A more intelligent grid would be the result of investments not just in grid efficiency, but also better electricity planning, operations and policies. This would require government and all players in the electricity sector to anticipate, rather than react, to future models of power generation.

Energy planning must include assumptions about changing capacity, with flexibility to adapt, and clear policies to unlock the potential of small-scale residential power generation.

Incorporating grid planning into energy planning allows IPPs to be integrated more rapidly, and reduces potential delays between the construction of generating capacity and transmission lines. A more flexible grid, and more flexible capacity, would complement rather than hinder intermittent renewable energy.

A more intelligent grid would include policies and regulations to encourage private renewable energy production, with citizens installing their own generation capacity and selling their surplus back into the grid.

None of this is possible however, without a clear plan for the electricity sector as a whole.

Courtesy of World Economic Forum


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