Integrated Resource Plan
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Integrated Resource Plan

The Minister of Energy Jeff Radebe recently published the much anticipated draft Integrated Resource Plan 2018 (IRP).
The IRP is now open for comments from the public for a period of 60 days, closing on 26 October 2018.

The IRP document forms the basis for electricity infrastructure development in South Africa (SA), which in turn, is a critical component that underpins economic activity and growth in the country. Further, energy infrastructure is viewed as one of the core elements of the National Development Plan (NDP). The NDP serves as the long-term plan for the country aimed at reducing inequality, eliminating poverty and achieving a decent standard of living for all South Africans.

The historic timeline of the IRP is as follows:

  • March 2011- The original IRP was promulgated.
  • November 2013 – First draft of an updated IRP was issued but nothing was officially implemented.
  • October 2016 – Draft IRP 2016 was released for public comment.
  • March 2017 – Comments on Draft IRP 2016 closed, but the document was never finalised.
  • 27 August 2018 – Draft IRP 2018 released for public comment with final submissions closing on 26 October 2018.

Why the update?
The original IRP served as the blueprint for the development of additional electricity capacity aimed at meeting the needs of the country over a 20-year planning horizon between 2010 and 2030. At the time the IRP was promulgated, the intention was that it will be a living plan, that would need to be revised at least every two years, however, this has not been the case.

The IRP’s purpose is to balance a number of objectives, including ensuring security of supply, minimising the cost of electricity, reducing negative environmental impact and lowering water usage. The requirements to balance these factors have not changed, however, a number of other key assumptions have changed since the original IRP was promulgated. Key assumptions that have changed include the electricity demand growth which was lower than originally expected levels, weaker than expected performance by existing Eskom plants, additional electricity generation capacity procured since 2011, along with significant declines in specific technology costs.

For example, actual net electricity output for the country declined at -0.6% per annum between 2010 and 2016, compared to an expected annual growth rate in output of 3% per annum. This resulted in the actual electricity output during 2016 being c.18% lower than the 2016 energy output expected in the original IRP. Further, 18 000MW of new generation capacity had been committed to between 2010 and 2016, with c.8 100MW of this capacity having been commissioned to date.

How was the IRP updated?
The point of departure for the IRP 2018 update was the development of a least-cost supply model taking into account security of supply and environmental factors. This model was tested through a number of scenarios taking into account different variables such as energy prices, technology costs and pace of new capacity roll-out. Finally, the least-cost model was balanced with policy considerations such as the potential impact on jobs (i.e. in the coal mining and transport sectors), multi-lateral agreements etc.

Key take-outs
The IRP 2018 was updated for the period up to 2050, but this was broken down into two separate periods namely, “period ending 2030” and “period post 2030”.

The main policy adjustments to the least-cost model proposed in the updated IRP are as follows:

  • Annual build limits to be retained for renewable energy technologies (1 000MW per annum for Solar PV and 1 600MW per annum for wind) until 2030. This allows for a smooth continued roll-out of renewable energy generation capacity aimed at sustaining the industry, once the bid window four projects which have recently been signed are implemented;
  • An additional 1 000MW of coal generation capacity to be added, based on the two independent power producer (IPP) projects already announced (Thabametsi in Limpopo and Khanyisa in Mpumalanga). This is aimed at minimising job losses resulting from the planned decommissioning of Eskom coal plants; and
  • The introduction of 2 500MW of hydro power, which forms part of the South Africa-DRC treaty on the Inga Hydro Power Project. The treaty is aimed at unlocking potential regional industrialisation.

Key take-outs for the period ending 2030 were as follows:

  • The committed additional capacity (under renewable energy including recent bid window four contracts and Eskom capacity rollout including the final unit of Kusile in 2022) is sufficient to meet projected demand growth and to offset any Eskom plants being decommissioned up to 2025;
  • The projected installed energy mix as at 2030 between the least-cost scenario and the policy-adjusted scenario will not differ materially; and
  • The scenario excluding any build-limits on renewable energy provides the least-cost option by 2030, however, imposing build limits on renewable energy, as mentioned above, will not impact the energy mix materially by 2030.

The proposed new generation capacity and generation mix for the period ending 2030 is presented below:

Corneleo Keevy

Source: Integrated Resource Plan 2018

Despite some deviations from the least-cost model, the policy adjusted plan will result in a 5% increase in tariffs compared to the least-cost model by 2030.

For the period post 2030, it was noted that a scenario without annual renewable energy build limits remained the least-cost option. It was also noted that the cost implications and final energy mix scenarios for this period differ materially based on which variables are used. Therefore, the updated IRP recommends that the “post 2030” period not be confirmed as yet, but that continued detailed studies be undertaken. This will allow flexibility within the IRP to adapt to new technologies or changing economic variables as they arrive.

Further outcomes from the review of the IRP 2018 were as follows:

  • The pace and scale of the roll-out of new generation capacity up to 2030 (including renewable energy) is to be curtailed given the current projected demand and generation levels; and
  • Ministerial determinations for procurement of renewable energy generation capacity beyond bid window four (27 recently signed projects) must be reviewed and revised in line with the new projected energy demand projections presented in the IRP 2018.

Conclusion

There were a number of positive factors which formed part of the IRP 2018 review. Firstly, the utilisation of a least-cost model approach is welcomed as the previous update published in October 2016 was widely criticised for abandoning this principle.

Secondly, the updated IRP provides policy certainty for IPPs, both in the renewable energy and coal sectors. Previously awarded contracts, such as the 27 renewable energy projects from bid window four and the two coal IPPs have been included in the generation mix. Through these inclusions, the Department of Energy has honoured its commitments previously made to the private sector in terms of the construction and development of IPPs. This will go a long way in restoring the loss of investor confidence in the industry following the delay in signing of the bid window four renewable energy contracts.

Finally, the Department of Energy has acknowledged that ongoing procurement of renewable energy, in addition to the recently signed bid window four projects, is required to ensure a sustainable domestic industry especially with regards to capital investment and ongoing skills transfer. The curtailed procurement levels of 1 000MW of solar PV and 1 600MW of wind power per annum, should provide sufficient incentive for renewable energy project sponsors to remain invested in the SA market and support strong sustainable skills development related to renewable energy.