Lost growth opportunities the big weakness in new energy blueprint

By committing to building more coal plants, the Integrated Resource Plan puts a handbrake on the economy

After 10 years of often acrimonious public debate, five energy ministers and several aborted attempts to update it, the government has managed for the first time since 2010 to finalise and gazette an Integrated Resource Plan (IRP). The plan outlines how the power system will develop from now until 2030. Having a plan for the electricity sector is undoubtedly a good thing, especially now, when the sector is beset not only by crisis (largely of our own making) but also facing two huge global challenges — disruptive technology and climate change — on top of the challenges of security of supply and providing affordable energy.

However, it is not clear that this IRP fully equips SA to either meet the challenges or grasp the opportunities on offer. It is a move in the right direction. With more than a third of current (read old, unreliable and not conforming to air pollution standards) coal plants to be retired and new-build investments weighted towards far cheaper renewables, the contribution of coal power to electricity generation is planned to drop from about 90% now to 60% by 2030.

Without a gazetted plan, no new procurement of generation capacity has taken place since 2015. Finalisation was thus imperative, as Eskom’s ageing coal fleet and disastrous new coal builds continue to undermine growth in the economy.

This is where the good news ends. The plan clearly shows what bad shape the national electricity system is in. Over the next three years, before anything contained in the plan comes onstream, load-shedding remains highly likely, while generation costs will escalate significantly.

These are the ongoing costs of state capture and planning delays. Those who can afford their own generation will be permitted to invest (the plan provides for on-site solar to meet some of the shortfall over the next few years), but this leaves the more vulnerable in our society to contend with the twin challenges of higher costs and loadshedding. Best practice globally in this situation is to aggressively pursue enhanced demand-side options, including energy efficiency, but this does not seem to be a priority in this IRP.

The planning itself is also deficient in several aspects, undermining the quality of the mediumand longer-term decisions. Many commentators will highlight detailed problems with the plan, including poor reporting of the results of the analyses on which the plan is based, the inability to reconcile demand forecasting methods with observed demand trends, insufficient assessment of Eskom plant compliance with the law and retirement; artificial limits placed on investment in renewable energy and gas; extreme reliance on expensive diesel; committed and subsidised new coal; and the unlikely inclusion of the Democratic Republic of Congo’s Inga project.

Some will applaud that the department has acknowledged the inputs of local municipalities and recognised the important role distributed generation is going to play, that new renewable energy is clearly the most economic option, and that investment in new renewable energy capacity has been brought forward and made more annually consistent, which is necessary to encourage higher levels of local manufacturing and assembly, assuming the department actually commences procurement.

But the IRP should address the specific challenges and policy goals of the sector in the context of the broader economy. The main policy goals of the National Development Plan are to tackle poverty and create jobs. The country faces dire economic challenges and at the same time the electricity sector is the largest single source of SA’s greenhouse gas emissions due to its overwhelming dependence on coal. It is also a major source of air and water pollution, which has extremely negative social and economic consequences.

The IRP should be focused on the role of the electricity sector in the context of meeting economic, social and environmental policy goals. It should be kick-starting the economy and creating jobs, minimising inequality and building an inclusive development trajectory. And it should contain relevant indicators to demonstrate how it is accomplishing this. Unfortunately, it does not.

While the 2019 IRP had virtually no freedom to manoeuvre to address any of these concerns over the coming three years, it is concerning that its medium-term focus seems to lie more with the interests of coal capital and labour than with these larger national policy imperatives.

In particular, by apparently choosing a more expensive “policy-adjusted” option that commits the country to building additional coal plants, this IRP puts a handbrake on economic growth and thus job creation — in our modelling we estimate to the extent of several hundred thousand job opportunities by 2030. It is clear that the authors of this IRP are not yet ready to let go of coal and to use SA’s extraordinarily abundant solar and wind resources. The need for a “just transition” is invoked as partial justification in this regard.

A just transition is intended to address the economic risks of transition and shift an economy onto an inclusive, economically viable and environmentally sustainable pathway. To its credit, the IRP calls for coherent policy support to develop a just transition plan.

However, it smacks of hostage-taking that the IRP uses the lack of a just transition plan as the excuse for artificially limiting new renewable energy capacity, which besides being the cheapest option is also the quickest new-build option to get urgently needed new capacity onto the system. These limits are how new coal plants end up in the plan, which comes at a cost to the public: building just half of the planned IRP coal means a subsidy of R23bn compared with building more renewable energy, and will also increase SA’s climate change mitigation challenge.

The longer this lack of a just transition plan is used to constrain new renewables, with the risks that Eskom’s existing plant may not be available at levels optimistically predicted by the IRP, and the added risk that the new coal plants may be delayed or cancelled (there is a high risk that these plants are unbankable), the longer diesel turbines will need to be run at high load, which is the quickest way to burn through the cash transfers received from the Treasury.

Investing in more lower-cost renewables instead of more expensive diesel and coal would free up resources to fund the just transition, addressing the legitimate concerns of workers and communities. Building new renewable energy in the renewable energy development zones, which include areas around the existing coal plants, could enable Mpumalanga to develop a part of the renewable power generation SA needs. This is the core pillar of a just transition plan: new renewable energy infrastructure alongside the development of new economic activities to build our economic competitiveness.

The good intention in the IRP to allow a just transition in the coal-mining areas should not end up becoming a costly subsidy for Saudi Arabian, Japanese and Korean coal companies to build risky and unfinanceable coal plants and (even more costly) ultra-supercritical plants.

All hands are needed on deck to keep the lights on at least cost.

● The authors are with the University of Cape Town’s energy systems research group.