Traditional model of electricity supply in South Africa is in crisis

Should the latest annual price increase application of 25.3% be granted, electricity prices are likely to be a whopping 250% higher – on average – compared to 2008. This is illustrated below.
Figure 1: Eskom price increases since 2008

At the same time, average prices of large-scale photovoltaic (PV) generation have been on a downward trend since 2011, when the Department of Energy (DoE) launched the RE Independent Power Producer Procurement Programme (REIPPPP). In 2013 (Round 3) average prices in the REIPPPP were 68% lower than in 2011 (Round 1). See below for more information.
Figure 2: PV independent power producer (IPP) prices since 2011

During this time, the availability of coal-fired plant has deteriorated, resulting in increased usage of expensive diesel-powered open-cycle gas turbines (OCGTs), and renewed episodes of load-shedding towards end-2014 and early-2015. However, according to the CSIR, the PV and wind plants that became operational in 2014 have played their part in reducing these negative effects, resulting in a net saving of R800million to the economy in their first year of operations.
As the infographic below indicates, PV and wind generation have resulted in savings amounting to R3.7bn due to a reduction in the consumption of coal and diesel. In addition, reduced load-shedding has resulted in savings to the economy of R1.6bn. The total savings, amounting to R5.3bn, have come at a cost of R4.5bn in purchases of electricity from PV and wind renewable energy independent power producers (IPPs) – hence the net saving of R800million.
Figure 3: Financial and economic benefits of PV and wind in 2014 (Source: CSIR)

Says Moeketsi Thobela, CEO of SAPVIA, “It’s clear the traditional model of electricity supply in South Africa is in crisis. So let’s accept it as such, and not waste the opportunity it represents”.
According to SAPVIA, prevailing circumstances present opportunities to take bold and ground-breaking steps that include:

  • Expediting the announcement of Round 4 preferred bidders and commencement of Round 5 – accompanied by increasing the capacity (MW) procured. Given the amount of generating capacity from PV, wind, CSP and other renewable energy technologies that is available in the short-term, this is a logical step;
  • An annual roll-out of at least 2000MW per annum over the next five years, spread across three market segments, namely: large-scale (REIPPPP), mid-scale (5-50MW) and embedded PV (residential, commercial and industrial);
  • Recognising that the problems in the electricity sector are now deeply structural in nature. Annual price increases can be escalated to 100%, and the problems will remain. A key structural change that is urgently required is the creation of an independent transmission function, which will be mandated to facilitate the rapid expansion of the grid and connection of new generation capacity. This will include the coordination of transmission capacity expansion by private sector participants where required;
  • The expedited introduction of natural gas-fired generation plants in the coastal areas of South Africa. A large-scale roll-out of PV and other renewable energy technologies, in conjunction with a portfolio of modular and operationally flexible natural gas-fired generating plants, will result in the most cost-effective, sustainable and prudent electricity mix for South Africa;
  • Recognising that due to their flexibility, PV generating plants are able to “follow the grid”, and can thus be located in areas that do not have grid constraints;
  • Recognising that the ability to deploy PV generating plants across the three market segments mentioned herein provides the greatest scope for employment and economic development initiatives.

While it may seem obvious, it is worth highlighting that uncertainty in the roll-out of the REIPPPP is not only costly to investors, but also to the economy – in the form of reduced manufacturing activity and resulting job losses. This effect is being compounded by steep electricity price increases.

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