South Africa shows how quick an energy transition can be. In four years, the country’s renewable energy program has mushroomed, while the building of coal power stations and the planning of a $50-$100 billion nuclear power project have come to a grinding halt. Recent events, however, have raised some uncertainty for renewables, writes South African based science writer Leonie Joubert. Article courtesy of the Energy Transition blog.
South Africa’s energy sector is changing so quickly, this publication may well be out of date before the year is out. In four years, the country’s utility-scale renewable energy program has grown to encompass nearly 100 plants at various stages of development. The cost of solar and wind energy has dropped so significantly they are now cheaper than coal power. The country’s two new coal power stations, which should have been completed in 2011, are still not ready to go online. And in the past four months, the political ground has turned to quicksand under plans to build six to eight nuclear power stations.
If anything, this shows how quickly a country’s transition away from mega-infrastructure carbon-intensive energy investment could be.
New-build coal: big, expensive, and behind schedule
In 2007, when construction began on the first of two new coal-fired power stations – Kusile and Medupi in Mpumalanga and Limpopo provinces – the two were designed to add 9.6 GW of electricity to the grid, and were due to come online in 2011. They were expected to cost R69.1 billion (US$ 4.5 billion at current exchange rates) and R80.6 billion (US$ 5.3 billion), respectively.
The cost of solar and wind energy has gone from being uncompetitive with coal to being significantly cheaper
By early 2016, the plants were still not completed. Their anticipated cost has ballooned to double the original price, now figured at R154.2 billion (US$ 10 billion), and R172.2 billion (US$ 11 billion). And their procurement has been dogged with accusations of corruption, which have been widely reported in local media.
SA’s renewables: small, fast, and cheap
In the four years that these two coal stations have overshot their delivery date, the arrival of renewable energy has, quite literally, changed the face of SA’s energy future: almost 2.5 GW of renewables have been added to the grid; R190 billion (US$13 billion) has come in from private investments; and the cost of solar and wind energy has gone from being uncompetitive with coal to being significantly cheaper.
The Department of Energy kicked off the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in 2011. The aim was to bring 3.75 GW of power to the grid through a series of concentrated solar power, photovoltaic (PV), biomass, landfill, wind, or small hydro plants at various locations around the country. But the program had already exceeded that target about two-thirds of the way through the procurement process.
REIPPPP has proved so successful, it has been hailed as a global success. While the construction of Kusile and Medupi runs behind schedule, REIPPP is finalizing the fourth of its anticipated five bidding rounds, and has over 100 projects at various stages of either bidding, contracting, raising finance, being signed off, or under construction. According to the Energy Blog, one of the most comprehensive databases of the REIPPPP projects, by mid-April 2016, some 47 of these plants were fully operational, and their combined energy production added up to nearly 2.5 GW to the grid.
South Africa is the only country on the continent with a nuclear power station, but its ambitions to build another six to eight were put on hold in March 2016
Professor Anton Eberhard, expert in infrastructure and associated policy development at the University of Cape Town’s Graduate School of Business, has said that REIPPPP has contributed to more competitive pricing, transparency in the procurement process, and greater efficiency in project rollout.
On the pricing matter, Eberhard wrote in a May 2014 report that in just two-and-a-half years since the start of REIPPPP, the price of solar PV and wind power dropped dramatically. In normative terms, he said, by 68 percent and 42 percent, respectively.
Nuclear: political quicksand
South Africa is the only country on the continent with a nuclear power station, but its ambitions to build another six to eight were put on hold in March 2016, after the High Court in Cape Town heard that the state had sidestepped its statutory and constitutional obligations around transparency and public participation, as it wrapped up a deal with the Russian government to deliver the reactors.
Recent events have weakened the local currency and raised uncertainty for renewables
The controversial 9.6 GW fleet was expected to cost between R700 billion (nearly US$ 50 billion, at the exchange rate of late April 2016) to R1.4 trillion (approximately US$ 93 billion). This is the immediate cost of building, and excludes the additional cost of decommissioning the plants, handling waste, and interest on loans attached to what would amount to the biggest infrastructure project ever undertaken by this country. The R1.4 trillion, in 2015, was the equivalent to about a third of the current national budget.
Following the court action, initiated by civil society organizations Earthlife Africa and the Southern African Faith Communities’ Environment Institute (SAFCEI), the state announced it had put its nuclear plans on hold.
Price volatility and prospects for renewables
Recent events have weakened the local currency and raised uncertainty for renewables, however. In November 2015, finance minister Nhlanhla Nene was fired unexpectedly, and replaced temporarily by an inexperienced and unknown parliamentarian (it was soon confirmed that the president fired Nene because he opposed the nuclear fleet procurement).
The decision sent the local currency into a spiral, from which it has yet to recover. This currency crash, along with rising interest rates in South Africa, is likely to impact the cost of the next wave of plants planned for the REIPPP process, according to local WWF energy analyst Saliem Fakir.
Fakir explains that “the fourth REIPPP bidding round hasn’t closed, and we haven’t done the calculations yet, so we don’t know for certain what the impacts will be. But it could influence renewable energy prices for the projects built as a result of this bidding round. It won’t stop the renewable rollout, but it could push up the price.”
If so, this could offset some of the gains in terms of cost reduction which were made in the first three bidding rounds, as discussed above.
The energy transition in South Africa is no longer about ideology but about economic forces
Several macro-economic trends are adding to the sudden challenges for renewable prices at the moment: the over-supply of PV panels globally has made this a buyers’ market; the SA government’s level of indebtedness impacts whether the state can stand as surety for private sector finance, as is the case at present (a form of indirect state subsidy but these guarantees are not limited to renewables only, says Fakir); and the strength of the local currency, relative to the Dollar and Euro.
“If foreign firms are buying locally produced services and technology for these plants,” explains Fakir, “then their buying power will improve if the Rand weakens. If local firms are buying, then the reverse applies.”
In conclusion, South Africa’s clean energy transition is moving at rapid speeds driven in large part by highly effective government policy and dramatically falling prices for both wind and solar power. Renewable energies are becoming competitive with fossil fuels; the energy transition in South Africa is thus no longer about ideology but about economic forces. After all, it’s the economy, stupid!
Editor’s Note
Leonie Joubert is a science writer and journalist, and currently works as a fellow with theUniversity of Cape Town’s Environmental Humanities of the South, where she is looking at the political economy of the food system in her country.
This article was first published on The Energy Transition/the German Energiewende, a project of the Heinrich Böll Foundation, and is republished here with permission.
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Bas says
Thanks for the info!
Are Hansen says
Nice to hear that the rest of Africa is not burdened with nuclear power plants. They are SO last century (actually, millennium…), and now will never be build, as they are far too expensive and insecure. Clumsy, clunky steampunk tech
🙂
Schalk Cloete says
Leonie, I’m afraid what you are describing is more of a worrying long-term economic development trend than a clean energy victory. The numbers you provide tell it all: 9.6 GW of coal was supposed to cost $9.8 billion (as it does throughout developing Asia), but because maladministration and corruption in South Africa make large infrastructure projects so inefficient, the country has to turn to small renewables projects where $13 billion of investment may get you about 5 GW of capacity (equivalent to about 2 GW of coal). The up-front cost difference is a factor of 6!
The net result is higher electricity prices which may lead to further instability, making it harder to complete efficient large-scale projects, thus leaving more expensive small scale renewable projects as the only option, continuing the vicious cycle. Furthermore, intermittent renewables currently contribute only about 1% of electricity, so balancing is not yet a problem, but I’m really worried about how Eskom is going to handle fluctuations from 10% and greater wind/solar penetration.
Really, getting a country with so much potential in terms of natural resources, demographics and international goodwill to grow at only 0-1% really is a tragically impressive feat by the current administration. Hopefully, the recent local government election represents a shift in the right direction where large infrastructure projects required for rapid economic development can be completed efficiently.
Mike Parr says
“complete efficient large-scale projects” what does this mean? There is nothing what so ever “efficienct” about coal – circa 60% of the energy goes up the smoke stack/cooling towers. In terms of ability to handle RES penetration – plenty of other countries have high levels (e.g. Europe) – they manage just fine – so will SA – that said it might need to build a few more interconnectors. In case you had not noticed – the planet is heading towards a global; catastrophe wrt global warming – & I sense that you still support more coal stations?
Schalk Cloete says
I meant economic efficiency, not thermodynamic efficiency.
If you are at all familiar with the electricity provision situation in SA, you will know that the fact that Germany is managing higher levels of wind/solar definitely does not imply that SA will manage it. Germany also has the great advantage of being connected to friendly neighbours with low wind/solar penetrations on all sides which it uses to balance about half of its intermittent wind/solar output. SA does not have this benefit.
I support strong climate action in developed countries and rapid economic development in developing countries. My view is clearly outlined in this article: http://www.theenergycollective.com/schalk-cloete/2386729/future-energy-visions-part-2-hydrocarbon-bridge
Bas says
“Germany … connected to friendly neighbours with low wind/solar penetrations on all sides”
That idea doesn’t fit with the figures and becomes more wrong every year now.
The border trade (import+export) of Germany (TWh) compared to wind+solar (% of total production):
year . im+ex . wind+sun
2000 . . 15% . . 1.6%
2005 . . 19% . . 4.6%
2010 . . 16% . . 7.8%
2015 . . 18% . 19.4%
2. Germany’s neighbours:
Denmark generates >40% by wind. So more than twice that of Germany.
Netherlands (NL) is expanding wind+solar fast now since our government got the idea that we should reach the -20% EU target within a few years after the deadline (2020).
Belgium (ahead of NL) has no interconnection with Germany
France decided to decrease nuclear and is expanding wind fast (I drive a few times a year through it and see the wind turbines springing up).
Though developments are more slow at the other border countries, they too are implementing wind+solar.
Schalk Cloete says
Balancing wind/solar through trade is not about total trade, but about the correlation between wind/solar output and trade flows. Take a look at this data: https://www.energy-charts.de/power.htm
Go to the “Power” and “Electricity projection …” tabs and toggle back through the weeks to see the very strong correlation between German wind/solar generation and electricity exports. The correlation becomes even clearer when you isolate the wind/solar output and trade flows by clicking on the appropriate buttons in the left panel.
All neighbours aside from Denmark (which has an electricity market only a bit over 4% the size of Germany’s) have much lower wind/solar penetrations than Germany. They also have mostly wind which is less spatially correlated than solar PV (which will be preferred in SA), making international trade a good balancing mechanism.
Bas says
Same balancing occurred also in the years with little wind+solar as shown in the table.
When electricity is cheap here, buyers from other countries will buy, etc. It’s often cheapest to balance.
But there are many other means to accomplish balancing.
Fernando Olave says
This same thing is happening in Chile – and in the US, and in Europe and pretty much all over the planet. Building new coal-fired power plants is simply unthinkable, and nuclear will just not be necessary anymore – as long as we solve the challenges introduced by the massive coming on stream of PV solar and wind power generation, like the needs of fast, primary and secondary frequency response, drastic base-load ramp ups, etc. Guess what: We already have feasible and competitive solutions for all these challenges , none of which have anything to do with coal or nuclear. Sorry for the bad news, but the truth is, we don’t need coal or nuclear in this planet anymore. Period.
Jeffrey Michel says
Renewable energies in South Africa covered only 2.2% of total energy demand in February 2015, as shown in this pie chart: http://southafrica.opendataforafrica.org/yvjylqf/south-africa-energy-profile. Their contribution to overall energy supplies therefore remains marginal.
The cost of solar and wind energy is “cheaper than coal power” only when the sun is shining and the wind is blowing. Capacity factors and annual additions for these technologies should be quoted to allow their contribution to individual sectors of the economy to be evaluated.
The article points to the threat of a currency crash that would impede all future energy investments. Since renewable energy equipment is comparatively capital-intensive, its deployment will be particularly affected by declining exchange rates. The sooner investments are made, it would therefore seem, the better. However, it could be even more cost-effective to arrange dynamic installment payments for bulk purchasing in the countries with surplus manufacturing capacities.