Published in the Cape Times on 29 March 2011
The Department of Energy’s “Integrated Electricity Resource Plan
2010″ (IRP2010) aims to guarantee security of energy supply, diversify
the country’s energy mix and reduce carbon dioxide emissions over the
next 20 years. After a round of public consultation, the DoE presented a
revised plan to Cabinet, which approved it on 17 March.
The latest publicly available version, a “revised balanced scenario”
(RBS), is based on a string of deeply flawed assumptions and mean the
country is being steered further down an unsustainable path towards
economic contraction, social dislocation and environmental degradation.
This is a critical juncture in our country’s history, where energy
investment decisions can play a pivotal role in the transition to a
sustainable socio-economic system.
The RBS displays a worrying lack of appreciation of the global and
domestic energy and resource contexts, includes problematic economic and
social parameters, and shows a callous disregard for several critical
environmental factors.
To begin with, several assumptions underlying this scenario are
highly problematic in the face of the imminent decline in global oil
production and its probable impacts.
Most obviously, diesel to fuel new - not to mention existing - open
cycle gas turbines (OCGTs) will most likely be prohibitively expensive
by 2020, if not earlier.
More generally, the costs of the build programme are likely to
escalate substantially as oil prices drive inflation and interest rates
higher.
The assumption of 4.6% annual economic growth is highly unrealistic
in the context of continuing oil price shocks and looming supply
constraints.
Deteriorating economic conditions could also jeopardise imports of coal and electric power from neighbouring countries.
Meanwhile, over the coming years our transport system will need to be
progressively weaned off oil and powered by electricity instead.
Replacing our current fleet of over eight million road vehicles with
electrified transport will require several additional gigawatts of power
capacity.
But oil is not the only fossil fuel that is rapidly depleting. Global
and South African coal production cannot keep pace with voraciously
growing appetites from the likes of China and India for much longer.
Research published in the academic journal Energy last year suggests
that world coal energy output could peak this year, sparking a dramatic
rise in prices.
According to several scientific studies published in the past year,
South Africa’s own rate of coal production is very likely to peak this
decade.
Thus whether sourced from home or abroad, the coal needed to feed new
- and possibly old - thermal power stations will become increasingly
expensive and at some point simply unavailable. This flies in the face
of the RBS’s projection that coal costs will decrease from R300 to R200
per tonne.
Other economic parameters contained in the IRP2010 revised scenario
are equally tenuous. For example, assuming the exchange rate will hold
at R7.40/$ is unrealistic in the face of looming oil shocks, which
historically have triggered capital flight and sharp currency
depreciation.
Furthermore, the RBS projections exclude the potentially enormous
costs of decommissioning power plants and of storing and safely
disposing of spent fuel (if that is even possible).
From a social equity perspective, the assumed real discount rate of
8% is much too high, as it effectively writes off the welfare of future
generations. It contrasts starkly with the much lower discount rates
assumed in the Stern Review on the Economics of Climate Change (0.1%)
and our government’s own Long Term Mitigation Scenarios.
We cannot assume that future generations will be wealthier - in fact,
the greater likelihood, given fossil fuel depletion, environmental
degradation and climate change, is that they will be economically poorer
than we are today. Thus consumption by our children will be even more
valuable than it is for us, which should be reflected in a zero (or even
negative) discount rate.
Environmentally, too, the current IRP has major shortcomings.
Water scarcity seems to be totally disregarded, and could impose a tough binding constraint on energy production.
Negative environmental and social externalities - like air and water
pollution and associated health impairment from coal combustion - are
not sufficiently incorporated into the costs. A recent peer-reviewed
academic study calculates that the hidden costs of coal mining and use
in the USA amounts to approximately $345 billion a year - enough to
nearly treble the price of coal-fired electricity.
The rate at which carbon dioxide emissions are reduced in the RBS is
much too slow, and ignoring the carbon content of imported coal is
arbitrary.
And has anyone in the government considered the possible impact of
sea level rise on coastal nuclear power plants, which are supposed to
last at least 40 years? Perhaps the tragic events in Japan will provide a
needed jolt.
Grounding the IRP on these realities has some profound implications.
First, the levelised costs of the various energy sources change
significantly. Taking into account the likely trend of rising coal
prices, as well as incorporating the external costs of coal, means that
coal-fired electricity is no longer a cheap option. Power from OCGTs
will quickly rise off the scale of affordability. And incorporating full
life-cycle costs into nuclear calculations would substantially change
its economic profile.
Meanwhile, economies of scale in the production of solar and wind
technologies will reduce their average costs over time. Thus renewables
are actually much more economically favourable than presented in the
RBS.
Second, there is a major risk of power shortages down the line,
unless the economy contracts substantially. If we remove the new build
options from the RBS that are likely to be unaffordable, unavailable or
undesirable, we are left with a meagre net increase in national power
capacity of just 9 gigawatts by 2030.
Three major strategies should be followed to meet the laudable goals of the IRP.
First, our country needs a much more ambitious energy conservation
and efficiency programme that aims to eliminate wastage of energy,
alleviate bottlenecks in the roll-out of the solar water heater
programme, and provide simple and cheap solar cookers - especially to
low-income households.
Second, several critical institutional reforms must be accelerated.
The renewable energy feed-in-tariff (REFIT) must be implemented urgently
so that small and large-scale independent power producers have the
certainty needed to undertake investments. Electricity distribution must
be extricated from Eskom’s monopoly power. And residential consumers
and small businesses should no longer subsidise multinational mining
companies who pay discount rates for bulk electricity.
Third, government must lead a massive, crash programme of investment
to scale up local renewable energy production capacity. As in a war-time
mobilisation - for that is the urgency we face - car factories should
be retooled and workers retrained to manufacture solar photovoltaic
panels, concentrated solar plants and wind turbines. This will boost
local employment and incomes and reduce reliance on imported energy and
equipment.
The so-called Integrated Resource Plan lacks an integrated vision of
the present and future based on a realistic assessment of resource
availability and the waste-absorption capacity of the environment.
We are at a critical turning point in the history of our country and
indeed our species: either we make a successful transition to a
sustainable socio-economic regime, or we face a painful disintegration
of our partially industrialised civilisation.
Energy is the paramount resource sustaining any complex society, so
let us choose our energy path wisely to ensure a peaceful and prosperous
future for ourselves and our children.
