Tag Archives: ERC

Why the hurry with nuclear power?

BusinessDay, Energy Research Centre, UCT, 12 December, 2017.

The economic benefits of a nuclear fleet are no better than a flexible build plan, even in a future where we assumed nuclear is cheap


Energy Minister David Mahlobo reportedly wants to finalise quickly the latest iteration of our electricity plan in support of new nuclear power. The minister claims that “there’s no discussion about the need, the need is there” for nuclear power.

Yet research that we have undertaken at the Energy Research Centre supports neither a need for, nor benefits of, forcing a large nuclear fleet into our electricity system.

Modelling of all available electricity generation options continues to show that nuclear power is not the least-cost solution. Nor does the country have the ability to finance the investments required for a 9.6GW fleet of large reactors. SA currently faces an excess of capacity and will not need this power in the short to medium term.

The latest modelling shows nuclear only coming into the mix around 2040. This is a finding consistent with earlier work the centre undertook for the National Planning Commission in 2013. Current research together with economic modellers also suggests a wait-and-see approach. The rush to complete the Integrated Resource Plan (IRP) and increase the share of nuclear is suboptimal for the electricity system and for the South African economy. There is no urgency about the decision around nuclear.

When would we need nuclear power? Nuclear plants take 10 years to build and will run for decades after, but it is virtually impossible to predict demand half a century into the future. Electricity demand projections have consistently been higher than actual growth, when evaluated ex post. Smaller nuclear reactors could in future track demand more closely than those being considered for the fleet.

In the past few years, electricity demand has flattened and is even declining. The global financial crisis reduced economic demand, which is a key driver assumed in modelling electricity demand. The period of load-shedding that followed in SA further kept electricity demand low. So SA has time to carefully consider future investment needs as no new generation is needed before the late 2020s.

Does SA “need” nuclear when it is not the lowest-cost option for the country? Good policy should be informed by sound evidence. Here’s an explanation on how we cost nuclear power, in research terms.

Much of the public debate centres on “overnight capital costs”, which are the costs of construction, excluding inflation or interest. There are divergent figures on the “overnight costs” of nuclear, dependent on certain assumptions, technology choices and country of construction.

The IRP 2013 used a range of about $5,000/kW–$7,000/kW. This range was found to be consistent with literature for the types of plants SA would be considering, and was used in studies by the centre on nuclear power and bounding uncertainty, including those on costs. A more recent review by three research groups of overnight costs suggests that the upper range could be as high as $8,500/kW.

The “overnight cost” is not a very good basis for comparing the costs of electricity plant since it excludes other key components — fuel and operating costs, aggregate availability, lifetime, interest during construction, borrowing rates, system integration aspects and risk. Another measure of cost is the “levelised cost of energy”. This cost is expressed in cents per kWh, and takes into account the overnight costs and the other aspects listed above except for the system integration aspects. Risk is taken into account to a certain extent through the discount rate, but this does not fully account for the risk of over-build.

In SA, renewable energy prices have fallen rapidly, echoing global cost reduction trends. Actual average tariffs from solar photovoltaic (PV) and wind electricity generation decreased from R3.65/kWh and R1.51/kWh in 2011 respectively to R0.62/kWh in 2015, making it cheaper than electricity produced from a new-build coal-fired power plant (R1.03/kWh) as well as nuclear (R1.09/kWh), the latter figures being those published by the Department of Energy in 2016.

The measure of levelised costs can be useful for comparing the overall observed and expected energy cost from different technologies, but can be misleading when comparing technologies with very different characteristics. For example, non-dispatchable solar PV and wind do not provide the same value to the system as dispatchable generators. The actual value (and costs) to the energy system of any technology is a complex and dynamic combination of all prospective new and existing capacity and their overall ability to meet demand. Both demand and supply options change over time — over a day, week, month, year — as the structure of the overall power system evolves.

It is important to the operation of the system when supply and demand-side options produce and whether this is at the same time as demand. To fully understand the implications of the advances in energy technologies on future electricity generation in SA, a fully integrated energy systems assessment is required. An energy system model is also useful to compare different scenarios.

Our research has compared the economic effects of a nuclear fleet against a flexible, least-cost build plan. We found that the economic benefits of a nuclear fleet are no better than a flexible build plan, even in a future where we assumed nuclear is cheap. Given that the result depends on many inputs, the centre’s researchers further analysed many variants of these two scenarios and found that nuclear is not the least-cost option. A forced nuclear scenario results in electricity prices that are higher and this “would have negative impacts on growth, employment and welfare in SA”. In plain language, one has to cherry-pick a future in which nuclear power is affordable.

In a world where there is uncertainty about future demand, future technology costs and capabilities, future grids with distributed generation and storage, committing ourselves to a large investment far in advance is not prudent.

So nuclear power is not the most affordable option, by overnight costs, levelised costs or by running an energy system model. But there are factors other than cost to consider. SA would do well to invest in technologies that deliver what we really need, especially employment.

The localisation and respective job-creation potential of a nuclear fleet is low compared with other technologies, as most of the local jobs will be temporary construction jobs and a couple of thousand permanent jobs in operations and maintenance, depending on the number of nuclear plants being built. Pushing up the local content requirements for the nuclear programme is another way of increasing the cost to levels even unknown to the industry.

Over- and under-supply are both costly to the economy, and we have a poor track record in avoiding either. The “fleet” approach taken to nuclear in IRP 2010 makes the investment particularly large. A 9.6GW fleet has been estimated to cost between R322bn and R1.4-trillion. These estimates do not include cost overruns, which are common on mega-projects. Many studies do not include interest during construction, which due to long lead times of nuclear and depending on interest rates, can increase the capital cost of projects by 40%-50%.

The government is already committed to providing a R350bn debt guarantee to Eskom, and we have an unaffordable debt-to-GDP ratio (currently at 51.7%). Another R1.4-trillion in guarantees or sovereign debt would more than double our national debt, which is currently about R870bn. The Treasury is seeking to reduce debt to keep the interest paid on our national debt under control. Increasing that debt in the current economic climate seems unwise.

• Caetano, Merven and Winkler work at the University of Cape Town’s Energy Research Centre. They write in their personal capacities.

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Be alert to the risks of legitimising a hollow process for a new electricity IRP

Daily Maverick, Richard Worthington, 13 November, 2017

Imagine that, consistent with recent statements by the new Minister of Energy, an Integrated Resource Plan (IRP) for electricity is released in the next week or two, with a new generation build plan that mandates nuclear procurement. What would our response be?

For argument’s sake, let’s say the plan is scaled back to no more than half the total previously deemed necessary to achieve the benefits of “fleet procurement” (the 9.6 GW contemplated for a Rosatom contract), as a concession to widespread opposition.

Since there is a requirement for consultation, the minister would need to convene some kind of public engagement. There have been calls from various stakeholders for some kind of summit on energy (or the economy more generally), so even a very hastily convened event might be presented as being responsive to stakeholder concerns, as well as fulfilling requirements for the new IRP to be tabled in Parliament subsequently. What would we do?

Unlike the Integrated Energy Plan (IEP) that covers the entire energy system, the requirements for which are explicitly set out in the Energy Act of 2008, the process for seeking common ground on a policy-adjusted plan for the electricity system, before it is tabled for parliamentary approval, is not defined. Determinations by the minister that generation capacity will be procured must, as recently determined by the High Court (Western Cape), be subject to public hearings and Nersa consideration, but the new build plan of the IRP is nevertheless treated as binding…

… However, legitimising a hollow process on an IRP that will set parameters on electricity infrastructure investment for the coming decades carries enormous risk. Like in 2010, we might be assured that it will be regularly updated, but getting this one right – or at the very least ensuring it doesn’t mandate irresponsible procurement and greatly deepen our debt – is imperative for any prospect of reducing poverty and inequality…

he public narrative that we need nuclear power to meet our commitments to climate change mitigation is false, as is clear from work already released in the IRP documentation published for comment a year ago. Robust modelling by several agencies, including the Council for Scientific and Industrial Research, shows that an electricity system without nuclear can meet and exceed our emissions reduction commitment at lower cost and with higher employment than when new nuclear is included. The Energy Research Centre modelled scenarios with a range of cost assumptions and even the most optimistic pricing fails to find nuclear power offering net benefits over renewable energy options…

… With a positive objective in mind – an electricity system contributing to the well-being of all South Africans, with a net value that is positive for society as a whole and over time, when full costs and life cycles are assessed – we must be prepared to reject what might be put forward. To do this, stakeholders not accustomed to parading their interests and positioning in public need to consider how to avoid being complicit in legitimising a plan designed to serve the elite, and to start talking about taking a collective stand on electricity and economic prudence.


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Eskom threatens fastest renewable expansion

Mail and Guardian, 6 December, 2016.

Opposition from Eskom Holdings SOC Ltd. and government infighting threatens to sabotage the world’s fastest-growing green energy program.

Eskom is stalling on signing government-brokered deals to buy renewable energy from private producers, encouraged to develop capacity after outages over the past eight years hobbled the continent’s most industrialised nation. With the economy in the doldrums, the state utility says it no longer requires additional green power, arguing it’s not always available during peak demand periods and will push up prices for South African consumers.

Eskom’s reticence over renewables contrasts with its enthusiasm to find bidders for nuclear plants, even after the Energy Ministry last month proposed delaying new atomic reactors by 14 years. That contradiction reflects the schism at the heart of government, where President Jacob Zuma’s championing of nuclear power puts him at loggerheads with his Finance Minister Pravin Gordhan, who has questioned its affordability.

“There are strong political overtones to this,” said Professor Harald Winkler, director of University of Cape Town’s Energy Research Centre. “It doesn’t give investors in renewable energy consistency. It’s a way of exercising control by Eskom.”

Increasing Risk

Eskom has refused to sign off on an agreement to purchase 250 megawatts of power from two wind projects planned by Irish clean-energy developer Mainstream Renewable Power Ltd., and a deal with Saudi Arabia’s ACWA Power International to supply 100 megawatts of solar energy.

Eskom’s actions are “in contravention of government policy,” Mainstream Chief Executive Officer Eddie O’Connor said in a November 30 phone interview. “These guys have gone completely rogue. It’s increasing the risk of outside investors investing in South Africa fairly dramatically.”

Some projects haven’t been signed off because they are “very expensive,” Eskom spokesman Khulu Phasiwe said by phone.

“The price they are charging for their power is much higher than we are selling it for and higher than we are willing to pay,” he said. “The projects that came at a reasonable price, we were able to sign them on.”

Energy Minister Tina Joemat-Pettersson and Public Enterprises Minister Lynne Brown have done little to pull Eskom into line.

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Procurement models applied to IPP programmes in South Africa

EE Publishers, Brenda Martin and Harald Winkler, 27 August, 2014.

The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is largely viewed as a positive and innovative programme. We need a base-load procurement model that builds on the successes of the REIPPPP and extends these to base-load IPPs. Eskom’s future financial health presents a significant risk to procurement of renewables, thermal base-load and nuclear power. The contribution to socio-economic development should be extended to all other IPP procurement. There is significant risk that political considerations may override rational planning in relation to nuclear power. Procurement should be well-designed upfront, flexible, plans indicative, the regulator active and procurement more vibrantly competitive. 

This is an executive summary of a research report from the University of Cape Town’s Energy Research Centre.

Download the full report here

What is the procurement model in South Africa as it applies to renewable energy (RE) and base load (BL) independent power producer procurement programmes (IPPPP) and how might these be improved? What lessons have been learned in the REIPPPP? What challenges might the emerging BL IPPP programme face and how might these challenges be addressed? To what extent are lessons from RE applicable to BL?

This research paper provides conclusions from consideration of these questions, shares research findings, highlights remaining critical questions, and provides recommendations for the future.

Procurement is an aspect of governance, and improved governance is one of five goals of energy policy, as outlined in the 1998 White Paper, which considers procurement as “that step within planning during which government determines what is to be built; and which ends with the announcement of preferred bidder(s)”.

Research findings are based on primary data gathered through a literature review followed by interviews with 20 senior respondents from the following zones within the energy sector: government, business, investment, consultancy and advisory, labour and NGOs. A listing of secondary literature consulted is provided on the final pages of this report.

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Electricity plan ‘out of date’

Melanie Gosling | 07 May 2013 | Cape Times

SOUTH Africa’s electricity plan is out of date and could lead to the building of unneeded power stations at great cost – and higher electricity prices.

The proposed expansion of nuclear power stations should be delayed because more nuclear power would not be needed before at least 2029, and perhaps not until 2040.

These are some of the findings of a study, “Towards a New Power Plan”, commissioned by the National Planning Commission and compiled by UCT’s Energy Research Centre. Continue reading