IRP demand assumptions are ‘far too high’

South Africa’s much anticipated long-term energy infrastructure plan that was announced on Friday repeats the past mistake of assuming a demand for electricity that is far too high, says Peter Attard Montalto, head of capital investments at Intellidex.

Read: SA cabinet approves power plan

The plan, known as the Integrated Resource Plan (IRP), maps out the scale and pace of new electricity generation capacity to be commissioned over the next decade and specifies the technology mix.

It provides for 1 500 megawatts (MW) of new generation from coal, 2 500MW from hydro, 6 000MW from solar photovoltaic (PV), 14 400MW from wind, 2 088MW from storage and 3 000MW from gas.

Own generation will be encouraged by removing certain regulatory requirements for projects between 1MW and 10MW, and government will urgently embark on emergency procurement of around 2 000MW to plug the current supply gap that has resulted from the poor performance of Eskom’s generation fleet.

Read: Expert panel proposes new renewable energy zones

In the document that was approved by cabinet last week, government admits that the growth in demand for electricity anticipated in the earlier IRP 2010-2030, which was promulgated in 2011, did not materialise.

This, it states, was the result of among other things “lower economic growth; improved energy efficiency by large consumers to cushion against rising tariffs; fuel switching to liquefied petroleum gas (LPG) for cooking and heating; fuel switching for hot water heating by households; and the closing down or relocation to other countries of some of the energy intensive industry”.

According to the analysis the actual electricity sent out declined at an average compound rate of -0.6% over the past years, compared to the expectation of a 3% average growth rate in IRP 2010-2030. In 2016, for example, the difference was a huge 18%.

Expected electricity sent out from IRP 2010-2030 vs actual

The document also points to a possible structural change in the economy to be less electricity intensive, which would be reflected in a decoupling of growth in electricity demand from GDP growth.

In its demand modelling the authors had to adjust the 2018 demand, which is the starting point. The 2018 actual recorded demand was about 3% lower than that assumed even in the draft IRP that was published for comment late last year.

Expected electricity demand forecast to 2050 – IRP2019 provides for three scenarios:

Source: IRP2019

The upper forecast maintains the current economic structure and assumes average annual DGP growth of 3.18%. It forecasts 2% average annual growth in the demand for electricity by 2030 and 1.66% by 2050.

The median forecast is based on average annual GDP growth of 4.26% by 2030, but assumes significant structural changes in the economy. It results in 1.8% average annual growth in electricity demand by 2030 and 1.4% by 2050.

The low forecast is based on 1.33% average annual GDP growth by 2030, which results in 1.21% average annual growth in electricity demand by 2030 and 1.42% by 2050. This is based on a view that mining will continue to grow, but other sectors will suffer due to lack of investment should there be further credit downgrades for the country.

Attard Montalto says Intellidex sees average GDP growth up to 2030 at a maximum of 2%, and the average annual growth in electricity demand at no more than 1%.

He says the too-high assumptions made it possible for the planners to accelerate coal decommissioning and insert new coal and nuclear in the long term.

The IRP provides for the extension of the design life of the Koeberg nuclear power station by 20 years to 2044, which will also see a slight increase in its capacity.

New nuclear build

Government has also adopted the position that, considering the long lead times, preparations will start immediately for new nuclear build beyond 2030. It will however move away from mega fleets of nuclear reactors to affordable modular units close to end-users of electricity.

In the risk analysis that forms part of IRP2019 the authors acknowledge that actual demand “is more likely to be lower than forecast, because of grid defections for various reasons”.

It proposes mitigating the risk by managing the pace and scale of implementation of the new generation capacity the IRP provides for – by accelerating or slowing down the ministerial determinations without which such developments cannot go ahead.

It has to be noted that Eskom in the past has based the demand forecast in its tariff applications on the IRP assumptions. The fact that actual demand turned out to be much lower left it with a revenue deficit that it is still fighting to recover by challenging the decisions made by energy regulator Nersa in court.

IRP2019 – the emerging long term plan

Source: IRP2019