South Africa finds itself at a complicated crossroads of its energy development, and the direction many signals point towards forces a questioning whether current and past experiences are lost upon the decision makers deciding the energy and economic fate of their nation.
Similar to sticking your face near the murky waters of the Limpopo to verify if a crocodile lies on the river’s bottom, so too is the precarious nature of discerning whether South Africa will lock a substantial portion of its economic future into the hereunto delivered promises of nuclear power at a cost of 1 trillion Rand.
The numbers alone, originally estimated at USD $10 billion, shortly thereafter rising to 5 times that amount, and now sitting tenfold higher before any ink has dried, speak for themselves. It is almost a blatant absurdity that South Africa would pursue Russian nuclear at this cost, and there is limited evidence an energy project of this magnitude would begin to come online by 2023 as promised.
South Africa’s two newest coal plants, Medupi (4.8 Gigawatt) and Kusile (4.8 GW) themselves are years behind schedule. They are prime examples of how few large-scale generation projects achieve full capacity on time and within budget, where Africa graces few newspaper headlines in breaking the model for the better. As though the stings of endemic load shedding were not enough, South Africa itself is home to two panacea solutions for the Southern African Development Countries (SADC) energy woes that have become headaches for all involved.
By Eskom’s own admission, the accounting for both coal stations is not easily delineated from the generation, transmission and distribution utility’s overall operating budgets, however good evidence points towards an ultimate completion price of USD $40-50 billion, without repayment interest factored in. This alone is one-half the completion price for an equivalent generation capacity to be built under the nuclear scheme.
Which begs these questions if South Africa just followed current coal schemes.
How much domestic coal could be purchased?
How many direct and indirect coal sector jobs could be ensured?
And how much domestic economic production could the extra ~USD $50 billion purchase during the years waiting on the Russian nuclear plants to come online?
The recent push for small modular coal generation, under Independent Power Production (IPP) agreements, is clearly a reaction to mega coal generation project failures to meet schedules and costs. Less so, the doubling down on coal is an effective statement as to South Africa’s apparent limited concern to the long-term effects of increasing carbon dioxide emissions.
The global energy landscape has changed dramatically in the 10 years since Medupi and Kusile were first envisioned, whereby the best information and technology of the times was decided upon. Even Germany, with its meticulously planning, found itself on the wrong side of technological advancement with a new fleet of coal generation coming online as renewable production soared. However, in addition to shuttering nuclear, a bit reactionary after the Fukushima disaster, they [Germany] are closing natural gas (NG) generation to diversify away from dependence on Russian NG, and their domestically sourced coal operations are in decline, not growth.
The need to heavily subsidize wind or solar was arguably a necessity five and ten years ago, however today, the cost effectiveness of renewable energy schemes is increasingly well recognized within a new global energy paradigm proving itself. Instead of capital being expended to allow the industry to grow, the capital is being converted into actual watts of electricity on the backs of an established manufacturing industry and supply chain, as well as reductions in capital devoted to R&D or government subsidies that were necessary prior to renewable energies reaching break-even thresholds of economies of scale.
Are there extenuating circumstances that may be driving South Africa’s energy policy against the currents converging and gaining strength in the global energy landscape?
I believe there are, and they may be the reasons the second largest economy on the African continent is sailing in the opposite direction.
South Africa’s coal reliance…
S. Africa’s 85-95% reliance on coal for electricity production stems from the domestic abundance of it, and a generally accepted prudence in limiting capital export for the purpose of fueling significant energy needs. This reliance, in turn has spurred the growth of the coal industry itself and jobs are dependent upon it.
However, this high reliance on a single industry and energy source can also cause problems when conditions change, as they always do. And the global coal market did just that over the past year. South Africa was hit three ways as a result.
Global coal prices dropped on declining demand, notably in the U.S., but also as the furious pace of new Chinese coal station builds has plateaued. As a result, South Africa faces lower demand for its higher quality export coal and declining influx of foreign capital it would receive for it.
The global coal giant Glencore, with operations in the tip of Africa, shuttered operations at the Optimum Mine citing the soft global market for coal. Any difficulties or constraints in SA’s Transnet [electric] Freight Rail system would only facilitate Glencore’s decision given the 400 km to the export facilities at Richard’s Bay. Load shedding has of course been endemic throughout Southern Africa, and Eskom’s ~45 Gigawatts of generation capacity has not been immune to the region’s electricity woes.
To make matters worse, South Africa’s domestic coal fleet is not configured to burn the higher priced export quality coal, but to keep coal mines open and workers working, it is being fed into the boilers at a direct economic loss as well as an efficiencies loss too. Eskom signed agreements for this “domestic” coal to the tune of USD $318.5 million in March.
Glencore is not the only global coal producer in South Africa; things may only get worse as coal loses prominence as the default source of electricity production around the world regardless of an overall need for more electricity. Coal is seeing intense competition from natural gas, and as renewable energies such as wind and solar PV prove themselves, they will take up any and every decline coal experiences as they exploit base load generator’s need for daytime and peak demand premiums to offset nighttime losses from oversupply. The difference between fuel costs, solar and wind having none, allows pure economics to drive the process more so than any regulations to counter concerns over climate change. Whether those fears are real or imagined doesn’t matter, zero cost for fuel will win this battle in the long term.
Nuclear energy in South Africa – Round 2
Nuclear energy advocates have said is so cheap; there is no need to meter it. There are few who believe that line anymore, but that doesn’t stop the nuclear industry from repeating it. Except for, this time around, cost per gigawatt of capacity doesn’t appear to be relevant. At twice the price of an equivalent capacity of South Africa’s two new coal stations. Maybe someone added an extra zero by accident?
Regardless the price discrepancy, new nuclear stations in South Africa were political non-starters in the planning departments of Eskom, and SA’s Department of Energy (DoE) launched this escapade into nuclear contrary to public will in opposition to it. Nuclear directly competes against the domestic coal industry, providing fewer long-term jobs, and nuclear only diversify SA’s energy mix further towards higher base load predominance. Few advanced electrical systems world-wide lock themselves into such high dependence on baseload generation, as demand is rarely static, not to be confused with increasing need.
Koeberg nuclear station in Cape Town, and its capacity of 1.8 GW, demonstrates that nuclear is, no ifs, ands, or buts, a base load electricity generation source. Coal stations themselves, lose money when they are ramped up or down, to closely match real time energy needs, thus with an addition of new nuclear capacity, South Africa is building their existing 45-50GW capacity system towards 100% base load generation. This will further exacerbate the reality of daily and seasonal electrical demand cycles, not moderate them.
The pumped storage schemes at Drakenberg and Ingula in KwaZulu Natal, and less so Palmiet outside Cape Town, will only go so far to “fill the trough” of nighttime oversupply of electricity from base load generation schemes, in an ultimate losing scenario to store cyclical unneeded capacity. There are little inkling batteries, not those in people’s homes and businesses to try to moderate the effects of load shedding, but those as a national energy policy to address issues of variability of the renewable resources of solar and wind, will be deployed to compensate for fluctuating demand.
Regardless the industrial, commercial and residential mixture of demand the world around, no electrical system plans around a straight line for electricity needs. Wheeling electrons to neighboring countries through the Southern Africa Power Partnership (SAPP) transmission system will not benefit South Africa either. No national economy can operate and grow on intermittent supply. What good would Eskom’s oversupply in the nighttime do for Botswana, Namibia, Zambia or Mozambique, if they cannot match it during the daytime on their own?
What about natural gas, isn’t it storming the world elsewhere?
Variable “firm” capacity natural gas (NG) turbines, used heavily in the United States and the primary cause of coal generations decline outside of regulatory mandates, with quick ramp times, are not being pursued in South Africa. To the contrary, flexible turbine capacity and grid system reliability is being designed and implemented with regional, coastal diesel fired open combustion single and combined cycle generators.
Why diesel in a nation more intimately aware of its higher costs over NG? The answer lies in the global leader of coal-to-diesel and natural gas-to-diesel technologies, none other than the homegrown Sasol Corporation. Even though natural gas exploration and production (E&P) is nascent at best within South Africa, use of NG is not hampered by any “protectionist” policies against energy import.
To the contrary, NG is coming in from Pande development in Mozambique through pipelines built, financed and operated by Sasol, to produce diesel and other products at their refineries. As such, lower cost variable production through NG turbines is forgone in favor of costly diesel fueled generation, and as can be expected, its use for electricity generation comes at an absolute last resort, where load shedding itself is often employed instead. An electric meter not spinning, in other words not generating revenue, may be better than one spinning at a loss, which could be the economic reality with diesel fired electricity.
A second USD $6 Billion pipeline out of the north of Mozambique to Richard’s Bay is also being pursued, but dedication towards variable firm NG turbine electricity generation is not confirmed. Whether available natural gas will help alleviate SA’s energy woes is up in the air, but not promising by any accounts.
What about renewable energy?
Yes, arguably it has arrived at South Africa’s extensive grid system. But to put it bluntly, red carpets were not laid out to welcome it. After enough battles were waged to tap into the few available “sockets” at Eskom’s substations, and some needed transmissions links were built to access the “Solar Park” in Upington, Northern Cape, allocations for new capacity bids have declined from the first rounds. And this is even with the acknowledgement; the costs were dropping through each new round.
An artificial limit has been placed upon wind, solar PV and concentrated solar power (CSP), regardless the builds are coming online within budget and schedule. Eskom transmission planning documents reveal the national energy policy’s conventional wisdom, “renewables are not base load generation sources”, and one can see the negative impacts of this misguided belief, whether an aversion to regionally accessible natural gas turbines or IPPs for small scale coal.
The reality is, this $1 Trillion Rand nuclear proposal, with an overly optimist projection for the first few gigawatts of production in 2023 does little to alleviate current endemic load shedding woes and associated losses to current domestic industrial and commercial activity.
Too many current domestic realities, mid- and long-term projections, a globally evolving energy dogma and more translucent economic considerations are being glossed over to facilitate this Russian nuclear development in South Africa. Anyone able to arrive at a substantially different conclusion must be counting on an historical “certainty” of murky African transparency to justify their accounting.
Will South Africa stick its face to the water knowing the Croc is there even though all cannot see it? Or will they avoid the risk all together, knowing the result will be the same, regardless the physical action required to prove it? I am hoping for the latter.
Source articles used to compile and validate this perspective can be found here.