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Jun 01, 2012

Tough Call

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Eskom CE Brian Dames is making certain that he does not repeat the mistakes of his predecessors, who were accused of failing to kick up enough fuss when it became clear that South Africa was running out of generation capacity.

Last week, he criticised the Department of Energy for a lack of direction on the implementation of the Integrated Resource Plan (IRP), which was published in early 2011 and offers a power generation roadmap for the 20-year period to 2030.

The pace of progress being made in securing renewable-energy capacity was not being matched, he argued, in the baseload area, where decisions were still outstanding on the future of nuclear and the next coal-fired power stations.

Dames, thus, called for urgent “guidance” from Energy Minister Dipuo Peters on the implementation of the plan and the role that Eskom is meant to play in its execution. “As a country, we should not make the same mistake again of starting too late,” he asserted.

Without question, Dames is correct. Leadership is needed on this issue, particularly given that some of the baseload projects will have gestation periods of up to ten years. In fact, it could be longer for something like a nuclear project, given that consultation expectations on contested developments will probably rise in the post e-toll era.

The problem for Peters is whether it is prudent to give Eskom the go-ahead when there might well be better and lower-cost power options than those outlined in the current version of the IRP, which all agree is a living document.

The nuclear decision, for instance, is a big one. While the power delivered will be reliable, relatively low-cost and more or less carbon free, nuclear comes with risks. The construction price tag will be massive and the developers will require a number of guarantees. Nuclear will also probably only make sense from an economic perspective if pursued as a fleet rather than a single project. But that forecloses on other technologies that could emerge in the period between now and 2030.

This is a problem for two reasons. Firstly, just about everyone agrees, including Dames, that gas is underrepresented in the IRP. Now, if gas, conventional or unconventional, were to be included, at scale, in a future IRP version, which technologies, or projects, would be dislodged?

Secondly, subsequent to the publication of the IRP, the South African government received an extremely strong response to a request for information for the development, or importation, of conventional power generation capacity. In fact, potential private developers of cogeneration facilities, as well as coal-fired power stations, natural gas facilities and imported hydropower projects indicated that 60 300 MW of capacity could be introduced before March 2019.

Even if only 10 000 MW of that was considered feasible, it still casts an entirely new hue on what may be possible in the electricity supply industry. Indeed, 10 000 MW would be close to what Eskom is currently adding through Medupi, Kusile and Ingula, and is larger than the 9 600 MW allocated to nuclear in the IRP.

Pursuing such projects will, no doubt, come with another set of risks. Such development could also decrease the dominance of Eskom in the power market, which is not the intention of the current policy, which envisages Eskom supplying two-thirds of all capacity. But there are also potential advantages for government and con- sumers in displacing State-backed megaprojects with a number of privately funded projects.

In other words, providing the certainty that Dames is well within his rights to demand is a tougher call than it would seem.

Edited by: Terence Creamer
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