If crucial interventions are not made soon, load shedding could get far worse with stage 6 or 8 in the foreseeable future, according to economics and energy consultancy MeridianIt says government’s plans for new rounds of power procurement could fail unless key elements are reassessed, while the energy availability factor of its plants will continue to deteriorate. Meridian has modelled a game plan to end load shedding that needs multiple players and a reshaping of existing energy plans. Economics and energy consultancy Meridian has modelled a game plan for the shortest route to end load shedding, but it will require that government take “unprecedented steps” to reshape existing energy plans.The research models several scenarios for the power system with the simple aim of determining the shortest possible route to end load shedding. It warns that if government simply waits for the plans it has in the pipeline to come to fruition, there is an enormous risk that load shedding will get much worse – reaching stage 6 or 8 in the foreseeable future – and will continue indefinitely.The study rests on two crucial evidence-based assumptions. The first is that the performance of Eskom’s coal plants, which now have an energy availability factor of 56% continues to deteriorate. The researchers estimate, conservatively, that will decrease by 2% a year. The second is that most of the projects in both the procurement programmes that government has in play – the Risk Mitigation Independent Power Producer Procurement Programme (RMI4P) and bid window five of the Renewable Energy Independent Power Producer Programme (REIPPP) – will fail as they will not reach financial close due to vastly altered global economic circumstances. Government is relying on these two procurement rounds to bring new energy onto the grid in the next two to four years, largely closing the supply gap. It is also hopeful that Eskom’s coal plant will buck the trend and improve its performance to 70%. Grové Steyn, one of the report’s authors and member of the Presidential Economic Advisory Council, says:”The assumption that Eskom will improve is pushing against a massive trend. At some point, we have to face the realities of the limits of the coal plant, particularly if units cannot be taken out of operation for maintenance. Any credible strategy to resolve load shedding will have to take that as a point of departure.”The report proposes a combination of measures to procure more renewable energy, speed up procurement processes, and increase the chances of success and maximise the energy available to the system from projects that are already underway. The plan should be driven by a “power crisis implementation unit’ in the presidency.The top four points propose that government revisit the procurement rounds that are live and improve on these as a first priority. As these are already underway and are large projects the most important thing is to do whatever it takes to make sure they succeed.The problem is due to the fact that the contracting for the RMI4P and bid window 5 of the REIPPP were concluded at a time when global prices for hardware and capital were much lower than they are now. Since then, large escalations in commodity prices and logistics, resulting from the Covid-19 pandemic and the Russian invasion of Ukraine, has put many of the projects “under water”. “Our conclusion from numerous interviews and broader research is that many of these projects will fail without further intervention.”There is also a high risk that many of the gas projects in the RMI4P – which include the Karpowership projects – will be delayed or fail due to their excessive pricing, complexity and ongoing litigation. Local content conditions that projects use a required amount of locally manufactured parts have added increased costs, risks and delays. Locally constructed parts for solar panels, when available, cost between 18% and 30% more, says Meridian. This requirement should be lifted immediately for at least the next two years and pricing for both procurement rounds should be revisited urgently.There is an additional aspect to the way that the RMI4P tender was designed, which the researchers say will lead to wasted energy that should rather be made available to the grid. Because of tender specifications, the RMI4P projects had to substantially overbuild capacity to meet dispatch requirements. The consequence will be that these projects will sit with battery-stored energy that most of the time they will not dispatch. The report proposes the Eskom system operator be given the ability to use the battery storage as needed. This will lead to a higher availability energy factor and cheaper overall cost to the energy from RMI4P projects.When it comes to bid window 6 of the REIPPP, which was opened earlier this year for bids and closes in August, the intervention should be to massively increase its size and put strong incentives in place for early delivery of power. READ| Chris Yelland | We can end load shedding fast – but not if we rely on Eskom aloneGovernment should also commission more peaking capacity – such as diesel turbines that can be used to make up demand at peak times – build more battery storage and expand the agreements that it has with large users to cut their supply when the system is strained in return for incentives. Investment in the Eskom transmission grid to enable more capacity to connect the grid is imperative, says the report. The Just Energy Transition Partnership will be very important to this and to the general objective of establishing a lower carbon future. Several other points on the game plan call for a further easing of regulations embedded or self-generation projects, assistance to municipalities to procure their own energy from independent power producers and attention to bureaucracy and institutional strength of that National Energy Regulator of SA (Nersa) and the Independent Power Producer Procurement Office. “Implementing these reforms will require political will at a scale that has not yet been demonstrated in dealing with South Africa’s power crisis. In considering the options open to South Africa we have arrived at the conclusion that no other strategy is likely to have a better chance of resolving load shedding faster and with less unintended consequences than one based on the approach adopted here,” the report concludes.Get the biggest business stories emailed to you every weekday.Go to the Fin24 front page.
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