CANE RESPONSE TO ESKOM REQUEST FOR ELECTRICITY PRICE INCREASE
21 January 2010
CANE is a coalition of organizations and individuals opposed to the use of nuclear power in South Africa.
CANE opposes Eskom’s proposed electricity tariff increases based on the information and policy given in the Integrated Resource Plan (IRP) 2009 Preliminary Report. The National Energy Act (2008) requires the Minister of Energy “to provide “any data and information reasonably required for the purposes of conducting analysis required for energy planning from any person”. A small extract from the IRP was gazetted on 31 December 2009 and covers the period 2009-2013. It is clear from the Preliminary Report that almost all of the analysis and planning was done by Eskom. This is explicitly stated: “in the absence of a…state-driven governance process for the development of the IRP, the IRP was developed predominantly by Eskom…”[1]. This raises a conflict of interest. Eskom should contribute to the IRP but should not be driving it. The Department of Energy has undertaken to initiate a process of reviewing IRP 1 to allow for consultation with stakeholders, due to commence in January 2010[2], so we trust that we and other organizations and individuals will be consulted in the drafting of a more balanced, policy-driven IRP 2.
IRP 1 is based on the assumption that “[electricity] demand growth is expected to…average 3.2% a year over the 20-year planning horizon.”[3] 3.2% compounded annually implies a doubling of capacity over the 20-year period. The assumption that demand grows relentlessly and that the response is to provide ever more capacity is like putting the demand cart before the policy horse and this is going to be economically and environmentally unsustainable whether it is funded by price increases, borrowing or taxes. The limits to growth set by resource depletion and environmental destruction are already upon us. Cheap fossil fuel, which has powered industrial growth from the start of the industrial revolution up to now, is coming to an end, if it has not done so already. The idea of supplying ever increasing quantities of electricity is completely at odds with what is required now, a policy of energy efficiency and the elimination of all forms of wasteful use of energy. If Eskom has to charge much more for electricity in order to pay for new generation capacity then an equally ambitious energy efficiency strategy needs to be in place as well. This is not the natural function of of Eskom, a power supply monopoly. It is the function of government. Energy efficiency, energy productivity and a strategy to achieve this needs to be at the heart of IRP 2.
Energy productivity is a win-win option. Improvements in energy productivity are far more cost-effective than expansion of power generation. It is entirely possible for energy productivity to substitute for new generation capacity over the period 2010 to 2030 at 20% of the cost of new generation plant.[4] Energy productivity which uses existing energy for more output has no negative impact on the environment, climate change or water supply. On the contrary it has a positive impact and frees up financial resources for other uses. Energy productivity could create many more sustainable jobs than building and operating new centralised generation plant. The IRP commits to 1 million solar water heating installations over the 20 year period. this might save the capacity of one coal-fired power station. This is a start, but much more can be done: like replacing inefficient motors and machines with much more efficient ones, environmentally upgrading buildings, and changing to combined heat and power at large factories and intensive energy users. What is required is a practical strategy and the political will to carry it out.
Eskom plans to meet the projected increased demand over the period by building new coal-fired power stations and the returning to service of out of use power stations. It is intended to save only 3225MW of capacity by 2020 through demand side management[5] out of a total projected peak demand range of 60 000 MW – 66 000 MW. This gives a very low target of 5% for demand side management. The low target is a result of Eskom’s weak incentive and constrained ability, as a supply monopoly, to stamp out wastage and implement energy productivity strategies. The total generation capacity required by 2020 is then calculated from this weak demand-side target.
IRP1 states that “the independent power producer[s] are expected to provide additional capacity in the medium term” and also that “the IRP is developed on the basis that the country builds capacity to meet expected growth at minimum cost (inclusive of externality impacts).”[6] If these statements were translated into action then there would be a much greater amount of generation capacity supplied by Independent Power Producers using renewable energy and micro-generation.
UCT’s Energy Research Centre has shown in a recent study[7] that we can reach a 15% renewable target by 2020 and “combined with an energy efficiency programme, average electricity costs will be lower than the baseline for most of the 2015-2020 period.” Yet the presently committed capacity of renewable energy from independent power producers under the REFIT (Renewable Energy Feed-In Tariff) scheme is only 725MW (400MW from wind and 325MW from “other”).[8] This present commitment is just 1% of total capacity projected for 2020 and only 4% of new build over the period. There are proven wind resources in South Africa[9] to provide constant wind energy when spread across various locations. There is a proposal in the IRP to introduce Concentrated Solar Power (CSP), but only starting in 2021. This is too late and we need to kick-start CSP now. South Africa has the best solar resources in the world, so this is an opportunity not to be missed: South Africa could become a world leader in this technology. The Energy Research Centre study has shown the cost of electricity from concentrated solar power coming down year by year due to ‘technology learning’ until it becomes the cheapest form of electricity from about 2025. This is also good for jobs. Our motor car production lines could easily be converted to solar and wind turbine technology. The IRP does not even go into the socio-economic impact of the IRP and the opportunity costs of the various decisions. The economic impact is “still outstanding”.[10]
Up to 2020 the bulk of new generation capacity according to the IRP is to be coal. From 2020 to 2027 Eskom plans to build a ‘fleet’ of nuclear power stations of 11 500 MW in total. The best most recent cost estimate for nuclear plant construction is a nominal (2008) overnight capital cost of R33 million/MW[11] and a real cost of capital of 14.5%[12] reflecting nuclear’s high risk. But the cost of new nuclear build is not standing still, rather it has been rising by about 12% a year in real terms over the period 2003-2010.[13] At this rate, real costs over and above inflation double every 6 years, so if this continues the overnight cost of each MW of the nuclear ‘fleet’ after 2020 is likely to reach well over R66 million giving a total of R380 billion in 2008 Rands and then calculate 14.5% cost of capital compounded on top of that. I can’t do the sum but the real figure must be heading towards the R1 trillion level in today’s Rands. Such a level of debt would sink Eskom into a debt black hole. Is this the real reason for the huge price increases asked for? From the tables of capacities and costs (Appendix C) it is impossible to determine what costs are attributed to nuclear power out of the cumulative totals, as case by case costs are not given. The ‘moderate’ level of confidence for cost for nuclear of +1 given in the Risk Rating[14] is pure whistling in the wind. Even the Director for Strategy and Research at the World Nuclear Association cannot work out or predict the cost of a nuclear power plant.[15]
What we do know for sure is that costs of nuclear plant are escalating while the costs of renewable energy technologies are coming down and the costs of energy efficiency and energy productivity are negative because they release funds towards other projects.
CANE rejects nuclear power as a source of energy in South Africa now or in the future. Apart from the cost, the other negating factors include the proven health risk[16],the unsolved long-term high level waste problem, the pollution of ground water through uranium mining and the very poor fit with the type of skills available and the small number of jobs relative what could be achieved from renewable energy technology and energy efficiency and energy productivity strategies. The other intractable problem with nuclear power is the risk of nuclear proliferation, and the undesirable type of security state that would have to be reconstructed to try to safeguard the entire nuclear fuel cycle from beginning to end (and for high level radioactive waste there is no “end”). For all these reasons, nuclear power is not the answer to coal and carbon emissions. Funds diverted to nuclear power means less funds available to quicker and cheaper options, which is the huge opportunity cost when one excessively large project is chosen over multiple smaller ones.
While it is accepted that electricity prices must rise to allow for improved capital infrastructure and for energy productivity strategies, we do not accept any increase based on the present Integrated Resource Plan. There should be a much greater commitment to energy efficiency and energy productivity and a commitment to at least 15% renewable energy by 2020. As this can be supplied by the IPP’s, the capital invested would be at no up-front cost to Eskom. Rather, Eskom should commit their funds to upgrading their distribution infrastructure, expanding up to the solar fields of the N Cape and employing smart grid technology in order to manage the various energy supplies. Another 15% of capacity should be saved by energy productivity. Renewable energy, energy productivity and simply eliminating waste are the real answers to carbon emissions. Eskom cannot be allowed to write its own terms of reference and base its price hikes on that. The IRP needs to be re-drafted, to include policy for energy efficiency and for jobs and skills, to actively encourage independent power producers, and to eliminate the nuclear power financial black hole.
Written by:
Rod Gurzynski. For the Coalition Against Nuclear Energy
BA (Economics) B. Arch (UCT)
rod@boma.co.za
Tel: 021 789 2023.
[1] Integrated Resource Plan for Electricity. Preliminary Report Sept 2009. Pg 2.
[2] Integrated Resource Plan for Electricity. Government Gazette 31 Dec 2009. Pg 10.
[3] Integrated Resource Plan for Electricity. Preliminary Report Sept 2009. Pg iv.
[4] McKinsey Global Institute. The Case for Investing in Energy Productivity. Feb 2008. Pg 12. http://www.mckinsey.com/mgi/reports/pdfs/Investing_Energy_Productivity/Investing_Energy_Productivity.pdf
[5] Integrated Resource Plan for Electricity. Preliminary Report Sept 2009. Table 14 – Expected DSM outcomes. Pg 45.
[6] Integrated Resource Plan for Electricity. Preliminary Report. Sept 2009. Pg 4.
[7] Costing a 2020 Target of 15% Renewable Electricity for South Africa. Marquard et al. Final Draft. Energy Research Centre UCT. Oct 2008
[8] Integrated Resource Plan for Electricity. Preliminary Report Sept 2009. Committed new capacity. Table 3 Pg 9.
[9] Costing a 2020 Target of 15% Renewable Electricity for South Africa. Marquard et al. Final Draft. Energy Research Centre UCT. Oct 2008.
[10] Integrated Resource Plan for Electricity. Preliminary Report. Sept 2009. pg 29.
[11] Business Risks and Cost of Nuclear Power. Craig Severance. Jan 2009. Appendix A: Most Likely case. The most likely overnight cost is $4 070/kW before escalations and excluding cost of capital. $4 070 x exchange rate $1-R7.29 = R29 670 x CPIX adjuster 167.3/150.3 = R33 026/kW.
[12] Business Risks and Cost of Nuclear Power. Craig Severance. Jan 2009. Appendix A: Most Likely case.
[13] Centre for Energy and Environmental Policy Research. Update on the cost of nuclear power. May 2009. Pg17. http://web.mit.edu/ceepr/www/publications/workingpapers/2009-004.pdf
[14] Integrated Resource Plan for Electricity. Preliminary Report. Sept 2009. Pg 58.
[15] Escalating costs of new build: what does it mean? Nuclear Engineering International. Aug 2008.
http://www.neimagazine.com/story.asp?storyCode=2050690
[16] International Journal of Environmental Research and Public Health. 2009. Article: Very low dose fetal exposure to Chernobyl contamination resulted in increases in infant leukemia in Europe and raises questions about current radiation risk models. Christopher Busby.
http://www.mdpi.com/1660-4601/6/12/3105/pdf
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