Dr Tobias Bischof-Niemztobias.bischof-niemz@enertrag.com+49 172 304 7749 +27 83 403 1108

South Africa’s Energy TransitionComments on the IRP2018

Presentation at the NBI, Johannesburg

20 September 2018

2

What we want you to take away from the book

A power-system in South Africa that is based on renewables is

• Cheaper than all alternatives

• Cleaner than all alternatives

• Creates more jobs and localisation potential

It helps re-industrialising the country on the back of a low-cost, low-carbon electricity platform

Authors: Tobias Bischof-Niemz and Terence Creamer

Visit the book‘s website at

http://saenergytransition.net

3

7

2000 20172003

9

2001

7

2002 2009

271

56

18

2016

8

30

20132004 2007

112

2005

215

20082006

31320

2015

7

39

17

39

38

2010

5441

7

98

2011

31

57

45

2012

35

40

519

70

Total South Africanpower system(approx. 45 GW)

2014

4 817

2233

63

56

71 76 73

91

120 124

154

46

Solar PV

Wind

Global annual new capacity in GW/a

Subsidies Cost competitive

>150 GW of new solar PV and wind added to the grid in 2017 globally

4

Agenda

IRP 2018: Things that are great

IRP 2018: Things to consider

New Export Opportunities Arising from Cheap Renewables

5

There are many, many good things in the IRP 2018

The Draft IRP 2018 recognises unambiguously that the cheapest way to produce reliable new electricity in South Africa is through a mix of solar PV, wind and flexible power stations (gas-fired power in the IRP)

Unconstrained Least Cost scenario (with the assumptions used): “IRP1”, is well described and costed

Reporting of results has improved considerably

• All scenarios are clearly described

• The results are reported on, both in terms of capacity (MW) and in terms of energy (GWh)

• Most importantly: The scenarios are costed informs a value-for-money discussion

Bid Window 4 Expedited costs used for RE as start

Draft IRP 2018, page 37, http://www.energy.gov.za/IRP/irp-update-draft-report2018/IRP-Update-2018-Draft-for-Comments.pdf

Draft IRP 2018, page 35

6

10

0

20

30

40

20302024 20382020 2034

Operational coal-fired capacity in GW

2016 2018 2022 2028 2032 2036 2040 2042 2044 2046 2048 20502026

South Africa has scheduled to decommission 28 GW of coal by 2040

Sources: Eskom, IRP

Camden

Komati

Hendrina

Grootvlei

Arnot

Kriel

Medupi

Matla

Duvha

Kendal

Tutuka

MajubaDry

Lethabo

Matimba

MajubaWet

Kusile

Scheduled decommissioning until…

… 2030: -13 GW … 2040: -28 GW … 2050: -35 GW

7

0

250

200

50

100

300

350

150

400

2040

225

13

204

Electricityin TWh/a

91

321

14

265

187

2030

253

20202016

15

13

79

336

49

2050

241

362

397

CSP

Hydro

Supply Gap

Solar PV

Wind

Peaking

Gas

Nuclear

Coal

An Integrated Resources Planmodel fills the supply gap in theleast-cost manner, subject toany constraints imposed

Existing and committed power generators in South Africa (2016)

Electricity demand

Demand grows, existing fleet phases out: gap needs to be filled

Sources: DoE, IRP 2018

8

Wind

Unit cost in R/kWhand cost structure(April 2016 prices)

Solar PV Coal CCGT (Gas)Nuclear

Fuel (and variable O&M)

Fixed O&M

Investment

0.62 0.62

1.031.09

1.15

82%Assumed utilization(capacity factor) 50%90%23% 40%

Of all available technologies for bulk electricity generation, solar PV & wind are now the cheapest new-build options in South Africa, by far

IRP assumptionsActual tariffs

9

0

50

200

100

300

400

150

250

350

2016 2020

14

26

42

12

205

2030

54

130

14

109

167

2040

67

2050

240255

79

16

Total electricityproduced in TWh/a

2511

44204

28

397

358

318

Wind

Solar PV Hydro

Peaking

Gas

Nuclear

Coal

Others

Draft IRP 2018 (scenario: IRP1)ENERGY

Draft IRP 2018 (scenario: IRP1)CAPACITY

Renewables = 67%Wind/PV = 59%… of primary electricity

100

0

50

150

10

13

Total installed capacity in GW

12

37

2016 2020 2050

4

31

2030

8

22

38

148

31

2040

50

10

61

78

121

48

3625

10

6

6

3

17

1) No new nuclear2) No new coal

IRP 2018, scenario “IRP1”Least Cost expansion path: 67% renewables energy share by 2050

Sources: DoE, IRP 2018

10

What can give comfort to the Department of Energy regarding its results: Several studies independently come to the same conclusion

University ofCape Town

Meridian Economics

NRELCSIR

University of Frankfurt

Common thread: No new coal, no new nuclear

Eskom

Link

Link, Link, Link

Link, Link

Link

Link

Link

11

Agenda

IRP 2018: Things that are great

IRP 2018: Things to consider

New Export Opportunities Arising from Cheap Renewables

12

Some small technicalities in the IRP 2018 could improve…

Reporting of input assumptions has reduced in quality

• Cost and technical parameter tables (“as used” in the model) are not available (yet)

The recommended plan is does not report energy shares (only capacity)

• The energy shares of the recommended plan are not reported on, which makes it difficult to assess how much gas volumes are required in the recommended plan

Very conservative assumptions make the cost differential between scenarios seem smaller than they are

• Very high costs assumed for the grid connection of renewables, very low costs for coal/nuclear

• Very low cost reduction assumed for renewables until 2050

• However, both assumptions do not change the fundamental output of no new coal/no new nuclear

13

… but there are also some bigger issues

The two coal IPPs are included in the recommended plan (after policy-adjustment of “IRP1” scenario)

• The inclusion of the two coal IPPs increases the NPV of the total system cost by R20 billion (UCT ERC)

• This is also confirmed by the IRP2018 itself in Figure 19: 3 R-cents/kWh increase in the early 2020s

• That cost increase is not necessary if the two coal IPPs are taken out and replaced with the least-cost new-build mix of solar PV, wind and flexibility

• Compensation of the IPPs for cost incurred would be possible because of the overall huge net saving of not building the two coal-fired power stations

Additional existing supply-side options are treated very optimistically

• What if Medupi and Kusile come online later than assumed or if we decide not to finish them?

• What if the Eskom’s fleet availability will be less than assumed in the IRP (assumed to be 80% by 2020, but sits at low 70% levels today; every percentage-point is roughly 400 MW of baseload capacity)?

• What if existing Eskom plants are decommissioned earlier than currently planned (some might have to, for pure technical and environmental compliance reasons)?

The effect of this optimistic treatment of the existing supply-side options could potentially be as severe as load shedding in the early 2020s. The MTSAO will shed more light on this (to come out in October 2018)

It is certainly a sensible precautionary measure to bring new capacity deployments forward (wind, PV, gas)

14

In the longer term: Three key disruptions have not been considered yet

Electric Vehicles uptake

• Small effect on overall electricity demand (1 million Evs 3 TWh/a)

• But potentially huge effect on demand-side flexibility (smart charging), which makes integration of variable renewables easier and cheaper

Stationary batteries cost reductions

• A measure for smoothing intra-day fluctuations on demand and supply side

• Complements the deployment of pumped hydro (weekly storage) and gas-fired power (weekly / monthly storage)

• Costs today: 350 €/kWh, in future: 150 €/kWh

• Costs assumed: around 600-700 €/kWh, no reduction

Flexibility on the demand side

• Lots of flexibility option on the demand side available

• Flexible demand helps to absorb variability from solar PV/wind and makes integration easier & cheaper

• Low-hanging fruit: electric warm water provision

16

Demand shaping can provide ≈24 GW/3 GW (demand increase/decrease) with ~70 GWh/d of dispatchable energy by 2050

Sources: CSIR estimates; StatsSA; AMPS survey; Stastista; Eskom;

Property Unit 2016-2019 2020 2030 2040 2050

Population [mln] 55.7 - 57.5 58.0 61.7 64.9 68.2

Number of HHs [mln] 16.9 - 18.1 18.5 22.4 26.0 27.3

Residents per HH [ppl/HH] 3.29 - 3.17 3.13 2.75 2.50 2.50

HHs with EWH [%] 28 - 33 34 50 75 100

HHs with EWH [mln] 4.7 - 5.9 6.3 11.2 19.5 27.3

Demand shaping adoption [%] - 2 25 100 100

Demand shaping [TWh/a] - 0.4 5.4 28.3 26.4

Demand shaping [GWh/d] - 1.1 14.9 77.4 72.3

Demand shaping (demand increase) [MW] - 371 4 991 25 970 24 265

Demand shaping (demand decrease) [MW] - 46 620 3 226 3 015

18

Electric vehicle demand shaping can provide ~96 GW/4.2 GW (demand increase/decrease) with ~100 GWh/d daily dispatchable energy 2050

Sources: CSIR estimates; StatsSA; eNaTis

19

400

100

450

-100

-50

200

300

350

0

50

150

250

204

2020 2040

10535

2016

Total electricityproduced in TWh/a

79

53

417

-30

187

2030 2050

137

-57

139

179

49

243273

323

379

Battery Storage

Pumped Storage

Curtailed wind/PV

CoalSolar PV

Wind

Hydro

Peaking

Gas

Nuclear

CSIR Least Cost 2017ENERGY

CSIR Least Cost 2017CAPACITY

Renewables = 85%Wind/PV = 82%… of primary electricity(388 TWh in 2050)

150

50

100

200

0

250

216

37

2020

92

Total installed capacity in GW

2016 2050

8

20

188

30

2030

18

133

61

2040

57

15

165

173

827

82

7550

58

1) No new nuclear2) No new coal

Taking all this into account: Probable “Least Cost”: same direction as IRP2018, higher RE share

Sources: CSIR

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Agenda

IRP 2018: Things that are great

IRP 2018: Things to consider

New Export Opportunities Arising from Cheap Renewables

21

Inputs Conversion Power FuelsFuel Production

ElectricityH2 Hydrogen (H2)

Water

Air (N2 and O2) N2

Air Separation

Plant

Electrolyser

CO2

Hydrocarbons• Methane (CH4)• Methanol (CH3OH)• Diesel/Petrol/

Kerosene (CnHm)

Syngas (H2, CO)Existing CO2 streamsBiogas (CH4 and CO2)

Fischer-Tropsch Reactor

Reverse Water-Gas

Shift Reactor

Ammonia (NH3)Haber-Bosch

Reactor

H2O

H2

H2

South Africa exhibits key ingredients for cost-competitive power fuels

22

Electricity-based fuels and chemicals (“power fuels”, “e-fuels”) provide a huge potential export opportunity for South Africa

South African renewable electricity will always be cheaper than in most other countries in the world

• Combined solar, wind and land resources better than in most other parts of the world

• Cheapest renewable electricity is a competitive advantage that will never go away

In addition, South Africa has vast experience in the creation of synthetic liquid fuels

• The country gets roughly 1/3 of its liquid fuel demand from Coal-to-Liquid

• Sasol is one of the largest Coal-to-Liquid producers globally

This combination provides a huge opportunity for South Africa to commercialise renewable-electricity-based, carbon-neutral synthetic fuels and chemicals from Power-to-Liquid/-Gas processes

The EU has started to create the market for such fuels via its mandatory biofuels blending requirements

• EU’s aviation fuel demand alone: 60 billion litres/a

Global initiative started to connect off-takers with suppliers

23

PrimaryEnergy

Intermediary Energy Carrier

End UseConversion

E

T

H

Today: South Africa‘s energy flows are domestic coal and imported oil

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PrimaryEnergy

End UseMultiple Conversion Steps on the Basis of Electricity and Hydrogen

E

T

H

Domestic Coal: 54 PJ

Imported Oil: 134 PJ

Domestic Wind: 1 270 PJ

Domestic Solar: 1 270 PJ

Natural Gas: 200 PJ

Domestic Biomass: 761 PJ(today + biogenic municipal waste)

Domestic Ambient Heat: 251 PJ Heat Pumps: 376 PJ

Biomass Boilers & Fireplaces: 661 PJ

Resistive Boilers & Heaters: 376 PJ

Seawater Desalination Plants: 126 PJ Fresh Water: 10 trillion litres

Power Plants: 2 840 PJ(120 GW wind, 180 GW solar PV, others)

Electricity: 2 680 PJ(~740 TWh)

Electrolysers: 1 314 PJ(~70 GW)

Hydrogen: 1 052 PJ(~7.4 million tonnes)

Liquefaction Plants: 336 PJ

Fertiliser Plants: 140 PJ

Hydrocarbons: 440 PJ

Chemicals: 188 PJExport PtL: 188 PJ (~5 billion litres)Export Fertiliser: 140 PJ (~3 million tonnes)

Airplanes: 72 PJ End-use Transport: 238 PJ

Losses: 953 PJ

End-use Electricity: 481 PJ

End-use Heat: 1 634 PJ

FCEVs: 183 PJ

BEVs: 138 PJ

Steel Furnaces: 200 PJ

Boilers: 193 PJ

Future: South Africa‘s energy flows based on solar, wind & hydrogen?

Export of power fuels: R50-60 billion/a; fertilizer/ammonia: R20-30 billion/a; 10 trillion litres/a fresh-water production

25

Summary: South Africa has a unique opportunity to re-position its energy system and re-industrialise at the same time!

It is cost-optimal to aim for 85% renewable electricity share by 2050

• Solar PV, wind and flexible power generators (e.g. gas, CSP, hydro, biogas, demand response, batteries, fuel cells) are the cheapest new-build mix for the South African power system

• From a pure cost perspective no new coal, no new nuclear, a deviation from that would be a subsidy

Proposed next steps

• Strategic direction: give a clear commitment to a new-build mix of solar PV, wind and flexibility (IRP)

• Implementation:

– Introduce a spatial component into the implementation to ensure new power generators are closer to where existing power generators will phase out, take over jobs from coal to renewables

– Separate Eskom generation from Eskom grid in order for Eskom grid to be able to facilitate the transition better

– “Sweat” Eskom’s coal fleet and gradually ramp it down while ensuring re-training of staff and deployment in RE

– Open up generation (and later retail) business for competition, keep control over infrastructure assets (grid)

– Create 2-3 national South African champions on the renewables generation side

• Export preparation: engage globally on export potential for renewable-electricity-based products

26

Thank you

Re a leboga

SiyathokozaEnkosi

Siyabonga

Re a leboha

Ro livhuha

Ha Khensa

Dankie

Note: „Thank you“ in all official languages of the Republic of South Africa