At the heart of the current problems is Eskom, now 100 years old, but without much to celebrate. How did Eskom go from being the “Utility of the Year” in 2001 to the current state of constant load shedding and financial crisis?
The current electricity crisis in South Africa (and elsewhere in the world) is fundamentally rooted in policy decisions made in the 1990s. In the case of South Africa, it was decided to move away from the Eskom obligation to supply (and related monopoly) to a presumed-better free-market solution as set out in the 1998 Electricity Policy. Eskom was therefore told not to build (or even plan to build) any more power plants.
Historically, the world’s electricity systems were built on the philosophy of a regulated and socialised utility to provide “electricity for all” and avoid the syndrome where the only people with electricity were rich individuals and heavy industry – which was the way the market was going in the 1930s.
In the 1990s, there was a strong tendency to believe the free market could fix all issues. This, however, removed any effective long-term central planning, as market forces would only respond to reasonably short term (five year?) pressures. This leads to a drive to short-term-payback solutions such as natural gas and renewable energy. Even these required sovereign guarantees against policy changes and payments via power purchase agreements (PPAs), so not really a free market system! In South Africa the 1998 policy of the free market providing new build requirements did not begin to work until the state provided PPA guarantees unrelated to market value.
Despite the almost universal adoption by “Western” countries of this “free market” model, the current reality is that the world is still virtually totally dependent on “classic” energy sources, largely built under the previous, centrally planned, model as these plants have a 40+ year life. Unfortunately, the existing installed base is now ageing and is not being replaced.
It can be argued convincingly that the new free market model based largely on renewables has failed in many markets and has required massive state financial and regulatory support – to the detriment of the population. Essentially, the system privatised the profits and socialised the losses. This has occurred, in part, because of a belief in solutions that look very good on paper, but fail when applied in the real world.
An example of this is the belief that very large scale battery storage systems can economically solve the intermittency issue inherent in wind and solar photovoltaic generation options. The issue with batteries is that while the cost of lithium-ion batteries has fallen dramatically over the last two decades, they have now reached the point where the material costs (lithium, cobalt, nickel, etc) make up some 75% of the manufacturing costs, so further significant reductions seem unlikely.
The best South African reference for installed, grid-scale costs is the current Eskom Battery Storage System. This is quoted as having 1449 MWh storage capacity and a cost of R11 billion. At an exchange rate of R18:$1 this leads to a storage cost of over $400/kWh. It is accepted that battery storage system costs have to get below $100/kWh (and probably to around $50/kWh) to make the PV/battery solution the lowest cost option for large-scale grid applications.
Clearly there is a belief in many circles that the free market can meet national needs for a low cost, stable and reliable electricity supply if only the market was deregulated and fully free competition was allowed. This does not appear to be proved anywhere in the world.
Politically, the trading system (the grid) should be available for any IPPs, consumers or traders who can make a business case for themselves. The state has to, however, provide the base upon which the country can grow.
Clearly the size of this base will be affected by the success (or otherwise) of the free market unsubsidised by the state.
Given the current state of technology and the lack of any significant hydro potential in South Africa, the major portion of the long-term plan needs to be nuclear in order to achieve the dispatchable and zero carbon requirement. World experience with large nuclear programmes such as those of France, Sweden, Ontario and Russia has shown that they are highly competitive in the long term.
Whether a future plan should be based on large, Koeberg style reactors or more distributed small modular reactors is a topic for further debate. In terms of schedule, the European programmes of the past show that if a process was started now, the first units could be online by the early 2030s and a capacity equivalent to Eskom’s current coal fleet built by the 2040s.
The short-term plan has to be to improve the performance of the current Eskom fleet (and extend plant lives as far as possible). Given the actual age of the Eskom fleet (and given some relaxation of the current environmental proposals) they should be able to achieve the 70+% EAF (equivalent availability factor) that is needed to stop loadshedding. Clearly their age means that there would be a shortfall in capacity as they decommission before the nuclear build would come online.
The transition is best met by a roll out of natural gas fired plants, with the related infrastructure (pipelines, LNG terminals, storage facilities, etc). If initiated rapidly, these could have a credible business case before they are closed down by the rising nuclear capacity and 2050 deadline for net zero.
There may be some major technological breakthrough which changes the potential economics, such as low-cost batteries, commercial carbon capture and storage, economic H2 systems or nuclear fusion. When these do become game changers, they will change the game – but we cannot bet our future on them.
Author: Dave Nicholls, retired Chief Nuclear Officer of Eskom
