Integrated Resource Plan for electricity an example of bad policy – BLSA

The latest version of the Integrated Resource Plan for electricity is just another example of bad policy that curtails and delays economic growth and the reduction of employment and must therefore be reworked immediately, Business Leadership South Africa (BLSA) says.

Busi Mavuso, CEO of BLSA) says tainting the positive news of the diminishing, although still serious, impact of load shedding on the economy is the knowledge that the core document that is meant to shape the future of our energy supply, the Integrated Resource Plan (IRP) is an impediment to progress rather than the catalyst it should be.

“The economy certainly needs all the help it can get. It barely avoided a technical recession in the fourth quarter of last year with 0.1% growth, taking the annual rate to just 0.6%. In announcing the figures, South African Reserve Bank (Sarb) Governor Lesetja Kganyago bemoaned the impact of the electricity crisis on gross domestic product (GDP) growth, saying load shedding was worse than in previous years, while port and rail constraints also had a negative impact.”

However, Kganyago gave estimates of the Sarb’s Monetary Policy Committee (MPC) on the impact of power cuts that were heartening: electricity shortages took 1.5 percentage points off GDP last year and is expected to drop to 0.6 percentage points this year and 0.2 percentage points next year.

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Success of the Energy Action Plan

Mavuso says the diminishing impact of load shedding reflects the success of the Energy Action Plan and the collaboration between government and business.

“The power cuts that shackled growth prospects for more than a decade are easing as more generation becomes available and the National Energy Crisis Committee estimates that this year and next year, an estimated 10.600 MW of additional generation capacity will come onstream from private sector projects connecting to the grid, including projects from previous bid windows nearing completion, additional Eskom units returning to service and the continued increase in rooftop solar.”

However, she says, the economy will remain handicapped still for some time until we make more progress in the other two core areas of the business-government collaboration with transport and logistics and crime and corruption.

She points out that there has been solid but slow progress in transport but there is still a long way to go before we reach the levels of required efficiencies.

“The reason this partnership with government is working and by and large it is working pretty well in some areas, is because it is premised on good data based on research, which generates solid assumptions, otherwise it would just be propaganda.”

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No evidence for assumptions in Integrated Resource Plan 2023

Every government should adopt evidence-based policies and no good case has been built for the assumptions in the IRP 2023, Mavuso points out.

“To advance in each area of collaboration we need government to be aligned and for the most part government is fully behind our work, but of course there are elements within it who directly oppose it.”

The IRP, by legislation, is supposed to be a living plan that is continuously revised and updated as necessitated by changing circumstances. Mavuso says this is an area government has brazenly neglected as before the IRP 2023, it was updated in 2019 and before that, it was only updated way back in 2010.

“While the latest version was published only in January this year, it was never fit for purpose and needs to be revised immediately.  There are so many difficulties in generating enough new power to stabilise supply that the country cannot afford to be held back by the core document that is meant to shape the future of our energy supply being so different to the reality of what is actually happening in the energy market and so out of touch with reality.”

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IRP 2023 against least-cost principle

Mavuso says the first overarching problem is that it goes against the least-cost principle and presents some spurious costing estimates that appear to elevate the price of renewable energy and underestimate the cost of fossil fuels.

“Then it slashes the amount of renewable energy – still easily the cheapest form of new energy generation – to be installed between 2024 and 2030 through public procurement from 15.2 GW in IRP 2019 to 8 GW in IRP 2023. The huge increase in the allocation to gas is also eyebrow-raising – it allocates 7.22 GW to gas-based generation, up from 3 GW in the IRP 2019.”

Energy analyst Chris Yelland points out that although it is relatively easy and fast to build gas-to-power plants, the problem is supplying the gas to these stations as the infrastructure does not exist and that takes time to develop and it is expensive.

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No mention of funding for shutdown delays in IRP 2023

Mavuso says that one element of the IRP 2023 is to delay the shutdown plan of 13.000 MW being decommissioned by 2034 and then there will be no decommissioning between 2035 and 2045. “But Eskom has already calculated the costs for this, concluding that it would cost about R400 billion for a five-year extension of just a small set of power stations and the IRP makes no mention of where the funding would come from.”

She says there are also numerous other problems with the document.

“It underestimates the uptake of rooftop solar, for which it allocates 900 MW a year until 2030, despite far more than that already being added. It also underestimates future energy demand, which on its own puts the entire modelling process at risk.”

The second overarching problem with the IRP Mavuso identifies is that it pushes back against the gains made in our own fight against climate change and if adhered to, will see South Africa pay heavy penalties in the form of carbon taxes (the EU’s Carbon Border Adjustment Mechanism kicks in in 2026), while the country will also be shunned by numerous institutional investors where fund managers are restricted from investing in high-carbon countries.

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No funding exists for new fossil fuels ventures

“The reality of the market is that funding for new fossil fuel ventures does not exist, a factor entirely ignored in in the Integrated Resource Plan 2023.”

The bottom line is that we need electricity that is affordable, reliable and can come onstream quickly, Mavuso says.

“Anything that goes against that does not make sense and the IRP must be reworked to facilitate this as it is an imperative to enable economic growth and boost employment.”

She says to get to the point where the economy is growing fast enough to create jobs at a significant rate, all the dysfunctional elements must be remedied – transport, logistics and infrastructure are major areas but also water supply, efficiency of state-owned entities, general service delivery, corruption.

“The list is endless and resolutions to the problems in each area must be pursued vigorously.”