SA’s IRP 2023: An Unsatisfactory Roadmap for Our Power Needs
- 24 April 2024
- 11 min read
South Africa needs to urgently and sustainably solve the lack of suitable electricity supply for its ever increasing electricity demand.
Load shedding needs to end, and the Integrated Resource Plan (IRP) should provide a roadmap for achieving this.
In October 2019, in response the country’s energy generation challenges, the Department of Mineral Resources and Energy (DMRE) published the Integrated Resource Plan (IRP) 2019, setting out South Africa’s energy generation plans for the next 11 years. At that point, renewable energy projects were proposed to provide in excess of 25 gigawatts (GW) of new generation by 2030, to offset the decommissioning of Eskom’s aging coal plants. According to the DMRE, the IRP “is a living plan that is expected to be continuously revised and updated as necessitated by changing circumstances.” Accordingly, in January 2024, the DMRE released the draft IRP 2023 for public comment.
What has happened since IRP 2019?
IRP 2019 acknowledged that the energy sector contributed close to 80% of the country’s total greenhouse gas emissions, of which 50% are from electricity generation and liquid fuel production, hence the recommendation to have 60% of the energy generation from renewables by 2030. IRP 2019 was intended to align with South Africa’s National Development Plan (NDP) 2030 which envisioned that South Africa will have an energy sector that provides reliable and efficient energy at competitive rates; that is socially equitable through expanded access to energy at affordable tariffs; and that is environmentally sustainable through reduced emissions and pollution.
Notwithstanding such high hopes, since the publication of IRP 2019 load shedding has intensified. The poor performance of Eskom power plants can be observed in Eskom's Energy Availability Factor (EAF) report for the past 4 years (see below). Eskom’s current EAF is well below what was predicted in IRP 2019: as of week 11 of 2024: the latest EAF is slightly above 50% versus the approximate 75% predicted in IRP 2019.
Eskom energy availability factor (EAF) from Week 1, 2021, to date
Data source: Eskom; Graph: EE Business Intelligence
In response to the severe load shedding, national government, together with the DMRE, has announced and implemented a number of interventions to solve load shedding. These include initiatives such as:
Operation Vulindlela (OV);
Generation Recovery Plan; and
The plan to forge ahead with renewables as the long-term solution to the energy needs of the country was also supported by the Presidential Climate Commission (PCC). The PCC is responsible for setting out South Africa’s just transition framework. After completing a wide public consultation process and assessing the most economical options to solve the country’s energy needs by 2030, the PCC recommended that the country procure 50 to 60GW of new energy from renewables (Wind and Solar PV) supported by battery storage plus 3 to 5GW from peak gas plants.
IRP 2023 – some surprises and concerns
It is surprising to see that the proposed solution to the country energy challenges in the new draft IRP 2023 is to prolong the life of the aging Eskom coal plants and use unproven “clean coal” technologies to mitigate against adverse environmental impact from these plants.
Coal plants have long been synonymous with negative environmental impact due to the reduction in air quality and health risk to surrounding communities. The plants have also been shown to be very unreliable as a result of the aging infrastructure and historical maintenance neglect.
In 2023, in particular, South Africa suffered from severe load shedding related to a large increase in unplanned plant breakdowns even during low periods of energy demand. This was mainly attributed to the frequent breakdowns of the aging power plants. The graph below compares Eskom’s unplanned outages to their planned maintenance. It shows that unplanned outages have steadily increased over the past few years while maintenance has stayed relatively flat.
Eskom unplanned outages vs planned maintenance
Source: Standard Bank Economy report 2024
We therefore do not think it pragmatic to rely on Eskom’s aging generation units, or their refurbishment, to solve the South Africa energy challenges. There is no evidence that the unplanned breakdowns will be solved in the medium term, as set out in the draft IRP 2023. The consensus view by energy experts across the country is that the only way to solve load shedding is from new investments into renewable energy projects. In addition to feasibly high costs of keeping the existing plants running, it seems likely that the mooted “clean coal” technology would be uneconomically expensive, assuming it could even be executed.
To address the country’s energy needs, IRP 2023 proposes 29GW of additional energy capacity built between now and 2030 (see the table below). This figure is significantly below the 60GW requirement recommended by the PCC.
Draft IRP 2023 planned capacity
Source: DMRE, IRP 2023 (published for public comment Jan 2024)
The biggest issue with the IRP 2023 is that it minimises the role of renewable energy as the main solution to South Africa’s energy challenges. This is despite the PCC’s conclusion that electricity planning should consider the requirements of mitigating climate change and be anchored on least-cost pathways. According to the PCC “the least cost, no-regret option remains renewables, batteries, and balancing and peaking support, for example from gas. Not only are these the cheapest, secure options, but they are also the only options with build times short enough to make a meaningful impact on load shedding”. It is clear that the proposal to prolong the use of unreliable coal plants goes against the recommendations of both the IRP 2019 and the PCC, and is also in conflict with the NDP goals set by the President.
We also believe that some of the other proposals in IRP 2023 are impractical, such as the assumption of 3 000MW coming from a new Eskom-built gas plant in 2028. The IRP does not explain how this will be funded. Eskom’s R254 billion treasury bailout precludes the group from spending the bailout funds towards new capex beyond transmission and distribution.
As part of boosting the energy generation capacity of the country, the government removed the license requirements for private power generation in July 2022. This had a positive impact in boosting private sector investment into the energy sector in South Africa, which led to underutilised grid capacity being taken up by the private sector, resulting in grid capacity constraints in the Western Cape, Northern Cape and Eastern Cape.
The take up of support for renewable energy investment by the private sector shows its willingness to support this initiative. The capital market also has undeployed funds ready for investment into new renewable energy projects.
In the first round of public engagements post the release of the IRP 2023, the DMRE admitted that it had identified a 100GW pipeline of private power projects, with about 53GW of these considered firm prospects, having secured the sites and clear operational dates and/or having reached financial close. It seems strange that this aspect was not included in the draft IRP 2023.
Conclusion
South Africa has been heavily impacted by load shedding over recent years and this has had serious negative consequences for the GDP growth of the country and the general economic wellbeing of the South African population.
It has been, and continues to be our view that the government should be intentional and act speedily to solve our energy problems by leveraging the large amount of private capital that is readily available to fund renewable energy projects. The Renewable Independent Power Producer Program (REIPPP) has been successful, and is an example of what is possible. By the end of 2021, it saw R210 billion of capital deployed into 6.4GW of renewable energy projects, with 67 new producers connected to the national grid - ostensibly without procurement irregularities, corruption or malfeasance.
Solving the country’s energy problem also requires the expansion of the grid, which will require around R390 billion of capital investment. The government has recognised, on many occasions, that it has limited funds to invest towards building additional transmission capacity. The feedback given by the private sector has been clear in its willingness to work with government to provide the necessary capital to expand the grid. Again, the solution seems clear: government must leverage private sector funding to support the expansion of the grid, especially given the success story of REIPPP as an example.
Futuregrowth, on behalf of its clients, has been a proactive investor into the REIPPP, having invested more than R8.5 billion towards 31 projects as at 31 March 2024. We encourage the government to revisit the draft IRP 2023 with an eye to aligning it with the recommendations provided by the PCC and the market in general. South Africa’s private sector has shown that it has the necessary capabilities and funding capacity to be a part of the solution. This just requires the right framework, through a pragmatic IRP 2023, to deploy these funds.
