Draft IRP 2018 - Introduction & Reaction

Alfacomp

28 August 2018

For those living in 2018 in Europe, who have seen wind turbines and PV parks springing up over the last 10 years the following table, compiled by statistics South Africa, may be somewhat surprising.


Even as late as 2013 South Africa generated  ZERO power from solar panels (PV) and only 0.007% from wind power, despite being a region of outstanding solar insolation and available wind. The grip that Coal had, and still has, on the electrical mix is primarily due to the fact that South Africa has abundant coal resources, and is one of the world's top 10 producers of the fuel.

It was only by the introduction of a series of Renewable Energy Independent Power Producer (REIPP) procurement programmes that South Africa managed to diversify the mix slightly so that by 2016 it had managed to install a number of PV and wind generating plants. Whilst these programmes were hailed as one of the most forward thinking in African countries, still by 2016 PV+Wind only accounted for something like 1.8% of electricity supplied.

The REIPP programme appeared to get blocked by Eskom in 2016-17, which many believed was a result of Zuma's unprincipled desire to procure a Russian made nuclear reactor. The fundamental outcry over this, and the consistent and rigorous technical objections by organisations such as CSIR was just one of the many reasons why Zuma was eventually forced aside and in February 2018 Cyril Ramaphosa was elected president.

One of the first actions that Ramaphosa's new energy minister Jeff Radebe took in April this year was to sign off the 27 stalled REIPP agreements - the next was to get to grips with the SA Integrated Resource Plan (IRP) which also had been repeatedly delayed from 2016.

It is against this backdrop that we should view the 2018 draft IRP which was published for consultation yesterday.

2018 Draft IRP

The table below is perhaps the first key takeaway - this shows the electricity generating capacity in MW.

Between 2018 and 2030 a significant number of coal power plants will reach their end of life (12,000 MW) - so that despite another 6,732 MW being constructed the total coal generating capacity falls by a sixth by 2030.

Aside: The eagle-eyed will spot that this constitutes something like 45% of the generational capacity, yet the earlier table shows something like 86% of electricity energy being generated by coal - did coal really fall from 86% in 2016 to 45% in 2018 ?

No - the important thing is to distinguish between electricity generated (MWh and GWh) and the generating capacity written on the side of the generating plant (MW) - a coal station can be on 24 hours a day, whilst a PV farm might only generate electricity something like 35% of the time. Thus the generating capacity table somewhat overstates the penetration of intermittent renewable energy sources. (The same thing also happens with batteries - those selling short duration Lithium-ion batteries will claim the power capacity (MW) as the key parameter, but really the size of the battery is determined by its Energy Capacity, measured in MWh.)

Following the hiatus caused by the previous administration's handling of the IRP from 2025 onwards there are significant and consistent increases in both PV and Wind generating capacity - in the period 2025-2030 PV capacity will increase by 252% whilst Wind capacity will increase by 253%. These are large increases that make Renewable energy a significant contribution to the electrical generating mix.

Some in the RE camp may say that these increases could be bigger - undoubtedly true but it is also worth appreciating that this is the first really Renewable embracing IRP that has ever been proposed in South Africa - a country with a strong Coal generating tradition and mining lobby, and by an administration only 6 months into its tenure. I do not think that any pragmatist could have asked for more.

We are of course interested in the introduction of significant renewable energy because being intermittent it represents an incredible opportunity for Bushveld Energy and Vanadium Flow battery storage. Once the benefits to South Africa of being able to mine the critical material used in these batteries becomes clear it will become very much easier to justify the introduction of more ambitious RE targets in future IRP's based upon the positive impact on Vanadium mining jobs.

Cyril Ramaphosa, who we should remember was the person who built up the SA National Union of Mineworkers, could not have had a better example in mind when he stated that he wished mining to be seen as a sunrise industry not a sunset one


BigBiteNow comments on the IRP

I would of course liked to have seen a direct reference to energy storage but it wasn’t always necessary.

As Alfacomp has already alluded to, the key was that the IRP reflected a fair and reasonable analysis of the country’s energy needs going forward. That has been categorically demonstrated in Monday’s IRP release.

To be honest I never saw it turning out any other way because I have read many good things about Mr Radebe, so I always felt that the ship would be turned.

What this IRP also reconfirmed is my trust in Ramaphosa when he is able to make a decision without in house party political pressure, which in turn bodes well for Eskom’s current BOD and Eskom’s future decisions moving forward.

Eskom have always said they will follow the lead of the IRP, so the increased RE will be implemented. But they have also been clear that RE is intermittent and so requires storage to help integrate it with the existing system.

Therefore, with Monday’s IRP we have a very green light that allows a better run Eskom to instigate a substantial RE Programme that will in turn call upon the best technological energy storage solutions to support it.

That for me right now means considerable opportunities for BE moving forward.

I don't believe for one second that the ANC through Ramaphosa.'s rise to power has rid itself of corruption. Ramaphosa walks a fine line between two opposing factions and even his toppling of Zuma had to be carefully co-ordinated and played out very slowly in order to succeed. I am in no doubt that given the chance he would have ousted Zuma far sooner, but he had to play the political pawns very carefully and thus it took likely 18 months longer than planned.

The same is playing out right now with the NDPP and Shaun Abrahams. Again I have no doubt that Ramaphosa would have removed Abrahams sooner if he had the power to do so, but he didn't. Therefore, he has had to play it a different way and allow the courts to eventually do his job for him by making the appointment invalid, thus undermining those against his removal.

We should be under no illusion, Zuma still wields a great deal of power and influence in the governing party, despite his removal and the endless list of charges against him. The removal of Abrahams brings Zuma another step closer to a successful prosecution, so Abrahams was a very big pawn in this particular game of thrones.

Why do I share all of this? Well the key here is that where Ramaphosa was able to act quickly and decisively was in those areas of the economy that are most relevant to BE's quest to corner the Southern African energy storage market.

Eskom, the Energy Ministry and the Public Enterprises Ministry were all successfully targeted and legitimate trustworthy individuals and teams finally installed. Under the correct guidance these ministries would target the correct path for SA in terms of energy production, and that will always include a strong RE programme and when the time is right energy storage. What makes logical sense to us BMN shareholders has for a long time been tampered with whilst darker forces play out their personal desires at the cost of real progress.

Since Ramaphosa's intervention that has changed and today's new IRP is a cumulation of the events that were set in motion at the start of this year.

With today's IRP as their guidance, Eskom has the green light to drive its policy towards greater greener energy. However, as the BOD of Eskom has already clearly stated, they need energy storage in order to integrate the current RE programme and deal with the existing issues with the transmission grid. Hence the already publicised 2000MW of energy storage.

So although one should continue to keep a watchful eye on SA politics, one should also rejoice in the fact that with those 3 areas of the SA system, BE has every chance of realising its ambitions.

This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

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