South Africa’s energy sector should focus on future-proof strategies to end load shedding and curb electricity price hikes as gas is both high risk and will not be necessary in the power sector until at least 2035.
A new report on the role of gas in South Africa's electricity system argues that it would be a "costly mistake" to pursue large gas-to-power investments in light of a shrinking role for gas in the power sector and improving prospects for greener alternatives.
March 31, 2022—There is no need for South Africa to invest in a gas-to-power sector at this time and pushing ahead with such plans could negatively impact the country’s economy and climate, according to a new report by the International Institute for Sustainable Development (IISD) released today.
The study, titled Gas Pressure: Exploring the case for gas-fired power in South Africa, notes that developing an extensive gas-to-power sector in South Africa from scratch would involve significant investment in both gas supply infrastructure and power plants.
Just to introduce the first 3000 MW of gas capacity and gas supply by 2030 could cost at least ZAR 47 billion—money that could ultimately be wasted as gas is squeezed out of the market by cheaper, low-carbon alternatives.
While gas was once seen as a necessary “transition fuel” in the shift away from coal power, rapid declines in the cost of renewable energy and battery storage technology have upended this view. The report found that renewables and storage should be the priority until at least 2030.
“The risks associated with gas are increasing, while the alternatives to gas are rapidly improving. Since gas is not needed in the power sector until at least 2035, deliberations about the start of a gas-to-power sector should be shelved until at least 2030,” says Richard Halsey, a policy advisor at the IISD and co-author of the report.
“When the government reassesses gas investments at the end of the decade, based on the availability and cost of alternative technologies such as green hydrogen, it is likely that there will be no logical role for gas in the mix.”
What’s more, the evidence suggests that gas investments would likely lead to higher energy costs for consumers, and additional just transition challenges for workers in the fossil fuel industry. And when considering methane emissions across the value chain, gas power could be as detrimental to the climate as coal.
Boosting renewables and battery storage capacity instead
The report argues that in an efficient energy mix, the majority (or bulk supply) of power should be as cheap as possible, while peaking plants should be used to cope with daily spikes in demand. Finally, balancing (or backup) power is needed to smooth out peaks and valleys of demand and supply.
Renewable energy—particularly wind and solar—is today easily the cheapest source of bulk supply, while battery storage is increasingly considered the most affordable, and widely deployable, new-build peaking technology.
In fact, the IISD authors found that wind and solar farms in South Africa are 57% cheaper* than combined-cycle gas plants for bulk electricity supply, while 3-hour battery storage is 30% cheaper* than simple cycle gas plants for covering peak power demand. South Africa’s existing electricity system, which mostly runs on coal power, can also provide some of the balancing function in the short to medium term.
According to the report, significantly increasing renewables and storage capacity can address power system challenges that lead to frequent load shedding—the rotational power cuts by state-owned utility Eskom to maintain overall grid stability.
“To solve load shedding as quickly as possible, and to build the foundation of an optimal, low-cost future energy mix, South Africa should significantly ramp up its investments in solar, wind, storage, and technologies that integrate renewables into the grid,” says Halsey. “Since renewables contribute only a small part of the electricity mix, a combination of existing pumped storage, liquid fuel generators, grid integration methods, and the remaining coal fleet can provide the balancing function for at least the next 13 years.”
To artificially stimulate local demand for gas, South Africa’s Department of Mineral Resources and Energy has proposed establishing a gas-to-power sector.
“Based on system analysis, this would be a costly mistake,” says Halsey. “We strongly believe that a moratorium should be placed on the development of the gas-to-power sector, and further research should be done to better understand how advances in alternatives to gas will affect the optimal energy mix .”
*based on Levelised Cost of Energy Analysis—a measure of what it costs to produce a unit of energy when the full lifecycle costs are taken into account.
Richard Halsey, Policy Advisor, IISD: [email protected]
Richard Bridle, Senior Policy Advisor, IISD: [email protected]
As of 2022, South Africa does not have gas-fired power. There is increasing pressure from the national government, industry lobby groups, and the electricity utility to develop a gas-to-power sector, while there is also mounting pressure from many stakeholders opposed to gas. This report aims to provide an evidence base for rational decision making at this important juncture in developing the national energy mix.
In South Africa, renewables are cheaper than gas for bulk electricity supply, and energy storage has dropped enough in price to displace gas for peaking power too.
Government must hold off on developing gas-fired power and urgently boost renewables and energy storage.
The South African power system can be developed so that gas supply is not needed until 2035, if ever.
The Gas Pressure report looks at whether South Africa should consider building gas-fired power stations and associated gas supply infrastructure. The recent disruptive changes in the power sector from technological advances and cost reductions—first in renewable energy and then in energy storage—are challenging the view that gas is still required for a low-carbon energy transition. The report analyzes the status quo of gas development, the risks associated with gas, the improvements in alternatives to gas, and whether gas is necessary in the power sector before 2035, if ever. Recommendations are made for short-term priorities to address the constrained national power system.
This webinar, organized in partnership with WWF South Africa, provided participants with a first look at findings from the new International Institute for Sustainable Development (IISD) report Gas Pressure: Exploring the case for gas-fired power in South Africa, presenting key takeaways and recommendations.
Within the power sector, this report examines the increasing risks associated with natural gas, the improvements in alternatives, and ways the energy mix could evolve. From this, the report provides recommendations on how South Africa could alleviate the constrained power system, reduce the chances of stranded assets, and meet climate change objectives.
Through a panel discussion and a Q&A session, participants engaged in a debate on whether South Africa should be investing in a gas-to-power sector now, given the disruptive changes in the energy landscape.
Ellen Davies, Senior Research Advisor, The African Climate Foundation
Richard Halsey, Policy Advisor, IISD
Moderator
Shruti Sharma, Senior Policy Advisor, IISD
Panellists
South African miner Exxaro (EXXJ.J) and Chinese state fund CNIC are among potential buyers admitted to the final round of bidding for African renewable energy firm Lekela Power - a company worth around $2 billion, a number of sources familiar with the deal told Reuters.
Pollution from fossil fuel use costs South Africans hundreds of billions of rands in public health damage and environmental harm each year, say Chido Muzondo and Richard Bridle.
South Africa is the biggest emitter of greenhouse gases on the continent, with Sasol and Eskom together responsible for more than half of these emissions. A report published by the International Institute for Sustainable Development (IISD) says South Africa spent R172 billion on energy subsidies in the 2020 financial year, with the highest subsidies allocated to fossil fuels.
South Africa's energy subsidies, mainly dominated by fossil fuels, more than tripled to R172 billion between 2017/18 and 2020/21. This has come at a huge societal cost, according to research by the International Institute for Sustainable Development (IISD).
The government must align its energy fiscal policies with South Africa’s climate and environmental goals.
January 31, 2022—Energy subsidies in South Africa more than tripled between FY2017 and FY2020 to ZAR 172 billion (USD 10.4 billion), with the highest subsidies allocated to fossil fuels, including coal-fired electricity, according to a new report from the International Institute for Sustainable Development (IISD) released today.
The government spent nearly ZAR 67 billion on bailouts for carbon-intensive companies, particularly the state-owned utility Eskom, as well as ZAR 43 billion to support the oil and gas industry, found the report, titled South Africa’s Energy Fiscal Policies: An inventory of subsidies, taxes and policies impacting the energy transition. In addition, carbon tax exemptions cost South Africa a further ZAR 45 billion in lost tax revenues.
In total, the data shows that energy subsidies more than tripled from the ZAR 58 billion allocated in FY2017. At ZAR 172 billion, the government’s expenditure on energy subsidies in 2020 exceeds the country’s annual spending on police services and defense & state security, combined.
“Fiscal policies—subsidies, taxes, and grants—are key tools that governments can use to reach their energy and climate targets, but right now in South Africa, billions are spent propping up the existing fossil fuel system,” says IISD’s Chido Muzondo, co-author of the report. “These subsidies represent an enormous cost to the public budget and take a heavy toll on people’s health and the climate.”
IISD experts found that pollution from fossil fuel use costs South Africans ZAR 550 billion each year in environmental harm and damage to public health.
The study, which explores the extent to which South Africa’s current energy fiscal policies reflect its goal to develop a robust, low-carbon, and affordable domestic energy system, highlights that current policies are not in line with the country’s energy targets and environmental imperatives. The report’s authors provide concrete recommendations for the government to realign its fiscal policies by reforming fossil fuels subsidies and increasing investments in clean energy.
To stop the trend of rising subsidies, the government must tie bailouts to the energy transition and phase out carbon tax exemptions, particularly in the electricity sector, IISD experts recommend.
South Africa should also raise fossil fuel taxes, according to the report, and—to keep pace with growing power demand—boost investments in renewable energy, and explore alternative business models for large-scale renewables.
“On top of discouraging consumption, revenue generated by increasing fossil fuel taxes can be invested in the energy transition in ways that stimulate jobs, economic growth, and fund a just transition for coal workers and communities,” says study co-author Richard Bridle of IISD. “It can also be used to provide targeted support for vulnerable households.”
IISD experts also urge South Africa to improve transparency on energy fiscal policies to send a strong signal to market players and spur the advancement of the clean energy transition.
Chido Muzondo, Policy Advisor, IISD: [email protected]
Richard Bridle, Senior Policy Advisor, IISD: [email protected]