Least-cost electricity mix for South Africa by 2040

Abstract

Solar PV, wind and natural gas is the cheapest new-build mix for the South African power system It is the cost-optimal expansion to aim for a 70% renewable energy share by 2040 This “Re-Optimised” mix is almost R90 billion per year cheaper by 2040 than the Business-as-Usual scenario (without factoring in cost of CO2 emissions – difference is > R100 billion per year with CO2) The Re-Optimised mix will furthermore reduce South Africa’s CO2 emissions by 60% compared to BAU Avoiding CO2 emissions and least-cost is not a trade-off anymore – South Africa can de-carbonise its electricity sector at negative carbon-avoidance cost Building out the required capacities until 2040 will provide a steady anchor offtake for a South African solar PV and wind manufacturing industry

Full text

Dr Tobias Bischof-Niemz
Chief Engineer
Least-cost electricity mix for South Africa until 2040
Presentation at the Windaba 2016 conference
CSIR Energy Centre
Cape Town, 3 November 2016
Jarrad Wright +27 79 527 6002 JWright@csir.co.za
Dr Tobias Bischof-Niemz +27 83 403 1108 TBischofNiemz@csir.co.za
Joanne Calitz +27 82 672 6908 JRCalitz@csir.co.za
Crescent Mushwana +27 82 310 2142 CMushwana@csir.co.za

2
Background
The Integrated Resource Plan (IRP) is the expansion plan for the South African power system
In its most recent version, the IRP 2010 plans a doubling of power-generation capacity from 2010 to 2030
Since the date of its release in early 2011, two main assumptions have changed
•The demand forecast is now significantly lower than in IRP 2010
•The costs of solar PV and wind are significantly lower than predicted in IRP 2010
The CSIR has therefore conducted a study to re-optimise the South African power mix until 2040
Two scenarios were defined to quantify two different ways of expanding the South African power system
•“Business-as-Usual” – generally aligned with IRP 2010, updated demand forecast, no new optimisation
•“Re-Optimised” – least-cost re-optimisation of the demand/supply gap that widens from 2020-2040
An hourly expansion and dispatch model (incl. unit commitment) using PLEXOS
was run for both scenarios to test for adequacy and for economic feasibility
Sources: CSIR analysis

3
Agenda
Background
Approach and assumptions
Results
Conclusions

4
Business-as-Usual Re-Optimised
IRP 2010: expansion plan for South Africa’s power system until 2030
Installed capacity and electricity supplied from 2010 to 2030 as planned in the IRP 2010
Note: Renewables include solar PV, CSP, wind, biomass, biogas, landfill and hydro (includes imports); CO2 emission intensity moves from 912 kgCO2/MWh (2010) to 600 kgCO2/MWh (2030)
Sources: DoE IRP 2010-2030; CSIR analysis
5%
(12 TWh/yr)
14%
(62 TWh/yr)
Renewables
80
100
0
20
40
60
2030
85.7
41.1
2.4
7.3
9.6
+1.8
4.8
9.2
Total installed
net capacity in GW
2010 2015 2020 2025
8.4 1.2
35.9
2.4 1.8
2.1
42.2
237 275
CO2 emissions
[Mt/yr]
10%
(25 TWh/yr)
34%
(149 TWh/yr)
Carbon free
300
0
100
400
500
200
Electricity supplied
in TWh per year
436
2025 203020152010 2020
Nuclear
Hydro
Wind
CSP
Solar PV
Coal
Gas
Peaking

5
Link between planning and real world needs to be established
In-principle process of IRP planning and implementation
IRP model
(least-cost optimisation)
Output
•Capacity expansion
plan
Planning /
simulation
world
Actuals /
real world
Procurement
(competitive tender
e.g. REIPPPP, coal IPPPP)
Inputs
•Ministerial
Determinations based
on capacity expansion
plan
Inputs
•Demand forecast
•Technology costs
assumptions
•CO2 limits
•Etc.
Outcomes
•Preferred bidders
•MW allocation
•Technology costs
actuals (Ø tariffs)
Sources: CSIR analysis
Currently, no feedback loop from
procurement results to IRP planning
assumptions institutionalised
Installed capacity
80
100
60
40
20
0
4.8
9.2
1.2
8.4
2025202020152010
42.2
35.9
2.41.8 2.1
Total installed
net capacity in GW
Solar PV
2030
85.7
41.1
2.4
7.3
9.6
+1.8
Coal
Gas
Peaking
Nuclear
Hydro
Wind
CSP


6
Actual solar PV tariffs now well below cost assumptions of IRP 2010
First four bid windows’ results (solar PV) of Department of Energy’s REIPPPP
0.62
0.91
3.65
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
1.17
2.18
Year
Tariff in R/kWh
(Apr-2016-Rand)
Actuals: REIPPPP (BW1-4)
Assumptions: IRP2010 - low
Assumptions: IRP2010 - high
Notes: REIPPPP = Renewable Energy Independant Power Producer Programme; BW = Bid Window; bid submissions for the different BWs: BW1 = Nov 2011; BW2 = Mar 2012; BW 3 = Aug 2013;
BW 4 = Aug 2014; BW 4 (Expedited) = Nov 2015 Sources: StatsSA for CPI; IRP 2010; South African Department of Energy (DoE); DoE IPP Office; CSIR analysis
∑ = 2.8 GW
BW1 BW 4 (Expedited)

7
Actual wind tariffs equally well below cost assumptions of IRP 2010
First four bid windows’ results (wind) of Department of Energy’s REIPPPP
0.62
0.69
0.87
1.19
1.52
0.0
0.5
1.0
1.5
2.0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Year
Tariff in R/kWh
(Apr-2016-Rand)
Actuals: REIPPPP (BW1-4)
Assumptions: IRP2010
∑ = 4.0 GW
Notes: REIPPPP = Renewable Energy Independant Power Producer Programme; BW = Bid Window; bid submissions for the different BWs: BW1 = Nov 2011; BW2 = Mar 2012; BW 3 = Aug 2013;
BW 4 = Aug 2014; BW 4 (Expedited) = Nov 2015 Sources: StatsSA for CPI; IRP 2010; South African Department of Energy (DoE); DoE IPP Office; CSIR analysis
BW1 BW 4 (Expedited)

8
Agenda
Background
Approach and assumptions
Results
Conclusions

9
Demand grows, existing fleet phases out –gap needs to be filled
Forecasted supply and demand balance for the South African electricity system from 2016 to 2040
500
450
400
350
300
250
200
150
100
50
0
Electricity
in TWh/yr
2040
4732
20352030
3661
20252020
288
2016
Coal
Nuclear
Hydro (incl. PS)
Gas (CCGT)
Other (incl. cogen)
Peaking
Other RE
Wind
CSP
Solar PV
Supply gap
Decommissioning of
Eskom’s coal fleet
Notes: MTSAO demand forecasts are extrapolated from 2025 to 2040 using CAGR; IRP 2016 under development is using High Growth Low Intensity (CSIR) demand forecast as base case.
1. Peak demand = 53.2 GW 2. Peak demand = 68.7 GW Sources: DoE (IRP 2010); DoE (IRP 2013); Eskom MTSAO 2016-2021; StatsSA; World Bank; CSIR analysis
All power plants considered for
“existing fleet” that are either:
1) Existing in 2016
2) Under construction
3) Procured (preferred bidder)

10
Two scenarios defined to fill the supply/demand gap until 2040
Forecasted supply and demand balance for the South African electricity system from 2016 to 2040
200
0
100
500
300
400
150
250
350
50
450
3661
2016
4732
2020 2025
Electricity
in TWh/yr
2030 2035 2040
288
Gas (CCGT)
Supply gap
Solar PV
Hydro (incl. PS)
CSP
Wind
Other RE
Peaking
Other (incl. cogen)
Nuclear
Coal
Notes: MTSAO demand forecasts are extrapolated from 2025 to 2040 using CAGR; IRP 2016 under development is using High Growth Low Intensity (CSIR) demand forecast as base case.
1. Peak demand = 53.2 GW 2. Peak demand = 68.7 GW Sources: DoE (IRP 2010); DoE (IRP 2013); Eskom MTSAO 2016-2021; StatsSA; World Bank; CSIR analysis
1
2
1
2
Scenario: “Business-as-Usual”
•Generally aligned with IRP
2010, but demand shifted
•Nuclear as per briefing to
Portfolio Committee on
Energy (11 October 2016)
•New coal, nuclear, some RE
•New capacities fixed as per
IRP 2010 (no optimisation)
Scenario: “Re-Optimised”
•Coal, nuclear, gas, RE are all
available as supply options
•Supply candidates chosen
by least cost optimisation
to meet energy and
capacity requirement
IRP 2010

11
Key assumptions: pessimistic regarding solar PV and wind cost,
optimistic regarding nuclear cost, no annual limits on solar PV & wind
All other assumptions and methodology fully aligned with IRP 2010, for example:
•Discount rate of 8% (real)
•PLEXOS software package used for long-term optimisation & production cost modelling
•Decommissioning schedule of existing Eskom fleet
•Demand forecast using MTSAO 2016-2021 (extrapolated until 2040),
reaches the IRP 2010 assumed 2030 level just before 2040
Important deviation from IRP 2010 though: no annual new-build limits for solar PV
and wind (IRP 2010: max. 1 600 MW/yr for wind and max. 1 000 MW/yr for solar PV)
Technology
Costing
Logic
Compared to IRP 2010
Solar PV
Same as IRP 2010 by 2030
Slightly lower until
2030
Wind
Bid Window 4 Expedited tariff kept
constant until 2040
Lower
CSP
Same
as IRP 2013
Slightly higher
Coal
Coal IPP
Higher
Nuclear
as
per IRP with Rosatom low-estimate CAPEX
Similar
Gas
as
per IRP with fuel updates
Higher
Sources: CSIR analysis

12
2.40
R/kWh
(Apr-2016-R)
3.10
1.24
1.51
1.17
1.05-1.16
1.03
Bid Window 1
Bid Window 1
Mid-merit Coal Gas (OCGT)Gas (CCGT) Diesel (OCGT)NuclearBaseload
Coal (Eskom)
Baseload
Coal (IPP)
WindSolar PV
Key input cost assumptions for new supply technologies
Actual new-build
tariffs
Assumptions based
new-build cost
50%92% 50% 10%
Typical capacity factor210%
Lifetime cost
per energy unit1
1Lifetime cost per energy unit is only presented for brevity. The model inherently includes the specific cost structures of each technology i.e. capex, Fixed O&M, variable O&M, fuel costs etc.
2Changing full-load hours for conventional new-build options drastically changes the fixed cost components per kWh (lower full-load hours higher capital costs and fixed O&M costs per
kWh);
Assumptions: Average efficiency for CCGT = 55%, OCGT = 35%; nuclear = 33%; IRP costs from Jan-2012 escalated to May-2016 with CPI; assumed EPC CAPEX inflated by 10% to convert EPC/LCOE
into tariff; Sources: IRP 2013 Update; Doe IPP Office; StatsSA for CPI; Eskom financial reports for coal/diesel fuel cost; EE Publishers for Medupi/Kusile; Rosatom for nuclear capex; CSIR analysis
0.62 0.62
82%
High-priced gas
at 150 R/GJ

13
Future cost assumptions for solar PV aligned with IRP 2010
0.62
3.65
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Tariff in R/kWh
(Apr-2016-Rand)
Year
1.17
0.91
0.49 0.49
2.18
Assumptions for this study
Assumptions: IRP2010 - low
Assumptions: IRP2010 - high
Actuals: REIPPPP (BW1-4)
Notes: REIPPPP = Renewable Energy Independant Power Producer Programme; BW = Bid Window; bid submissions for the different BWs: BW1 = Nov 2011; BW2 = Mar 2012; BW 3 = Aug 2013;
BW 4 = Aug 2014; BW 4 (Expedited) = Nov 2015 Sources: StatsSA for CPI; IRP 2010; South African Department of Energy (DoE); DoE IPP Office; CSIR analysis
∑ = 2.8 GW
BW1 BW 4 (Expedited)

14
Future cost assumptions for wind aligned with results of Bid Window 4
0.62
0.69
0.87
1.19
1.52
0.0
0.5
1.0
1.5
2.0
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
Year
Tariff in R/kWh
(Apr-2016-Rand)
Assumptions for this study
Assumptions: IRP2010
Actuals: REIPPPP (BW1-4)
∑ = 4.0 GW
Notes: REIPPPP = Renewable Energy Independant Power Producer Programme; BW = Bid Window; bid submissions for the different BWs: BW1 = Nov 2011; BW2 = Mar 2012; BW 3 = Aug 2013;
BW 4 = Aug 2014; BW 4 (Expedited) = Nov 2015 Sources: StatsSA for CPI; IRP 2010; South African Department of Energy (DoE); DoE IPP Office; CSIR analysis
BW1 BW 4 (Expedited)

15
250
275
275
0
50
100
150
200
250
300
2010 2015 2020 2025 2030 2035 2040
CO2 emissions
(electricity sector)
[Mt/yr]
CO2 emissions constrained by RSA’s Peak-Plateau-Decline objective
PPD that constrains CO2 emission from electricity sector
CO2 cap implemented as a hard constraint into the model (i.e. must not be exceeded)
Only in post-processing to calculate cost of CO2, cost of 120 R/t assumed
PPD = Peak Plateau Decline
Sources: DoE (IRP 2010-2030 Update); StatsSA; CSIR analysis

16
Agenda
Background
Approach and assumptions
Results
Conclusions

17
Least-cost: 70% RE energy in South African electricity sector by 2040
Comparison of energy supply for Business-as-Usual and a Re-Optimised scenario
7%
(18 TWh/yr)
19%
(91 TWh/yr)Renewables
18%
(64 TWh/yr)
7%
(18 TWh/yr)
71%
(332 TWh/yr)
40%
(146 TWh/yr)
Sources: CSIR analysis
100
0
500
200
300
400
150
50
250
450
350
2040
472 TWh
20352030
361 TWh
202520202016
Electricity supplied
in TWh per year
200
300
0
100
450
250
350
500
150
400
50
366 TWh
203020252016 2020 2035
474 TWh
2040
Electricity supplied
in TWh per year
Nuclear
Coal
Hydro & PS
Peaking
Other RE
Wind
Other
Gas (CCGT)
CSP
Solar PV
CO2
217 Mt/yr 250 Mt/yr 217 Mt/yr 100 Mt/yr
Business-as-Usual Re-Optimised
1 2

18
Significant solar PV and wind capacities rolled out until 2040
Comparison of generation capacity for Business-as-Usual and a Re-Optimised path to 2040
200
0
175
150
125
100
75
50
25 36
13
842040 Peak: 68.7 GW
13
12 1
11
2035
93
2
2030
80
37
88
26
87
2025
22030 Peak: 53.2 GW
2040
101
Total installed
net capacity in GW
73
2020
63
2016
53
40
2
1
Coal
Nuclear
Hydro (incl. PS)
Gas (CCGT)
Other (incl. cogen)
Peaking
Other RE
Wind
CSP
Solar PV
175
100
75
50
200
25
125
150
0
35
151
Total installed
net capacity in GW
2
53.2 GW
2040
268.7 GW
43
20352030
18
113
27
2
77
1
10 5
2
17
184
2
1
32
1
18
2025
83
2020
63
2016
53
40
Sources: CSIR analysis
Business-as-Usual Re-Optimised
1 2
Note: ratio wind/PV can be
varied within relatively wide
range without significant
increase of total cost

19
0
20
40
60
Demand and
Supply in GW
Business-as-Usual: Coal and nuclear dominate the 2040 energy mix
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Sources: CSIR analysis
Demand
Other RE
Gas (CCGT)
Hydro
Peaking Other (incl. cogen) Nuclear
Solar PV
Wind
CoalCSP
Exemplary Week under Business-as-Usual in 2040
1

20
0
20
60
40
Demand and
Supply in GW
Re-Optimised: Wind and solar PV dominate the 2040 energy mix
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
Sources: CSIR analysis
Demand
Nuclear
Coal
Other (incl. cogen)
Other RE
Gas (CCGT)
Hydro
Peaking
CSP
Wind
Solar PV
2
Exemplary Week under Re-Optimised in 2040

21
49
2040
7
2016
2
2020
77
43
2030
32
18
120
Re-Optimised scenario creates a steady, significant & increasing market
Roadmap of investment for wind and solar PV to 2040
Sources: CSIR analysis
2020-2030
Wind: 2.8 GW/yr
Solar PV: 1.5 GW/yr
BW1 BW 4 (Expedited)
2030-2040
Wind: 4.5 GW/yr
Solar PV: 2.5 GW/yr
15
2040
7
2016
2
2020
12
11
2030
8
7
24
BW1 BW 4 (Expedited)
2020-2030
Wind: 0.4 GW/yr
Solar PV: 0.4 GW/yr
2030-2040
Wind: 0.4 GW/yr
Solar PV: 0.4 GW/yr
Business-as-Usual Re-Optimised
1 2

22
Re-Optimised R87 billion/year cheaper by 2040 (without cost of CO2)
488
314
401
292
87
22
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
0
500
450
400
350
300
250
200
150
100
50
Total cost of
power generation in
bR/yr (constant 2016)
1
2
Total Present Value of Delta
= R330 billion in 2016 Rand
Delta (BAU - Re-optimised)
Re-optimised
Business-as-Usual
Sources: CSIR analysis

23
Business-as-Usual incurs large cost from building new coal and nuclear
Comparison of total electricity system costs average electricity tariff of BAU and Re-Optimised mix
Sources: CSIR
0
50
100
150
200
250
300
350
400
450
500
550
Total cost of power generation
in bR/yr (constant Apr-2016 Rand)
202520202016
517 (w/ CO2)
2035 20402030
0
50
100
150
200
250
300
350
400
450
500
550
20352025 2040
412 (w/ CO2)
Total cost of power generation
in bR/yr (constant Apr-2016 Rand)
20202016 2030
Coal (existing)Hydro (incl. PS)
Nuclear (new)
Nuclear (existing)
Gas (CCGT)
Other RE
Peaking
Other (incl. cogen)
Wind
CSP
Solar PV
Cost of CO2
Coal (new)
Business-as-Usual Re-Optimised
1 2
401 (w/o CO2)
292 (w/o CO2)
488 (w/o CO2)
314 (w/o CO2)

24
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Relative
RE/nuclear cost
Relative
RE/coal cost
Today (2016)
Actual (2020-2040)
Sensitivity on cost difference: Even if RE were 50% more expensive
than assumed, Re-Optimised is still cheaper than Business-as-Usual
Sources: CSIR analysis
280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
-20
-40
Annual cost
delta of
BAU –Re-Optimised
by 2040
in bR/yr
87

25
Unit cost of power generation:
Re-Optimised case is almost 20 cents/kWh cheaper than BAU by 2040
1.03
0.87
0.85
0.80
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
-18%
Average cost of
power generation in
R/kWh (constant 2016) 1
2Re-Optimised
Business-as-Usual
Sources: CSIR analysis

26
Factoring in cost of CO2 emissions:
Re-Optimised case is 23 cents/kWh cheaper than BAU by 2040
1.10
0.94
0.87
0.86
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040
-21%
Average cost of
power generation in
R/kWh (constant 2016) 1
2Re-Optimised
Business-as-Usual
Sources: CSIR analysis

27
Re-Optimised: CO2 emissions and water use significantly lower
Comparison of CO2 emissions and water use for BAU and a Re-Optimised scenario to 2040
CO2 CapRe-optimisedBAU
99
250
275
275
2015 2020 2025 2030 2035 2040
0
200
250
150
300
50
100
-150 Mt/yr
(-60%)
195
216
231
Electricity sector
CO2emissions
in MtCO2/yr
Sources: CSIR analysis
61
49
0
10
20
30
40
50
60
70
2015 2020 2025 2030 2035 2040
22
56
Electricity sector
water use
in billion litres/yr
-40 billion litres/yr
(-60%)
55

28
Agenda
Background
Approach and assumptions
Results
Conclusions

29
South Africa can get 70% renewable energy share by 2040 at least cost
Solar PV, wind and natural gas is the cheapest new-build mix for the South African power system
It is the cost-optimal expansion to aim for a 70% renewable energy share by 2040
This “Re-Optimised” mix is almost R90 billion per year cheaper by 2040 than the Business-as-Usual
scenario (without factoring in cost of CO2 emissions –difference is > R100 billion per year with CO2)
The Re-Optimised mix will furthermore reduce South Africa’s CO2 emissions by 60% compared to BAU
Avoiding CO2 emissions and least-cost is not a trade-off anymore –South Africa can de-carbonise its
electricity sector at negative carbon-avoidance cost
Building out the required capacities until 2040 will provide a steady anchor offtake for a South African
solar PV and wind manufacturing industry
Sources: CSIR analysis

32
Thank you
Re a leboga
Siyathokoza Enkosi
Siyabonga
Re a leboha
Ro livhuha
Ha Khensa
Dankie