Construction World February 2016

ENVIRONMENT AND SUSTAINABILITY

THE COST OF ENERGY to South Africa South Africa’s traditionally ‘cheap and plentiful’ electricity in the 1990s led to a lack of investment in generation and transmission infrastructure over the past few decades. This, combined with a growing energy demand to meet GDP growth in post-democratic South Africa, has resulted in a highly constrained electricity supply situation since 2008.

The solar PV tariffs for each of the four rounds of REIPPPP, in April 2014 rand values, have been R3,29, R1,96, R1,05 and R0,79 respec- tively. South Africa’s LCOE for RE is competi- tive with the global leaders. This is partly because SA has extremely good RE resources (particularly solar irradiation) and because the country only implemented its renewable build programme relatively late, with many of the RE generation assets being constructed after the cost of the technology had already reduced significantly on the back of large-scale global investment in RE. Turner says that new-build electricity – regardless of the generation technology – is almost always going to be considerably more expensive than existing (depreciated) gener- ation assets. “Existing electricity generation in South Africa (predominantly from decades-old coal-fired power plants) costs around R0,44 per kilowatt-hour on average. Compare that to the LCOE of a new-build coal plant, which ranges from anywhere between R0,54 and R1,05 per kilowatt-hour. By some estimates, an analysis of existing natural gas, nuclear, and hydroelectric resources will reveal similar trends - each produces electricity at a substantially lower levelised cost than its forward-looking LCOE would indicate.” While it is true that electricity from existing electricity generation plants costs less to produce than the electricity from new plants, there comes a time when we need to retire old plants and replace them with new generation assets despite the higher costs. Because of this, consumers can expect the cost of electricity to rise faster than it would have had we been able to keep existing power plants in service. The challenge is finding credible new-build LCOE’s for ‘traditional’ power plants in South Africa – coal, gas, hydro and nuclear – to compare to widely published utility scale wind, solar PV, concentrator photovoltaics (CPV) and concentrated solar power (CSP). “Although cost overruns in completing Medupi and Kusile have driven up the LCOE of these new-coal assets, compounded by interest costs on finance during construction due to continued delays, nobody is telling us by exactly how much,” says Turner. “Supporters of the nuclear new-build programme often refer to Koeberg, which was commissioned 30 years ago, when trying to convince the public of the ‘affordability’ of nuclear power.” In the absence of any transparent information, we should rather be looking at the LCOE of current new-build nuclear programmes such as Hinkley Point in the UK as examples of what we can expect to pay for nuclear power in South Africa,” says Turner,

Renewable energy (RE) provides a two-tiered solution to this energy crisis: offering faster deployment of generation capacity and a lower

over its operating lifetime. In the case of the REIPPPP, it is reflected by the bid tariff, which recovers plant capital and operating costs and expected investor returns over a 20-year power purchase agreement (PPA) period. Where good solar resources exist and low-cost financing is available, utility-scale solar photovoltaic (PV) projects that are now being built will provide electricity at a lower cost than fossil fuels, without any fiscal support or government subsidies. Solar PV’s growing competitiveness holds just as true in regions where indigenous fossil fuels are abundant. The REIPPPP, introduced in 2011, has by all accounts been very successful in quickly and efficiently delivering clean energy to the grid. Government aims to develop private sector RE projects with a production capacity of 17 800 megawatts (MW) by following a competitive bidding process. A total of over 5 000 MW across all tech- nologies (PV = 1 900 MW) has already been allocated during the first four rounds. Increas- ingly competitive bidding rounds have led to substantial price reductions on all technolo- gies but most notably on solar PV, supporting the technology’s potential as a major future source of electricity supply in South Africa.

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cost than alternative generation technologies. This is a radical departure from conventional thinking, which positions renewables as a more expensive source of power. Despite being critiqued for its heavy reliance on coal-fired power in the past, South Africa has recently developed what is argu- ably one of the most successful IPP-driven RE programmes globally. Under the Renew- able Energy Independent Power Producer Procurement Programme (REIPPPP) it has hosted the fastest-growing clean energy market globally over the past five years, and is now one of the world’s most attractive RE investment destinations. In three short years, wind and solar PV have reached pricing parity with supply from new coal-fired power stations from a Levelised Cost of Energy (LCOE) perspective. LCOE represents the cost per kilowatt hour of constructing and operating a power plant over a specified generator’s lifecycle, taking into account factors such as cost of capital, operations and maintenance costs (including fuel) and the anticipated plant load factor

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Matthew Turner, business development manager at juwi Renewable Energy, shares his opinion on the cost of energy.

CONSTRUCTION WORLD FEBRUARY 2016