Eskom vs CSIR: The Argument about Renewable Energy and Costs in South Africa

No Comments » January 23rd, 2017 posted by // Categories: Energy Development Project




http://www.eskom.co.za/news/Pages/Jann9.aspx
Eskom remains committed to renewables at a pace and cost the country can afford
Tuesday, 10 January 2017: Eskom acknowledges the positive role played by the renewable energy programme in the reduction of load shedding and in turn the benefit to the South African economy.
The Council for Scientific and Industrial Research (CSIR) has developed a methodology quantifying the net economic benefit of renewables (solar photo voltaic and wind). This is achieved by calculating the benefits of reduced unserved energy (load shedding), as well as cost savings to Eskom (avoided coal and diesel burn). These benefits are then offset against the total tariff paid to the renewable IPPs, resulting in a net economic benefit or loss.
For the first six months of 2015, Eskom purchased 2.0 Terawatt hours (TWh) of wind and solar PV. The CSIR calculated a total financial benefit of R8.2 billion. This was offset against the R4.3 billion renewable energy tariff cost, resulting in a net economic benefit of just under R4 billion.
From January to December 2016, Eskom purchased 6.0 TWh of renewable energy from solar PV and wind. Using the same methodology, Eskom calculated the total financial benefits, which amounted to R3.2 billion. This was offset against the renewable energy tariff cost of R12.2 billion, resulting in a net loss of R9.0 billion to the economy.
This net loss to the economy will continue for as long as there is surplus capacity. Eskom currently has surplus capacity until 2021 and can meet any increase in demand. Eskom has added a total of 5 568 MW, adding an additional 15% capacity to the grid in the last 2 years. Additional capacity was added by improving performance and the commissioning of new build plant. In the next 5 years, Eskom will add a further 8 304 MW capacity through the new build programme.
Further, it is vital to note the associated cost impact which has also been highlighted by rating agency Moody’s. On 20 September and 05 December 2016, Moody’s credit opinion stated that “the group’s financial ratios remain very weak as a result of rising operating costs primarily driven by higher primary energy costs and ongoing growth in power purchase agreements with Independent Power Producers (IPPs), as well as the continued roll out of its large capex programme”.
Eskom and the Government continue to work together determinedly to address all issues as highlighted in the Moody’s credit opinion reports of 2016 at a cost and pace that the country can afford.
ENDS

http://www.fin24.com/Economy/Eskom/5-reasons-why-eskom-is-wrong-about-renewables-costs-csir-20170112

5 reasons why Eskom is wrong about renewables costs – CSIR

Jan 12 2017 13:19

Matthew le Cordeur
Cape Town – The Council for Scientific and Industrial Research (CSIR) has refuted Eskom’s cost calculations regarding renewable energy, after the utility said surplus power caused a net loss of R9bn to the economy.

The debate comes as a battle of energy ideas rages amid the Department of Energy’s (DoE’s) public consultation process for its draft Integrated Energy Plan and the Integrated Resource Plan (IRP). This week the DoE extended the consultation process to March 31 2017.

The final outcome will determine the energy mix government and Eskom will aim for. Eskom is a strong proponent of increasing nuclear energy power stations, as it believes renewables are intermittent and expensive and coal is a big carbon emitter. Renewable energy advocates, such as the CSIR, say the latest data proves Eskom is wrong.

“For the first six months of 2015, Eskom purchased 2 Terawatt hours (TWh) of wind and solar PV,” Eskom said in a statement on Tuesday. “The CSIR calculated a total financial benefit of R8.2bn. This was offset against the R4.3bn renewable energy tariff cost, resulting in a net economic benefit of just under R4bn.

“From January to December 2016, Eskom purchased 6.0 TWh of renewable energy from solar PV and wind,” Eskom said.

“Using the same methodology, Eskom calculated the total financial benefits, which amounted to R3.2bn. This was offset against the renewable energy tariff cost of R12.2bn, resulting in a net loss of R9bn to the economy.”

Read: Eskom’s full press statement.

The CSIR’s 5 reasons why Eskom is wrong

However, the CSIR told Fin24 on Thursday that there are five reasons why Eskom was wrong in this assumption:

1. CSIR’s fuel-saver methodology measures only short-term effects

“The methodology developed by the CSIR measures only the immediate fuel saving effect on the existing fleet and not the long-term effects on new investments that an IRP will measure,” it said. “Methodologically it therefore always grossly underestimates the lifetime value of a new power generator.”

2. Short-term effects are measured incorrectly if the methodology is applied without adjustments

“The methodology was developed to be applicable during a time of a constrained power system with high diesel turbine usage and load shedding. When the power system is less constrained and diesel turbines are not operational most of the time, the methodology underestimates the diesel fuel savings. Thus, it needs to be adjusted to give the correct fuel-saving value.”

3. In 2016 only the most expensive solar PV and wind projects were operational

“Only (bid window) BW1 and BW2 projects of solar PV and wind were operational in 2016 (and a few BW3 projects for a few months). These are by far the most expensive projects – and they will be for the next 18 years (the residual time period of the 20-year power purchase agreements).

“South Africa effectively got a ‘discount’ on these expensive projects for the first two to three years when the power system was (and partially still is) constrained. This discount stems from both avoided load shedding and from diesel fuel savings.

“Both effects were not anticipated when the decision was made to implement these expensive projects. South Africa essentially made an investment decision into new power generator technologies, knowing that those of the first rounds are expensive and school fees were being paid in the first few BWs.

“Because of the coinciding constrained nature of the power system during the time when these power generators came online and worked as an ‘emergency supplement’, the country received a ‘discount’ on the cost of them for the first few years.”

4. The true value of the expensive first BWs lies in the cost reduction they achieved

“The real value in the projects of BWs 1-3 lies in the fact that without them the country would not have been able to bring the cost for new solar PV and wind down to the latest achieved R0.62/kWh – which is 40% cheaper than new coal.”

5. All new BW4 projects are almost cost neutral from a pure fuel-saving perspective

“While the operational solar PV and wind projects (of BWs 1 and 2) triggered tariff payments of roughly R12bn in 2016 and produced roughly 6 TWh in the same year, the entire BW4 solar PV and wind projects (BW4, BW 4 Additional and BW4 Expedited) will trigger tariff payments of merely R6.6bn per year while they will produce more than 9 TWh/yr.

“That means 45% less annual payments for 50% more energy, compared to the currently operational solar PV and wind projects. These new projects will therefore be almost cost neutral from a pure fuel-saving perspective (i.e. the entire cost of the new car is similar to the cost of the fuel only for the existing car).”

READ: The full CSIR explanation why Eskom is wrong


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