The fundamental flaws of the new Integrated Resource Plan

by May 7, 2024Amandla 92, Energy & Just Transition

These structural adjustments to the energy sector will hasten Eskom’s death spiral and result in the loss of the energy sovereignty required to end energy poverty, secure electricity supply and effectively plan a transition towards a low-carbon economy.

How will South Africa overcome load-shedding and achieve a just transition to a low-carbon economy? The Integrated Resource Plan, produced by the Department of Mineral Resources and Energy, is a blueprint which outlines the South African government’s plans for the electricity sector in an attempt to answer this complex question. The continuous shifting of South Africa’s economic, energy and political landscape requires the plan to be regularly reviewed and updated, with its first iteration published in 2010. Two primary objectives sit at the core of the 2023 draft of the IRP:

  • securing electricity supply (in consideration of demand, the environment and total cost of supply)
  • pursuing a diversified energy mix that will provide energy security in the long term while aligning with the country’s efforts to significantly reduce its greenhouse gas emissions. 

The newest draft of the Integrated Resource Plan arrives as the country faces a series of severe and interconnected crises. In the past several years, the country has endured escalating levels of load-shedding­—Eskom, the country’s ailing public electricity utility, has not been able to sustainably secure supply to meet demand for energy. This intensifying energy crisis converges with over a decade of lethargic and, at times, stagnant economic growth. This has produced rising levels of mass unemployment, poverty and financial precarity, which only feeds South Africa’s record-breaking levels of inequality. 

Looming over all this is the spectre of climate change and ecological collapse. The continued and drastic rise of global temperatures and extreme changes to weather patterns are a threat that cannot be underestimated. 

The latest draft of the IRP has been met with an understandable wave of frustration and disappointment from energy experts, civil society organisations and climate activists across the political spectrum. But there is an underlying flaw with the IRP that has yet to be articulated. In both its formulation and in the context of ongoing efforts to unbundle Eskom while creating a competitive energy market, the IRP undermines its own stated objectives. These structural adjustments to the energy sector will hasten Eskom’s death spiral and result in the loss of the energy sovereignty required to end energy poverty, secure electricity supply, and effectively plan a transition towards a low-carbon economy. 

Beyond this fundamental flaw, the proposed interventions within the IRP and its long-term vision for South Africa’s energy mix are woefully insufficient. One can understand this to be a consequence of three elements:

  • flawed or undisclosed assumptions within the plan’s modelling,
  • inadequate comparative assessment of energy options and their technology costs,
  • an overriding disharmony with existing policy on electricity generation and the country’s decarbonisation efforts. 

Energy options and proposed interventions to end load-shedding 

The draft IRP is divided into two sections, Horizon One and Horizon Two. The first section concerns how to secure electricity supply in the short-term, i.e solve load-shedding through addressing Eskom’s weak generation capacity and constraints to expanding it. The second section turns its focus towards outlining South Africa’s energy future between 2031 and 2050. 

Five interventions are proposed as a result of Horizon One’s scenario analysis. Firstly, there is the proposition to improve Eskom’s Energy Availability Factor (EAF). Indeed, improving the utility’s EAF is crucial to resolving load-shedding in the short-to-medium term. But this cannot be seriously undertaken if Eskom is shackled to a mandate unsuited to South Africa’s developmental and industrial needs. 

At the heart of Eskom’s rapid decay is its corporatisation in 2001 and the adoption of an unsustainable financing model. Vital to Eskom’s corporatisation was the utility’s adoption of the full-cost recovery model and the ‘user-pays’ principle. This financing model mandates Eskom to operate like a private company, making it dependent on raising revenue through selling electricity to end-users in order to recover the costs of its operations, with additional profit and market-rate debt being utilised to fund new projects.

The adoption of the full-cost recovery model is an indication of the incongruence between government policy and the harsh socio-economic realities South Africans face. Taking into account mass unemployment, rising levels of poverty and years of stagnant wages, it should not be surprising that citizens have for years not been able to pay Eskom’s rising tariffs. The past several years have seen Eskom’s revenue streams narrow as sales volumes decline due to citizens finding alternative sources of energy or hopping off the grid. A major factor in Eskom’s precarious supply has been its immense struggle to raise sufficient revenue so that the utility can conduct comprehensive maintenance and efficient operations. 

Further restraining revenue streams are Eskom’s growing debt-service costs (exacerbated by continued reliance on loans often denominated in foreign currency), and the cost of energy sourced from Independent Power Producers, alongside the climbing costs of diesel and fuel. Burdened by debt, riddled with high operational costs and chained to an unsustainable financing model, the likelihood of Eskom’s EAF significantly improving is incredibly narrow. Eskom needs to be fully funded and resourced in order to thoroughly repair and maintain its existing fleet.

No detail in gas proposals

Taking into account mass unemployment, rising levels of poverty and years of stagnant wages, it should not be surprising that citizens have for years not been able to pay Eskom’s rising tariffs.

The second intervention suggests “the deployment of dispatchable generation options such as gas-to-power in line with Section 34 Ministerial Determinations must be accelerated”. This would be achieved by scaling up the allocation of gas-fired power generation to 7,220 MW. Tangibly, this would entail South Africa importing gas in the short- to medium-term and eventually pursuing gas exploration in the long term, relying on domestic and regional resources. 

Once again, Eskom’s current state­—specifically its financial precarity and legislative restrictions­—must be considered in criticising this proposed intervention. A strong condition of the Eskom Debt Relief Act, developed by the National Treasury, is its prohibition on Eskom investing in new generative capacity for the next three years. Without this allowance, one questions how the IRP envisions the rapid deployment of gas-to-power occurring in a manner that would significantly reduce the instability of the electricity supply. This appears to be a major instance of disunity in government policy as it relates to the energy crisis. 

Of major concern with increasing gas-to-power generation are the implications for emission reduction, environmental harm and risks towards communities adjacent to gas production. Intense gas extraction will firstly entail severe risks for community water supply, as potentially poisonous contamination of water is a widely documented feature of the gas extraction processes such as fracking. 

The threat posed by methane emissions, the chief component of natural gas, cannot be overlooked in the comparative assessment of energy options. According to the Environmental Defense Fund, “Methane traps over 80 times more heat in the atmosphere than carbon dioxide during the first twenty years after its release. Its emissions bear significant responsibility for climate-related threats like more intense, severe and frequent extreme weather events, increased food insecurity, greater risk of infectious disease and heat-related illness and death”. 

Further harms associated with gas production are the degradation of land quality and marine life and losses in biodiversity. All these severe risks collide to thwart decarbonisation efforts as healthy ecosystems are a vital component to reducing the danger posed by climate change. 

Energy experts generally accept that some gas production will be required in South Africa’s future­—and thorough energy planning must consider all forms of energy that are accessible­—but the draft IRP does not go into detail regarding how the government plans to mitigate or curtail the climate and environmental dangers of gas production. It is profoundly concerning that consideration of how people’s lives will be impacted and potentially ruined by gas production is glaringly absent. The cost implications of building the extensive infrastructure required for gas extraction and power plants are also noticeably absent in the draft IRP, and many have questioned whether these cost considerations have been factored into the document’s scenario planning. For example, with reference to the IRP 2019, the International Institute for Social Development reported in 2022 that “to introduce the first 3,000 megawatts of capacity and gas supply by 2030 will cost at least R47 billion, which could be functionally squeezed out by cheaper, low-carbon alternatives”.

The perils of carbon capture

The IRP 2023 makes another important shift, in comparison to the 2019 version, towards prioritising investments in clean coal technologies. It focuses on Carbon Capture Utilisation and Storage (CCUS) as a technology option to mitigate environmental damage and reduce CO2 emissions. Similar to the document’s proposition of ramping up gas to power generation, there is little to no space in the document for a comparative analysis of risks associated with this technology. 

High capital costs continue to be an obstacle to the deployment of CCUS, due to the large amounts of energy required to capture carbon in the atmosphere. These combine with design complexity and the slow pace of cost reductions in the past 50 years of the technology’s commercial use. It is these barriers which have played a considerable role in halting carbon capture projects in countries such as Canada and Norway. 

Compounding these obstacles are the geographical limitations of carbon capture technologies, with most carbon capture projects being ideally located in North America, the North Sea and East Africa. South Africa is geographically ill-suited for CCUS. This would necessitate the construction of extensive pipeline networks and infrastructure development. Furthermore, in the context of the limitations of CCUS, the risk of leakage and reports of frequent technical failures encountered at storage sites must also be taken into account in a comparative analysis. 

Marketisation undermines energy planning 

Since the drafting and publication of the 1998 White Paper on Energy, founded on neoliberal principles of political economy, the government has remained committed to fostering the genesis of a competitive electricity market. Fundamental to this process is the unbundling of Eskom, the transformation of its various parts into capitalist enterprises, the penetration of private sector actors into power generation, and the establishment of independent systems operators that will function to discipline Eskom entities while making the energy sector landscape hospitable to independent power producers. 

After years of delay, the transition to a competitive electricity market is quickly unfolding, and this reality calls the new draft of the IRP into question. If South Africa is to have an energy sector largely dominated by the private sector, alongside their interests and the imperatives of for-profit enterprise, how is it feasible or even possible to plan for securing electricity supply or decarbonisation? It is highly unlikely that Eskom’s unbundled entities will be able to survive in a competitive market, considering the utility’s financial woes, ill-suited corporate mandate and colossal debt. Moreover, the costs Eskom is likely to incur as a result of marketisation will result in the utility not being able to adequately invest and rapidly deploy renewable energy.

A liberalised energy sector will mean the supply of electricity, its pricing and the proportions of the energy mix will soon no longer be in the control of the government­ – at most, the state will play a regulatory role. But Eskom will not have the capacity, policy room or legislative ability to dictate the shape and direction of the energy sector towards the best interests of South Africans, as a result of providing significant leverage to independent power producers.

A viable way forward

To achieve the reasonable objectives of the draft IRP­-securing supply and reducing emissions­ – Eskom must be transformed into a sustainably funded, de-corporatised and democratically governed utility. This requires ending the full-cost recovery model, halting unbundling and abandoning the user-pays principle in order to shatter the utility’s unhealthy dependency on tariffs and foreign debt. Boosting Eskom’s generative capacity and improving its EAF can be achieved through introducing a progressive tax framework (a component would be a net wealth tax) alongside other measures to mobilise resources by curtailing illicit financial flows and ending the damage caused by profit shifting. 

To retain and magnify South Africa’s energy sovereignty, a transformed Eskom must drive a public-led expansion of renewable energy and invest in building or acquiring low-carbon technologies. For example, this can be achieved through diplomatic negotiation to secure technology transfer agreements that could trigger the development of a domestic renewable energy industry at a low and reasonable cost. 

In other words, Eskom must be at the heart of South Africa’s green industrialisation. This is crucial to avoid undergoing an ineffective and disorganised, market-led transition that will be dependent on profit maximisation. Without such efforts, Eskom will continue to die, energy poverty will persist, and the country’s poor, working-class majority will not be prepared for the calamity of climate change. 

Andile Zulu is a political writer and Energy Democracy Officer at AIDC.

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