As renewable sources of energy continue to decline considerably in price, they are no longer dependent on policy support or subsidies. They are now viable, mainstream sources of electricity generation that can be compared with traditional generation sources — whether fossil fuel-based or powered by nuclear reactors.
There are several misconceptions about how different sources of electricity are priced. A good number are a result of how Eskom seeks to present them.
This is particularly true in relation to renewable sources supplied by Independent Power Producers (IPPs).
The internationally accepted metric for comparing different generating technologies is the levelised cost of electricity. Its principal purpose is as a planning tool and it seeks to bring into account the value of all the energy produced (in kWh) by a generator.
It is the life cycle cost per kWh of any future project, but it is static and only considers capital costs of competing technologies at a point in time and fails to consider the rapid fall in price of technologies such as wind and solar energy.
And the levelised cost does not consider fuel and operating or maintenance costs — important (and costly) factors for a coal or nuclear plant – or the costs of pollution.
The drop in the prices of renewables is relentless and is now well below the price of fossil fuel — and certainly nuclear — in many parts of the world. In this country, a similar trend is clearly evident.
Through several competitive bidding rounds in the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), in just four years, the prices of onshore wind have fallen by 50%, while solar photovoltaic has fallen by more than 75%.
The accompanying table shows the fall in the fully indexed average price (rand per kWh) reflected in the power-purchase agreement with Eskom, at each bidding round. These prices are now well below the price of coal.
Although Eskom does not report what tariff Medupi and Kusile would require on a stand-alone basis, the recent baseload coal IPP resulted in a tariff substantially above that of renewables in the most recent REIPPP bidding rounds.
As the world moves away from carbon dioxide-emitting power, it becomes increasingly difficult to find funding for large fossil fuel-based plants.
Fearing their fossil fuel investments will become stranded, investors are becoming less willing to provide funding, and if they do so, the cost of the capital available to fund fossil fuel-based projects increases.
In this context, being locked into a coal-based energy system sees increased risks and increased costs of capital. Nuclear is known to be risky.
As the price of electricity from a nuclear power station is heavily dependent on the price of capital, when it increases, it affects the price of electricity the plant generates, should it ever be completed.
Yet the presence of a nuclear power programme, due to its negative effect on a host country’s credit rating, works to increase the cost of capital — not just for the nuclear power station, but for everyone.
Nuclear power and large fossil-based power projects permanently raise the price of electricity that is generated from them and displace opportunities for renewables to meet this demand at ever-decreasing cost.
Another important displacement occurs: available budgets that could be directed towards critical immediate needs such as education, health and employment are dissipated in these wasteful megaprojects.
The improved competitiveness of renewables has seen a strong trend favouring them over "conventional" generators. Renewables now account for more additions to global generating capacity than all other sources of generation.
Conservative estimates by organisations such as the International Energy Agency predict that solar will become the biggest individual source of power by 2050.
The march towards a future dominated by renewables will be relentless, but it also poses a real threat to countries that fail to embrace it.
Large-scale power plants, unable to compete with lower prices, are at great risk of becoming stranded assets: built at great cost, but uneconomic and unviable well before the end of their design life.
Simple rules of prudence in financial management — and the management of common environmental resources — require South Africans to embrace the opportunities of less expensive electricity generated with reduced emissions and other consequences, and to expressly avoid expensive and inflexible fossil fuel-based and nuclear megaprojects with their associated risks of becoming unusable monuments to lost opportunities.
• De Vos is director of QED Solutions and Löser is an attorney at the Centre for Environmental Rights.
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