The model of the industry that provides electricity for daily life has remained little changed over the past 100 years. Electricity has been produced by central power stations — coal, hydro, diesel, gas and nuclear — fed into an electricity grid and delivered to customers through a network of substations and lines.
The maturity and sophistication of the industry is highlighted by its continual improvement in efficiency, technological innovation and the increase of its reach to the furthest corners of the globe. Nevertheless, some suggest that the fundamentals of the industry will remain constant for the next 50 to 100 years.
This is not the case — the power sector faces great change that is exciting and risky depending on the location in the system and the approach adopted. There is a chance of winners and losers. The art of strategy lies in minimising losers and maximising winners.
There are several change drivers. Distributed energy sources such as solar photovoltaics are becoming accessible to the public – turning electricity consumers into a "prosumers" (producer-consumers).
Renewable energy sources, especially solar and wind, are rapidly becoming the cheapest source of electricity. The subsidy driver supporting renewables growth is consequently being replaced by a business-case driver, causing renewables to top fossil fuels and nuclear in investment decisions.
Grid security – while still reliant on base-load, mid-merit and peaking fossil and nuclear plants — is being complemented by technologies such as grid-based storage, synchronous condensers, synthetic inertia, power conversion systems, demand response and interconnections. Energy efficiency is increasing at rates that exceed economic growth in several economies — including SA, Japan and the US.
This means economic growth is not automatically accompanied by an increase in demand for electricity — a trend that has applied universally for many decades.
When coupled with an increase in distributed generation and prosumers, the net effect is a reduction in demand from traditional suppliers. New efficient technologies in lighting, heating, cooling, evaporation, drives, materials and catalysts, when coupled with better management of energy, means this trend will continue.
Systems are moving from centralised supply over power lines to an end user, to one in which supply is decentralised and grids now need to deal with more complex energy flows.
Systems are moving from analogue to digital. Smart energy management, metering and system operations are becoming the norm.
The opportunities offered by technologies such as blockchain to manage complex transactions securely, means that new businesses will evolve that cannot currently be envisaged.
Supply-and-demand decisions are increasingly being put into the hands of prosumers. This moves these decisions out of the domain of large centralised power companies — and often outside the control of the energy regulators.
Ethical, responsible and sustainable investment mandates are moving long-term and institutional finance towards clean technologies and away from fossil fuels. Increasingly, businesses are sourcing clean energy directly from suppliers or producing it themselves.
All of this points to entering an era of disruptive change for the power sector and the birth of a new era of electrical energy at the core of economies.
The key question is, what does this mean for SA and what should be done to ensure the country manages the transition to a smart energy future and emerges with a stronger, modern economy that maximises added value to all?
The answer is to manage the legacy and embrace the future.
Recent policy announcements strongly support an enhanced role for fossil fuels and nuclear in SA and the US.
Michael Liebreich, chairman of the Advisory Board of Bloomberg New Energy Finance, recently said: "Renewable energy continues to out-invest fossil by two to one…. this is not alternative energy, this is just mainstream power-generating technology. No alternative energy, no alternative facts."
The school fees that have been paid to level the playing field between renewables and fossil have delivered.
Continued support for investment in legacy fuels will eventually require subsidies to avoid investment in the lowest-cost business option — fossil will require subsidies to avoid investment in renewables. The tide has changed.
Economic growth is not automatically accompanied by an increase in demand for electricity
Considering global investments in new capacity, the only conclusion that can be reached is that once the market takes over and the returns from a renewables investment exceed those from a fossil investment, the momentum will be unstoppable — that is today’s reality even in the face of low coal and gas prices. So, how should this legacy be managed and the future embraced? There must be a move from a grid focused on centralised fossil, nuclear and hydro generation and passive consumers to one based on distributed resources and a two-way system in which consumers are active market participants in a cohesive system.
Currently, the country’s power system is based on cheap base-load coal, nuclear and hydro power supplemented with more expensive storage and diesel capacity to manage variability and meet the peaks. What is required is as much base-cost renewable power as possible, supplemented by more expensive, flexible capacity from demand-response, storage and gas.
In planning SA’s power system, space needs to be made for this new future. SA is well positioned to manage this change.
The grid is integrated nationally – giving SA a backbone for a future integrated smart grid. There is excellent storage capacity in the system with the Drakensberg, Palmiet and the newly commissioned Ingula plants offering more than 2,700MW of storage.
There is excellent peaking capacity in the system, with the Ankerlig, Gourikwa, Dedisa and Avon gas/diesel plants offering 3,000MW of peaking capacity and the hydro capacity of Gariep and Vanderkloof offering 600MW more.
SA’s experience of capacity constraints and related load shedding has resulted in a better understanding of the opportunities to manage the demand side of the market, the so-called demand-response market. While this still needs to be fully quantified, at least 1,000MW in demand-response capacity is available. The controversial aluminium special-pricing agreements offer a further 1,500MW of interruptible capacity.
There is almost 9,000MW of capacity that can be used to manage variability in the system and ensure security of supply.
SA’s fleet of coal-fired power stations is ageing and most of it (excluding Medupi and Kusile) is scheduled to be progressively decommissioned over the next 30 years, providing an environment for the efficient and cost-effective introduction of replacement capacity, grid reinforcement and storage, demand market development and the creation of prosumers.
SA’s renewable energy resource is among the best in the world. The evolution of dispatchable solar technology (concentrating solar with storage), coupled with grid management capacity, a reinforced smart grid and the geographical and technological diversity of renewable sources, means a reliable system should be achievable in the next 15 years.
The Southern African Power Pool is an interconnected system with excellent technical and management relationships that have worked seamlessly for decades. This provides a foundation for technological and geographical diversity of power in the region, albeit with the need for considerable grid reinforcement and smartening.
Key changes needed to enable SA to leverage the transition to becoming a leader in the drive towards a zero emissions-driven economy include creating a shared view of a reformed power sector that is positioned to thrive in a changed environment — and to implement it.
This means revising the way planning is done, turning away from the "this is the way it is always done" to a future of real possibilities and inevitable change. A least-cost approach must be used to plan the entire system — supply, storage, delivery and demand, in a well-designed market.
SA should plan for a zero-emissions system by 2050.
Any commitment to a generation plant with long lead times and which is capital intensive should be avoided. An electricity market that incentivises the execution of the plan should be created — with simple and easy third-party access to the grid at all levels.
Fleet of coal-fired power stations is ageing. Most of it is scheduled to be decommissioned over next 30 years
SA should be weaned off new capacity through state-guaranteed power-offtake agreements to a market-driven system. The regional grid and interconnectedness should be developed to increase the resilience of the southern African system.
The grid must be smartened at all levels — transmission, distribution and the end users — especially through smart metering, grid-based storage and the integration of alternative reliability and security technologies such as synchronous condensers, synthetic inertia, power conversion systems and fast-response demand management.
Efficiency standards and regulatory mechanisms should be established for end-use technologies and buildings.
An enabling legislative environment should also be developed that promotes innovative regulatory mechanisms while enforcing adherence to strict safety, quality and performance standards. The current assets must be managed for value and optimisation — existing plants should not be decommissioned just for the sake of it. It could be used to manage the transition to lower-cost electricity for South African consumers and the economy, and an improved environment. SA needs a national plan that maximises the value of the power sector to society by enabling new business models and infrastructure while locking in common-good initiatives such as universal access and free basic electricity.
It should set the goal to reducing emissions to zero while factoring in adaptation to the negative effects of climate change. It must put customers and prosumers at the fore of the system. SA must design a secure, reliable network, building on strengths and reinforcing with increased storage, interconnection, distributed connections, demand markets, reliability, security enhancements and intelligent management.
An electricity market must be created with incentives, standards and regulations that encourages private-sector investment, reduces the load on the state, creates jobs and facilitates innovation.
If this is done, the foundation for a modern and sustainable economy will be created. Continuing with "big coal-big nuclear-big grid", SA runs the risk of burdening future generations with an outdated, polluting system, unable to adapt to a new era and overtaken by the rest of the world.
• Dr Lennon is a director at Fusion Energy.
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