Financial benefits of solar and wind power in South Africa in 2015

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Financial benefits of solar and wind power in South Africa in 2015

Dr Tobias Bischof-Niemz

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South Africa’s power system is currently under severe constraints

• Power generators meant to be the “barely-ever-used” safety net for the system (diesel-fired gas turbines) running at > 30% average load factor in the first half of 2015

• Load shedding occurred during 82 days in the first half of 2015 (out of 181 days)

At the same time, Department of Energy is procuring new generation capacity and has already allocated a total of 8.1 GW of renewables (mainly wind & PV) for procurement from Independent Power Producers

• … of this, 6.3 GW have achieved preferred bidder status

• … of this, 4.0 GW have financially closed and signed the Power Purchase Agreements with Eskom

• … of this, ~1.8 GW are operational and feed energy into the grid as of end of June 2015

The CSIR conducted a study on the financial benefits of the first renewables in South Africa in 2014

• Fuel cost savings by reducing the utilisation of diesel-fired gas turbines and of the expensive part of the coal fleet were assessed, as well as the amount of “unserved energy” that renewables avoided

• The study found that renewables in 2014 generated R0.8 billion net benefit to the economy

A continuation of this financial benefit study was conducted for the first 6 months of 2015

Background

Sources: CSIR Energy Centre analysis

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Actuals: South African power system in 2015

Methodology: illustrative explanation

Results: financial benefits of renewables in 2015

Next steps

Agenda

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Wind and PV stand for 2% of the electricity sent out to the South African grid from Jan-Jun 2015

Actual energy captured in wholesale market from Jan-Jun 2015

TWh

Sent Out 114.1

PV 1.1

Wind 0.9

OCGTs (Diesel)

3.3

Coal 99.9

Pumped Storage

1.5

Hydro 0.5

IPPs (not wind/PV)

1.7 Nuclear

5.2

Sources: Eskom; CSIR Energy Centre analysis

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Hourly distribution of actual load shedding in the South African power system from Jan to Jun 2015

Notes: Load shedding assumed to have taken place for the full hours in which it was implemented, in reality load shedding (and the Stage) may occassionally change/end during a particular hour. Total GWh calculated assuming Stage 1 = 1 000 MW, Stage 2 = 2 000 MW, Stage 3 = 3 000 MW

Sources: Eskom Twitter account; CSIR Energy Centre analysis

January February March April May June

Day 1

Day 31

0h00 24h00 0h00 24h00 0h00 24h00 0h00 24h00 0h00 24h00 0h00 24h00

No load shedding Stage 1 load shedding Stage 2 load shedding Stage 3 load shedding

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Methodology: illustrative explanation

Next steps

Agenda

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CSIR-defined methodology: In any hour, wind/PV can have one of three effects on the existing fleet

Saving coal fuel

Saving diesel fuel

Avoiding

“unserved energy”

A

B

C

Applicable if …

Others Pumped Hydro Coal OCGTs (Diesel) Wind PV

… output from OCGTs = 0 MWh

Note: Only applicable in the short run to assess effect of wind/PV on the existing fleet. Not applicable to assess additional value of renewables in new-build scenarios Sources: CSIR Energy Centre analysis

… output from OCGTs > 0 MWh

… output from OCGTs > 0 MWh and (reserves of OCGTs and Pumped Hydro) < (wind and PV)

System Load assumed effect of

“taking wind/PV away”

assumed effect of

Reserves of OCGTs and Pumped Hydro

“Unserved energy”

Actuals What if wind/PV

hadn’t been there

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20 35

15

10

5

0 30

25 GW

3 2 1

0 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Coal

OCGTs (Diesel) Wind

PV

Nuclear

Hydro, Pumped Storage Imports, Other

Supply Sources

This wind/PV energy would have had to be generated by day-time coal if wind and

PV had not been there This wind energy would

have had to be generated by night-time coal if wind

had not been there

A

On an unconstrained day, wind and solar PV replace mainly coal fuel

Actual South African supply structure for a summer day, 2 January 2015 (Friday)

A

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35

30

25

20

15

10

5

0 GW

24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0

Nuclear

Coal

OCGTs (Diesel) Wind

PV

Supply Sources

On a constrained day, both wind and solar PV replace mainly diesel fuel

Actual South African supply structure for an autumn day, 9 April 2015 (Thursday)

This wind energy would have had to be generated by night-time coal if wind

had not been there

A

This wind/PV energy would have had to be generated

by OCGTs if wind and PV had not been there

B

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20

15

10

5

0 35

30

25

3 2 1 0 GW

24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4

Nuclear

Coal

OCGTs (Diesel) Wind

PV

Supply Sources

Stage 1 Load Shedding commenced from 11h00 until 22h00

On 9 January, PV even prevented

“unserved energy” between 8h-11h00

Actual South African supply structure for a summer day, the 9 January 2015 (Friday)

Both OCGTs and pumped hydro were at their limits between approx. 8h00 and 11h00. Without 500-800

MW from PV at that time, some customer demand would have had to be “unserved”

C

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Actuals: South African power system in 2015

Next steps

Agenda

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Renewables replaced 0.5 TWh from coal and 1.5 TWh from diesel from Jan-Jun 2015

Coal/diesel replacement in GWh for Jan-Jun 2015 due to wind and solar PV

in GWh

… electricity from

coal

… electricity from diesel

… unserved

energy Total

Wind replaced/

avoided... 305 603 17 925

PV replaced/

avoided... 176 852 35 1 063

Total 481 1 455 52 1 988

Results for Jan-Jun 2015 from applying CSIR-defined methodology on actual hourly production data

Notes: Inidividual values are rounded and might not add up to the total values Sources: CSIR Energy Centre analysis

A B C

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3.6

Total tariff payments to

renewables IPPs

3.1 4.3 1.2

Renewables’

net benefit 3.1

Diesel saved

4.6

Value of avoided unserved

energy

Total financial benefit of renewables 1.5

3.5

Total fuel savings 2.0

1.4

Coal saved 0.1 0.1 0.1

4.0 8.3

Wind PV

203 h  52 GWh

A

C B

In summary (Jan-Jun 2015): Renewables generated a net benefit for the economy of up to R4.0 billion

Billion Rand

Jan-Jun 2015

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Next steps

Agenda

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Actual results:

New projects much cheaper than first ones

First four bid windows’ results of Department of Energy’s renewables programme

0.82 1.10

2.05 3.44

0.82 0.65 1.12

1.42

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Bid Window 4 (18 Aug 2014) Bid Window 3

(19 Aug 2013) Bid Window 2

(5 Mar 2012) Bid Window 1

(4 Nov 2011) Average tariff

in R/kWh (Apr-2015-R)

Bid sub- mission dates

∑ = 1.9 GW

∑ = 2.7 GW

649 MW

559 MW

787 MW 627 MW

417 MW

435 MW Projects already

commissioned and thus in the scope of this study

Projects already commissioned and thus in

the scope of this study Projects already commissioned and thus in the scope of this study are the ones at the beginning of

the learning curve

415 MW

676 MW

Note: BW = Bid Window; Sources: Department of Energy’s publications on results of first three bidding windows http://www.energy.gov.za/IPP/List-of-IPP-Preferred-Bidders- Window-three-04Nov2013.pdf; http://www.energy.gov.za/IPP/Renewables_IPP_ProcurementProgram_WindowTwoAnnouncement_21May2012.pptx; StatsSA on CPI; CSIR Energy Centre analysis

Wind

PV

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35

30

25

20

15

9 8

7 6

5 4

3 2

1 0

GW

‘000 hours per year

The system had a peaking demand of 3.8 GW, mid-merit of 5.0 GW, and baseof 25.8 GW

System Load

Peak-load (< 1 000 hrs/yr ) Mid-merit load

(> 1 000 & < 6 000 hrs/yr)

Base-load (> 6 000 hrs/yr)

3.8

34.7

System 5.0

25.8

Load Duration Curve for Aug 2014 to Jul 2015 as per actual data

GW

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Load Duration Curve for Aug 2014 to Jul 2015 as per actual data

4 5 6 7

0 1 2 3

35

30

25

20

15

9 8

GW

‘000 hours per year

Wind/PV changed the shape of residual load:

mid-merit & base down to 4.9/25.4 GW, peaking up

Residual Load = System Load - Wind - PV System Load

3.8 TWh of electricity supplied by wind and PV from August 2014

to July 2015

Peak-load (< 1 000 hrs/yr ) Mid-merit load

(> 1 000 & < 6 000 hrs/yr)

Base-load (> 6 000 hrs/yr)

3.8

25.8 5.0

34.7

System Residual

34.5

4.2

25.4 4.9

GW

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Additional effect CAPEX savings: Wind & solar PV change shape of load & allow for cheaper new-builds

Assumed cost of new capacity in

R/kW 8 000 12 000 25 000

34.5

Residual 25.4

4.9 4.2

System

34.7

25.8 5.0

3.8 Last year, wind and PV changed the

residual load such that cheaper new conventional power stations can be

built: Annualised R9 billion CAPEX savings translates into additional value

of R0.2 per kWh of renewable energy

Type Delta for

required

new-builds

Peak +400 MW

Mid-merit -100 MW

Base -400 MW

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Thank you