The case for integrated resource plan public hearings

22nd January 2010 By: Terence Creamer - Creamer Media Editor

After sitting through parts of the National Energy Regulator of South Africa’s (Nersa’s) public hearings into Eskom’s request for a 35%-a-year increase in its tariffs between 2010 and 2013, it became plain that many of the submissions would have been far more germane to a discussion on the country’s future energy security and generation mix than they were to the immediate problem of determining Eskom’s revenue requirement for the three-year period.

In fact, most of the submissions would have little, if any, relevance for Nersa, whose decision- making is constrained by a rigid revenue- requirement formula and guided by existing electricity legislation and pricing policies.

That does not suggest, however, that the presentations lacked value altogether.

On the contrary, the hearings unearthed a rich vein of analysis and insight – insight, though, that would have been better applied to a discussion on the so-called integrated resource plan, or IRP, than to the setting of tariffs.

For this reason, I believe, it would be worthwhile for the Department of Energy (DoE), which has overall responsibility for the drafting of the IRP, to consider hosting provincial hearings (similar to those conducted by Nersa) where oral submissions could be entertained on the plan and the IRP concept itself.
Indeed, the DoE has already promised thorough consultation ahead of the drafting of the second version of the IRP (due for release later this year) following the release of what can only be described as a disappointing IRP1 document in December last year.

In fact, Minister Dipuo Peters stressed at the time that she had instructed her department to “intensify consultation” during the first quarter of 2010 so that a new version could be delivered by midyear.

Such consultation, in my view, is important, owing to the fact that the IRP2 will outline South Africa’s generation choices over a 20-year horizon. By contrast, the IRP1 restricted itself to a horizon ending in 2013, leaving very little space for cogeneration (some 400 MW) and/or independent power producer and renewable capacity (about 5 000 MW).

The advantage of conducting hearings would be to elevate the importance of discussion in the minds of the South African citizenry, from businesspeople and Parliamentarians, to union officials and policymakers. It would also create the platform for experts, interest groups and individuals to take the debate beyond the ethos of central planning and, hopefully, into the realm of out-of-the-box thinking.

Further, the fact that many of these issues were being canvassed at the Nersa hearings shows that that there is a pent-up aspiration within society to engage in the electricity debate.

Critical Assessment
But such hearings could also provide the space for critical questions to be asked about the IRP itself.

For instance, energy consultant Mark Pickering has raised concerns about the so-called new capacity regulations, which create the framework for the IRP process. “I do not believe that this is a sound planning system for such an important industry,” he asserts, arguing that the regulations leave considerable discretion in the hands of the Minister.

This is a significant potential problem, owing to the fact that a generator will only be able to obtain a licence if its project is listed in the IRP. In other words, the Minister becomes a powerful ‘gatekeeper’, which could curtail competition and limit the generation choices available. Under the worst-case scenario, the door, Pickering argues, could also be left open to corruption, particularly given that the buyer of electricity (be it Eskom or an independent system operator) could feel pressurised to conclude power purchase agreements with those operators sanctioned by the Minister regardless of the economics.

To deal with such unintended consequences, Pickering argues that the IRP should be reconceived as a “long-term guideline rather than an absolute year-by-year plan” and that it should not be binding on the buyer or Nersa.

But interesting practical suggestions could also flow from a hearings process.

For instance, the input provided to Nersa by South African Institute of Electrical Engineers president Du Toit Grobler had some instructive points on how the system could be managed differently.

One suggestion was to split South Africa into two time zones to spread the peak energy demand across a broader timeframe, which Grobler argued could ease pressure on the reserve margin and buy the country time to explore more efficient solutions to the capacity challenge.

He also proposes coordinated research and development of renewable-energy sources, such as concentrating solar energy and solar water heaters, as well as the setting aside of resources to interrogate the possibility of supplying low-voltage direct current, instead of adding all the inefficiencies of alternating current to direct-current conversion.

Turning buildings into “intelligent” sources (rather than consumers) of energy was another proposition, as was using the lottery to finance some power expansions.

To my mind, hearings would also create a fairly good platform for open debate on the merits, or otherwise, of various technology choices, from nuclear and coal through to wind, solar and hydro.

To be sure, such a process has downside risks, not least being the possibility of extending timeframes for what is an extremely pressing matter requiring resolution.

But this could be circumvented through the setting of highly publicised, President Barack Obama-style, deadlines, from which it would simply be too politically embarrassing to stray.

I have no doubt that such a process would yield as many unhelpful suggestions as valuable insights. Still, I remain convinced that those worthwhile opinions and suggestions that do in fact arise would have value far exceeding the time and monetary costs associated with assembling such an endeavour.