Bias towards renewables tops Gordhan’s budget

The department of energy plans to procure 3 726mw in its gas-to-power programme between 2019 and 2025, which will stimulate the gas market.

Solar Power. Image courtesy: stock.xchng

In the budget presented by Finance Minister Pravin Gordhan in February, R200 million was allocated for preparatory work for nuclear procurement.

But yesterday, in the medium-term budget policy statement (MTBPS), the word nuclear only appeared once – and it referred to nuclear waste. Instead, renewable energy – together with gas to provide base load electricity supply – was punted. The MTBPS stated that the integrated resource plan (IRP) “should take into account the falling cost of renewables and their possible use in generating base load electricity”.

Quoting from the 2016 Renewables Global Status Report, the MTBPS states investment in renewable energy had exceeded investment in new fossil fuel generation worldwide since 2014. The majority of investments were in developing countries, as financing had become readily available, thanks to the declining cost of renewable energy.

The success of South Africa’s renewable independent power producers (IPP) programme, with 2 200MW of the 6 376MW procured already connected to the grid, was highlighted. IPPs had attracted R194 billion of investment and created nearly 27 000 jobs.

Since the inception of the programme, the average cost per Kw/h had dropped by 67.4c, and rendered wind and solar photovoltaic generation costs competitive with new gas and coal options.

The department of energy plans to procure 3 726MW in its gas-to-power programme between 2019 and 2025, which will stimulate the gas market. The coal base load IPP programme aims to procure 2 500MW of coal generation capacity, and the winning bidders for the first 863.3MW to be delivered in the next five years were announced earlier this month.

But this left more questions regarding the country’s nuclear power plans, especially because the MTBPS warned about the possibility of over-investment in electricity generation.

The MTBPS states that further investment in electricity generation capacity would be guided by the IRP and integrated energy plan, “which should be alert to the risk of over-investment”.

In the MTBPS, Treasury states that oversupply of generation capacity would result in higher electricity tariffs, negatively impacting on economic growth.

The mini budget in a nutshell

The consolidated budget deficit for 2016-17 is projected at 3.4% of GDP (previous estimate 3.2%).
Economy to grow by 0.5% in 2016, 1.3% in 2017 and 2% in 2018.
Inflation to rise by 6.4% in 2016, 6.1% in 2017 and 5.9% in 2018.
Tax shortfall of R23 billion due to lower economic growth.
Treasury to cut the expenditure ceiling by R26 billion and increase tax collection by R43 billion over next two years.
Total debt-to-GDP ratio to reach 45.8% this year, and “stabilise” at 47.9% in 2019-20.
At least R987 billion will be invested in infrastructure over the next years, with large investments continuing in energy, transport and telecoms.
An additional R17.6 billion for post-school education and training, which will grow by 11% thereafter.
Transfers to NSFAS to grow by 18.5%.
No significant announcements regarding Eskom’s nuclear build programme.
No significant announcements regarding SAA recapitalisation.