Rushing SA gas investment could cost consumers and be just as harmful as coal, report finds

SA should hold off on developing gas infrastructure too soon, say researchers.

SA should hold off on developing gas infrastructure too soon, say researchers. Getty Images

  • Developing as much as 9 500 MW of gas projects could cost at least R184 billion, according to analysis by IISD. 
  • Researchers suggest that SA hold off on gas until at least 2035 and prioritise investment in renewable energy and battery storage instead.
  • Gas investments would lead to higher energy costs for consumers and add to just transition challenges.

Prioritising gas investments in the near term could become a “costly mistake” South African consumers will have to bear, according to a new report.

This week, the International Institute for Sustainable Development (IISD) released its study Gas Pressure: Exploring the case for gas-fired power in South Africa, which indicates that the development of the gas industry may not be warranted until at least 2035.

According to the report, gas would be a too-costly investment and would be as harmful to the climate as coal.

Introducing 3 000 MW of gas capacity and gas supply by 2030 – aligned to the Integrated Resources Plan (IRP) of 2019 would cost at least R47 billion, according to the IISD. As of March 2022, the SA government plans at least 14 000 MW of gas to power projects – more than a third (36%) of Eskom’s coal fleet.

The researchers assert that this money would be wasted as there are cheaper, low-carbon alternatives in the market – namely renewable energy and battery storage technology.

“The risks associated with gas are increasing, while the alternatives to gas are rapidly improving. Since gas is not needed in the power sector until at least 2035, deliberations about the start of a gas-to-power sector should be shelved until at least 2030,” said Richard Halsey, a policy advisor at the IISD and co-author of the report.

“When the government reassesses gas investments at the end of the decade, based on the availability and cost of alternative technologies such as green hydrogen, it is likely that there will be no logical role for gas in the mix,” Halsey added.

The IISD further critiques government’s motives for pushing the development of gas-to-power, as is seen by the inclusion of such projects in the Risk Mitigation Independent Power Producer Procurement Programme (RMI4P). According to the RMI4P, gas is to provide bulk power supply, as opposed to just meet peaking demand requirements or to balance the system, the report indicated.

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While Mineral Resources and Energy Minister Gwede Mantashe has expressed optimism about the economic benefits of developing the domestic gas industry, the researchers question whether this is even warranted. In the report, researchers highlight that wind and solar energy are the cheapest sources of bulk power supply. They also point out that battery storage is also considered the “lowest-cost” power to meet peaking demand.

They even suggest that the existing electricity system – which is reliant on coal – be used to balance out supply and demand for the short to medium term, instead of investment in new gas infrastructure.

They argue that before significant balancing capacity is needed for the electricity system, the costs of renewables and storage will have declined so much that they would be able to meet balancing requirements. Furthermore, the report indicated that new technologies like green hydrogen will also be developed to play a significant role in the electricity sector after 2035.

Because gas is both high risk and not necessary in the power sector until at least 2035, a decision on a future requirement for gas should be revisited around 2030 based on available technologies and costs at that time. In the meantime, a moratorium should be placed on the development of the gas-to-power sector.

The IISD further unpacks several risks associated with developing the gas industry prematurely, or not until 2035.

Firstly, gas is a fossil fuel that emits carbon dioxide when burned, contributing to climate change. Gas has been punted as a better option than coal when it comes to carbon dioxide emissions.

But the report highlights that methane – emitted throughout the gas value chain – is a more harmful contributor to global warming (85 times worse) than carbon dioxide over a 20-year period.

“… Switching from coal to gas may not result in any direct reduction in greenhouse gas emissions in the power sector,” the report reads.

Choosing gas over developing low-carbon alternatives will make it harder for South Africa to meet its international climate change commitments, the report indicates.

The gas infrastructure also risks becoming stranded assets – especially in the face of cheaper alternatives like renewables.

There is already stranding of gas infrastructure internationally – the report cites that 60% or 14.3 GW of India’s gas-fired capacity was declared stranded in 2015. By 2019, the State Bank of India said these assets will be written off. “Furthermore, 5.3 GW of capacity was built but deemed stranded before it had even begun operations and nine gas plants totalling 5.7 GW were stranded within five years of being commissioned,” the report says.

The researchers’ analysis indicates that the development of 9 500 MW of gas projects domestically could cost R184 billion. These assets could be stranded before the end of their operational lives.

To keep the gas industry alive – given pressure from workers and investors – government may have to introduce subsidies to protect the industry. “These subsidies divert funds away from other projects with better socio-economic metrics and cause an industry to persist even when it is economically unviable,” the report reads.

If the government does not introduce subsidies, then ultimately, consumers will have to pay – through higher electricity tariff increases.

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The report suggests that there is no economic case for gas – especially in the light of increasing disinvestment by banks, financial institutions, and governments. “The divestment movement is growing in South Africa. Already, two cities (Cape Town and Durban) and the Tutu Foundation have committed to withdrawing their investments in fossil fuels,” the report reads.

Most recently, the University of Cape Town’s council agreed to divest from fossil fuels and instead pour into renewables, Fin24 previously reported.

Gas is also affected by price volatility, as seen with the Russia and Ukraine conflict. “LNG imports to South Africa are affected by exchange rate fluctuations and global LNG prices, so there is no certainty regarding the affordability of the gas,” the report reads.

The report further indicates that gas will follow the same path of coal in having to be decommissioned, creating an added just transition burden. “… Investing in gas-to-power could produce a short-lived industry and cause the next generation of gas workers and communities to face a repeat of the transition hardships faced by the coal sector now,” the report reads.

Load shedding

The researchers suggest that investment in renewables and storage capacity be ramped up to help address load shedding.

Renewables are a least-cost and low-carbon option which should form the basis of all energy generation infrastructure, the report read. The rate of renewable energy capacity should be significantly scaled up from the current IRP 2019 levels (solar PV- 10.5% and wind – 22.5%).

The researchers further suggest that Eskom’s coal fleet be repurposed to include renewables and storage capacity only, instead of gas.

“To solve load shedding as quickly as possible, and to build the foundation of an optimal, low-cost future energy mix, South Africa should significantly ramp up its investments in solar, wind, storage, and technologies that integrate renewables into the grid,” said Halsey.