Economy-wide Implications of Policy and Uncertainty in the Power - - PowerPoint PPT Presentation

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Economy-wide Implications of Policy and Uncertainty in the Power - - PowerPoint PPT Presentation

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Economy-wide Implications of Policy and Uncertainty in the Power Sector of South Africa: A Linked Modelling Approach June 2014 Tara Caetano, Britta Rennkamp and Bruno Merven Energy Research Centre, University of Cape Town in Collaboration with

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Economy-wide Implications of Policy and Uncertainty in the Power Sector of South Africa: A Linked Modelling Approach

June 2014

Tara Caetano, Britta Rennkamp and Bruno Merven Energy Research Centre, University of Cape Town in Collaboration with UNU-WIDER

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Overview

Background on South Africa and policy/uncertainty landscape Description of modelling framework Nuclear case study Future work

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Background

Electricity in South Africa

  • 90% generation from coal
  • large emitter of greenhouse gases, particularly CO2 (± 80% of total)
  • Improving access instead of increasing capacity - constrained supply
  • Low real price - rising by about 300% over last 5 years

Consideration of energy policy: Integrated Resource Plan/Integrated Energy Plan

  • environmental sustainability
  • depleting low cost coal reserves
  • cost competitive alternatives

Important element of growth strategy → growth, employment and welfare

  • Price impact
  • Investment
  • Other: e.g. ability to localise (how does this fit in with other policies)
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Policy Options

Policy Options and Uncertainty

Uncertainty

Commitment to a Nuclear Program CO2 Price/tax level Commitment to support a Gas Infrastructure program Commitment to support Renewable Program Open economy to electricity imports from the region (generated from hydro/gas)

Cost of Nuclear (R/kW) and risk of delays and overruns Economic growth (and demand for electricity) CO2 Price/tax level Global energy commodity prices Availability and cost of shale and

  • ther gas resource (still under

exploration) Future cost reductions on RE Whether regional projects materialise

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Motivation for Linked Energy- Economy-wide Models

  • Need tool that can measure the macro- and socio-economic impacts of Energy

Policy

  • Available tools:
  • Detailed bottom-up energy sector models
  • Economic models
  • But existing models approaches are inadequate
  • Economic Model (CGE type): over-simplification of the energy system
  • Optimization Energy System Models: no/little economy and energy system feed-back
  • We choose the linked iterative approach over full integration:
  • Full inter-temporal integration constrains the level of detail
  • Stakeholders like to see detail they can relate to
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Electricity Sector Model: SATIM-el

  • Inter-temporal bottom-up partial equilibrium optimisation model of South Africa’s

energy sector (Energy Research Centre)

  • SATIM-el: South African TIMES Model - Electricity Sector
  • Optimisation problem
  • Minimize the sum of all discounted costs over the planning horizon subject to constraints

and system parameters

  • Costs include capital costs, operating costs and taxes (e.g. CO2 tax)
  • Constraints: electricity demand, resource limits, reserve margin, policy targets
  • System Parameters: load curves, existing stock of power plants, new power plant options, fuel

price and availability

  • Other: discount rate, taxes, etc.
  • SATIM-el:
  • SATIM Calibrated and parameterised in line with recent Integrated Resource Planning Report

(update 2013)

  • 20 time-slices, annual periods to 2040
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Economy-wide Model: e-SAGE

  • General equilibrium model of South African economy (SAGE, UNU-WIDER)
  • Recursive dynamic country-level economy-wide model
  • eSAGE: detailed electricity sector
  • Comprehensive representation
  • 62 industries
  • 49 products
  • 9 factors of production
  • 14 representative households
  • Energy treated as an intermediate input (Leontief)
  • Simplified energy-saving investment behaviour, which allow sectors of production to reduce

energy intensity in response to increasing energy prices constrained by the rate of investment in the sector

  • Upward sloping labor supply curves for less-educated workers
  • “Putty clay” capital and endogenous capital accumulation
  • Fixed current account with flexible real exchange rate
  • Savings-driven investment
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e-SAGE-SATIM-el Iteration Process

e-SAGE SATIM-el

  • Electricity demand
  • Electricity production mix by technology/fuel
  • Electricity price
  • Power plant construction expenditure schedule

SAGE 2010 2020 2030 2050 SATIM 2007 SAGE SATIM SAGE Iterative coupled runs Committed Forecast SATIM TC TT (IRP) 2010 2020 2030

Emulating the Planning (IRP) process

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Nuclear Case Study

Initial work done for the IAEA South Africa has a clear commitment to nuclear power Risk of cost and delay

Overnight costs range between US$ 5800 and US$7000 per kW Hickley Point currently estimated around US$8000 per kW Lead time between 7 and 12 years (although there are outliers)

Availability of renewable energy, gas and regional imports

REIPPPP coming in under budget and ahead of schedule Shale gas potential in SA and gas fields in the region Hydropower developments

What are some of the socio-economic implications of nuclear power?

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Scenarios

Base remains heavily-reliant on coal 3 Nuclear scenarios

Optimistic case: overnight cost of US$5800 Higher cost: overnight cost US$7000 Nuclear delays: simulated delay of 5 years (lead time 12 years)

Renewable target of 50% renewables by 2040

100 200 300 400 500 600 2010 2030 2040 2010 2030 2040 2010 2030 2040 2010 2030 2040 2010 2030 2040 Base Optimistic Nuclear Nuclear Higher Cost Nuclear Delays Renewable Target Electricity Supply (TWh)

Electricity Supply Breakdown for Scenarios

Imported Diesel Gas Waste Wind Solar Hydro Nuclear Coal

Electricity supply around 500 to 530 TWh in 2040

Some demand response from CGE

Impose a reserve margin of 15% Dispatch model needed to account for the transmission cost for nuclear versus renewables

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Investment and Prices

The total investment cost of the base case is just over R1 trillion for the period until 2040

Nuclear scenarios:

  • Optimistic costs R2 trillion
  • Higher cost R2,25 trillion
  • Delays actually the least because of 180 TWh of nuclear supply opposed to 245 TWh

The renewable target scenario totals at R1,4 trillion, substantially less than the nuclear scenarios attributed to the high reliance on gas generation options.

Electricity price

Lowest under the base case at 72 cents/kWh; Highest under nuclear delays at 98 cents/kWh in 2040 The under-supply of electricity is driving up the price

20 40 60 80 100 120 2007 2012 2017 2022 2027 2032 2037 Electricity price (cents/KWh)

Average Electricity Price Projection

Base Case Optimistic Nuclear Nuclear Higher Cost Nuclear Delays Renewable Target

50 100 150 2007 2012 2017 2022 2027 2032 2037 Annual costs (Rand bil.)

Annual Electricity Investment Cost (after interest on debt payments)

Base Case Optimistic Nuclear Nuclear Higher Cost Nuclear Delays Renewable Target

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Emissions

Base case emissions from the electricity sector more than double from 429 Mt of CO2 in 2010 to 856 Mt of CO2 in 2040. Nuclear scenarios reduce emissions by around 300 Mt in 2040. Slightly less for the renewable energy target scenario (625 Mt in 2040)

Larger share of coal-fired generation in the 2040 capacity mix Room for more

100 200 300 400 500 600 700 800 900 2007 2012 2017 2022 2027 2032 2037 Total CO2 emissions (Mt)

Total Co2 Emissions to 2040

Base Case Optimistic Nuclear Nuclear Higher Cost Nuclear Delays Renewable Target

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Jobs and Welfare

Trade-off between high investment cost and economic growth (savings-driven investment) Even burden on households

Expected more of a price effect

Electricity employment increased by similar amounts for nuclear and renewables (18000 and 17000) Nuclear delays = decreased investment demand for electricity and increased employment

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Conclusions

The higher cost scenario increased total investment demand by about US$25 bn Nuclear delays caused an escalated electricity price

Burden experienced by both households and firms

Employment increased by the same margin for the electricity sector in the renewables case as well as the nuclear case

The indirect job loss was substantially lower for renewables Around 100 000 more jobs were created

All scenarios take South Africa closer to its Copenhagen pledge

There is more room for reductions in the renewable energy scenario

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Future Work

Unbundling the household price effect Further work on labour markets The issue of financing has to be addressed

How will this be financed? Pressure on the fiscus?

Implications of electricity supply shortages

Quantifying the risk

Expansion of the transmission network for nuclear versus renewables Decommissioning of nuclear power

Costs and process

Nuclear waste

Sites, process and cost

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Thank you

tara.caetano@gmail.com http://www.erc.uct.ac.za

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Sectoral growth

Given the savings-driven investment closure we know that an increase in the investment allocated to the electricity sector will have a slightly contractionary effect

  • n the rest of the economy.

Overall annual GDP growth remains at around 3% for all scenarios, with the renewable target scenario having the least contractionary effect on the economy (3,1% annual GDP growth compared to the 3,14% in the base case). The nuclear higher cost scenario has the largest effect

  • n GDP

The effect of nuclear investment on sectoral growth tells an interesting story by changing the structure of the economy. The impact on the mining sector is the most pronounced, The move away from coal-fired generation is shown by the mining sector shinking slightly, in realation to the base. Metals, water distribution and construction are also bear a higher burden due to the investment in nuclear power. This picture could change if there were a localisation plan modelled along with the investment in nuclear

  • power. However, until the details of the localisation plan

are know, we are unable to simulate it.

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Analysis 1: Impact of CO2 Prices

Two sets of scenarios tested at three CO2 concentration levels: 650, 550 and 450 ppm

  • 1. Optimistic
  • 2. Pessimistic

Nuclear Overnight Cost ($/kW) Lead time (years) 5800 7 7000 12 RE cost reductions Optimistic Pessimistic Domestic Natural Gas yes no New Hydro Imports from the region yes no

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Global Prices from Paltsev (2012)

650: CO2 Price -> ~$10/ton 550: CO2 Price -> ~$20/ton 450: CO2 Price -> increasing: ~$70/ton in 2030 and >$100/ton in 2050 Data set from: Sergey Palstev data set on global commodity prices for a no policy and 3 global stabilisation targets (Paltsev, S. (2012) 'Implications of Alternative Mitigation Policies on World Prices for Fossil Fuels and Agricultural Products', UNU-WIDER Working Paper

  • No. 2012/65, www.wider.unu.edu)

20 40 60 80 100 120 140 160 180 2010 2015 2020 2025 2030 2035 2040 2045 2050 Oil Price $/bbl

Oil Price

No Policy 650 550 450 2 4 6 8 10 12 14 16 18 20 2010 2015 2020 2025 2030 2035 2040 2045 2050 Gas Price $/tcf

Gas Price

No Policy 650 550 450 20 40 60 80 100 120 140 2010 2015 2020 2025 2030 2035 2040 2045 2050 Coal Price $/ton

Coal Price

No Policy 650 550 450 20 40 60 80 100 120 2010 2015 2020 2025 2030 2035 2040 2045 2050 CO2 Price $/ton

CO2 Price

650 550 450

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Results: Electricity Production in Optimistic and Pessimistic

100 200 300 400 500 600 2010 2030 - 650 2030 - 550 2030 - 450 2040 - 650 2040 - 550 2040 - 450 Electricity Production (TWh)

Optimistic

Imported Gas Wind Solar Nuclear Coal 100 200 300 400 500 600 2010 2030 - 650 2030 - 550 2030 - 450 2040 - 650 2040 - 550 2040 - 450 Electricity Production (TWh)

Pessimistic

Imported Gas Wind Solar Nuclear Coal 10 20 30 40 50 60 70 80 90 100 2007 2012 2017 2022 2027 2032 2037 Electricity price (cents/KWh)

Electricity Price

No Policy 650 550 450

Optimistic

20 40 60 80 100 120 140 2007 2012 2017 2022 2027 2032 Annual costs (Rand bil.)

Investment in Power Sector

No Policy 650 550 450

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Results: Socio-Economic Impacts (optimistic)

  • 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 GDP Loss Relative to Reference

GDP Loss Relative to Reference

650 550 450 0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 AGRICULTURE INDUSTRY Mining Manufacturing Food processing Textiles and clothing Wood and paper products and… Petroleum products Chemicals Non-metal minerals Metals Machinery Vehicles and transport equipment Other manufacturing Other industry Electricity Water distribution Construction SERVICES Trade and hotels Transport and communication Financial services Business services Government services Other services Average Sectoral GDP loss 2010-2030 for 450 case (Optimistic) 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Job Loss Relative to Base (million)

Job Losses Relative to Reference (million)

650 550 450

0.225 0.230 0.235 0.240 0.245 0.250 Poor (0-50) Non-poor (50-100) Middle (50-90) Top (90-100) Drop in per capira consumption growth (%)

Drop in per capita consumption growth (2010-2030)

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Analysis 2: Nuclear Program: 10GW by 2030?

Green Barley Cases

4 Cases:

Case Nuclear Cost/Lead Time RE Costs Domestic Gas Regional Hydro

  • 1. Worst case for Nuclear –

no early program (free) High

(pessimistic)

Low Yes Yes

  • 2. Best case for Nuclear –

no early program (free) Low

(optimistic)

High No No

  • 3. Worst case for Nuclear –

imposed early program (forced) High

(pessimistic)

Low Yes Yes

  • 4. Best case for Nuclear –

imposed early program (forced) Low

(optimistic)

High No No (pessimistic) (optimistic) (pessimistic) (optimistic)

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GDP Loss Relative to Unforced Nuclear (Free)

  • 0.2%

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 GDP Loss relative to "Free"

GDP Loss relative to "Free"

worst best

550 - Scenario

  • 0.2%

0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 GDP Loss relative to "Free" Worst Best

450 - Scenario

  • 10

10 30 50 70 90 110 130 150 2015 2020 2025 2030 Annual Expenditure (Rand bil.) Worst - Free Best - Free Worst - Forced Best - Forced

Annual Expenditure on Power Plants

  • 10

10 30 50 70 90 110 130 150 2015 2020 2025 2030 Annual Expenditure (Rand bil.) Worst - Free Best - Free Worst - Forced Best - Forced

Annual Expenditure on Power Plants

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Outstanding Issues and other Current and Future Work

Improve integration:

i/o coefficients in eSAGE better aligned to SATIM SATIM to take account of changes in Capital and Labour costs

Linking the full sector model: to improve energy consumption behaviour

  • f sectors other than electricity

More comprehensive analysis of uncertainty via Expert-Elicitation, Monte Carlo and Stochastic Programming Other considerations: Water constraints, spatial aspects of demand and resource, non-dispatchability of RE techs

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More detail on Renewables Cost Reductions

Source: IRP update 2013, department of energy, government of South Africa

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Exports Imports Total supply Labor Capital

Inputs (incl. Energy)

Sector

  • utput

Factory

Supplier 1 Supplier n Output 1 Output n Domestic supply

Warehouse

Households Government Investment Intermediates

Supermarket

Traders

Freight transport Consumption linkages Production linkages

Overview of e-SAGE

CES LEO LEO CES CET CES LES LEO LEO

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Energy as an intermediate input

Labor Capital Inputs Sector output

LEO

Inputs Input 1 Energy Input n

LEO CES

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Energy-saving investment behavior

Change in energy inputs per unit of output based on energy prices Energy product input coefficient (ioij) falls when…

Energy prices (pi) rise (provided there is some new investment) New investment share (sj) is positive (provided the price rises)

Governed by a response elasticity (ρ)

𝑗𝑝𝑗𝑘,𝑢+1 𝑗𝑝𝑗𝑘𝑢 = 1 − 1 − 𝑄

𝑘𝑢

𝑄

𝑘,𝑢−1 −𝜍

∙ 𝑡𝑗

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Macro closure rules

Upward sloping labor supply curves for less-educated workers “Putty clay” capital and endogenous capital accumulation Fixed current account with flexible real exchange rate Savings-driven investment

Distinguish between electricity and non-electricity sector investment Electricity investment differentiated by subsector (esp. import content and job creation) Government borrows abroad to pay for investment (gradual interest and principal repayment)