1 00:00:00,360 --> 00:00:03,320 Speaker 1: This is Dana Perkins and you're listening to Switched on 2 00:00:03,560 --> 00:00:06,240 Speaker 1: the B and EF podcast. With an energy mix that's 3 00:00:06,400 --> 00:00:10,600 Speaker 1: largely made up of aging and increasingly unreliable coal power plants, 4 00:00:10,720 --> 00:00:14,800 Speaker 1: South Africans have been facing rolling blackouts and energy shortages 5 00:00:14,880 --> 00:00:17,320 Speaker 1: going all the way back to two thousand and seven. 6 00:00:17,520 --> 00:00:20,320 Speaker 1: To put the nation's energy issues into perspective, in twenty 7 00:00:20,360 --> 00:00:23,960 Speaker 1: twenty two, blackouts reach ten point nine terrawatt hours that's 8 00:00:24,079 --> 00:00:26,920 Speaker 1: five percent of the nation's net generation. The following year, 9 00:00:27,040 --> 00:00:30,159 Speaker 1: between January and June of twenty twenty three alone, this 10 00:00:30,240 --> 00:00:34,080 Speaker 1: figure rose to over fourteen terrawatt hours, or twelve percent 11 00:00:34,280 --> 00:00:37,680 Speaker 1: of net generation. The South African government has released the 12 00:00:37,800 --> 00:00:41,360 Speaker 1: latest Integrated Resource Plan or IRP for short, which we'll 13 00:00:41,360 --> 00:00:43,760 Speaker 1: talk about more on today's show, and it sets out 14 00:00:43,840 --> 00:00:48,040 Speaker 1: its strategy to combat these energy shortages. While other countries 15 00:00:48,080 --> 00:00:51,360 Speaker 1: are turning to renewable energy sources, the current South African 16 00:00:51,440 --> 00:00:54,480 Speaker 1: energy plan is looking to stabilize its domestic power production 17 00:00:54,680 --> 00:00:58,080 Speaker 1: with the inclusion of gas. On today's show, we talk 18 00:00:58,200 --> 00:01:01,600 Speaker 1: about the South African government's new new IRP and discuss 19 00:01:01,680 --> 00:01:04,240 Speaker 1: why they have rolled back on renewable energy and how 20 00:01:04,280 --> 00:01:07,440 Speaker 1: practical this new plan might be. We also discuss how 21 00:01:07,440 --> 00:01:11,040 Speaker 1: the IRP may have reduced South Africa's ambitions for utility 22 00:01:11,120 --> 00:01:13,679 Speaker 1: scale solar, while at the same time there has been 23 00:01:13,720 --> 00:01:18,560 Speaker 1: an increase in residential PV and small scale installations. And finally, 24 00:01:18,680 --> 00:01:21,160 Speaker 1: we look at the attractiveness of South Africa as an 25 00:01:21,160 --> 00:01:24,319 Speaker 1: investment opportunity in the energy sector by sharing some of 26 00:01:24,360 --> 00:01:27,360 Speaker 1: the results of Climate Scope. To speak with us about this, 27 00:01:27,520 --> 00:01:30,200 Speaker 1: we have Emma Champion on today's show. She is the 28 00:01:30,240 --> 00:01:33,560 Speaker 1: head of the team looking at regional energy transitions and 29 00:01:33,640 --> 00:01:37,760 Speaker 1: she drew upon two research notes titled South Africa Favors 30 00:01:37,920 --> 00:01:41,320 Speaker 1: Gas over Solar is Successor to Coal and the South 31 00:01:41,360 --> 00:01:45,280 Speaker 1: Africa Power Transition Outlook. Bn EF subscribers can find them 32 00:01:45,319 --> 00:01:47,800 Speaker 1: at BNF dot com or at bnfgo on the Bloomberg 33 00:01:47,880 --> 00:01:51,320 Speaker 1: terminal and to see the publicly available results of Climate Scope, 34 00:01:51,520 --> 00:01:56,400 Speaker 1: head to Global dash Climatescope dot org. As always, if 35 00:01:56,400 --> 00:01:59,160 Speaker 1: you like this podcast, make sure to subscribe or give 36 00:01:59,240 --> 00:02:01,760 Speaker 1: us a review on Apple Podcasts or Spotify to make 37 00:02:01,840 --> 00:02:04,440 Speaker 1: us more discoverable by other people. But right now, let's 38 00:02:04,480 --> 00:02:07,559 Speaker 1: jump into our conversation with Emma about what's happening in 39 00:02:07,640 --> 00:02:20,760 Speaker 1: South Africa. Emma, thank you for joining us today to 40 00:02:20,800 --> 00:02:22,040 Speaker 1: talk about South Africa. 41 00:02:22,080 --> 00:02:23,720 Speaker 2: Thank you so much for having me, Dana. 42 00:02:23,960 --> 00:02:25,800 Speaker 1: So one of the things that your team does is 43 00:02:25,919 --> 00:02:29,799 Speaker 1: look at various countries in in Mia in detail. So 44 00:02:29,840 --> 00:02:32,160 Speaker 1: it's really nice to have the opportunity to take a 45 00:02:32,200 --> 00:02:35,520 Speaker 1: moment to talk about South Africa specifically. And this is 46 00:02:35,560 --> 00:02:37,960 Speaker 1: going to be well, it's a story of change, definitely 47 00:02:38,040 --> 00:02:40,520 Speaker 1: has a bright future. But before we get to that, 48 00:02:40,760 --> 00:02:44,200 Speaker 1: let's talk a bit about history and one of the 49 00:02:44,200 --> 00:02:47,960 Speaker 1: things that has plagued South Africa, which have been rolling blackouts. 50 00:02:48,120 --> 00:02:50,799 Speaker 1: Can you talk a little bit about where these problems 51 00:02:50,800 --> 00:02:54,080 Speaker 1: have historically come from and just kind of the scale 52 00:02:54,120 --> 00:02:56,640 Speaker 1: of the problem for people in South Africa. 53 00:02:56,919 --> 00:02:59,760 Speaker 2: Yeah, sure, so I think this is a very complex 54 00:03:00,160 --> 00:03:02,480 Speaker 2: problem that South Africa has been facing for a number 55 00:03:02,560 --> 00:03:05,280 Speaker 2: of years. But there is kind of one clear smoking gun, 56 00:03:05,639 --> 00:03:08,360 Speaker 2: which is that the enormous coal fleet that South Africa 57 00:03:08,400 --> 00:03:11,239 Speaker 2: has has been performing really poorly in recent years. That's 58 00:03:11,320 --> 00:03:14,560 Speaker 2: largely due to things like maintenance issues and operational failures. 59 00:03:14,600 --> 00:03:17,640 Speaker 2: Just as an anecdote, the capacity factor, which basically measures 60 00:03:17,680 --> 00:03:20,480 Speaker 2: the operational output of the fleet over a year, has 61 00:03:20,520 --> 00:03:23,040 Speaker 2: gone down to fifty six percent in twenty twenty two, 62 00:03:23,240 --> 00:03:26,120 Speaker 2: and that's down from sixty eight percent just ten years earlier, 63 00:03:26,160 --> 00:03:28,600 Speaker 2: and that's despite all of this unserved demand, so you 64 00:03:28,680 --> 00:03:31,280 Speaker 2: have a clear indication that something's going wrong there. What 65 00:03:31,440 --> 00:03:33,400 Speaker 2: ESCOM has had to do as a result is basically 66 00:03:33,440 --> 00:03:36,200 Speaker 2: roll out load shedding. This is when they remove portions 67 00:03:36,200 --> 00:03:38,080 Speaker 2: of demand from the grid in order to prevent a 68 00:03:38,120 --> 00:03:40,640 Speaker 2: technical blackout. But as a consumer you experience it as 69 00:03:40,680 --> 00:03:43,160 Speaker 2: a period of outage of electricity, and just in the 70 00:03:43,160 --> 00:03:45,200 Speaker 2: first half of twenty twenty three this got really bad. 71 00:03:45,240 --> 00:03:47,320 Speaker 2: It was in the order of magnitude of twelve percent 72 00:03:47,360 --> 00:03:50,320 Speaker 2: of net generation not being met. So it's a massive problem. 73 00:03:50,480 --> 00:03:53,400 Speaker 2: It's been all over the news, extremely damaging for the economy. 74 00:03:53,440 --> 00:03:56,320 Speaker 2: The GDP outlook for South Africa has been weighed heavily 75 00:03:56,360 --> 00:03:59,040 Speaker 2: because of these rolling blackouts. So it's a really big problem. 76 00:03:59,200 --> 00:04:01,800 Speaker 2: But as I mentioned, it's not just this single smoking gun. 77 00:04:01,880 --> 00:04:03,880 Speaker 2: There are a number of structural factors that I think 78 00:04:03,920 --> 00:04:07,600 Speaker 2: have fed into that reality. One is maybe the setup 79 00:04:07,640 --> 00:04:10,400 Speaker 2: of the market itself. So the market's very much dominated 80 00:04:10,440 --> 00:04:13,760 Speaker 2: by the national utility ESCOM. It's essentially a single buyer model, 81 00:04:13,800 --> 00:04:16,360 Speaker 2: which has left the whole system pretty vulnerable to issues 82 00:04:16,360 --> 00:04:19,400 Speaker 2: with that company, for example, it's had quite limited cash 83 00:04:19,440 --> 00:04:22,200 Speaker 2: flow to deal with plant maintenance. There's also been another 84 00:04:22,240 --> 00:04:24,480 Speaker 2: supply side challenge, which is that there's been a lot 85 00:04:24,520 --> 00:04:27,520 Speaker 2: of delays in actually bringing on new capacity. So ESCOM 86 00:04:27,640 --> 00:04:30,280 Speaker 2: was due to build these two massive new coal power plants, 87 00:04:30,360 --> 00:04:33,080 Speaker 2: Medupi and Casilla, and there are also other technologies being 88 00:04:33,120 --> 00:04:35,440 Speaker 2: built by private developers that have been slow to come 89 00:04:35,480 --> 00:04:37,920 Speaker 2: to the markets as well, for various reasons that we'll 90 00:04:37,960 --> 00:04:40,279 Speaker 2: get to later on. But I think it's quite clear 91 00:04:40,320 --> 00:04:42,680 Speaker 2: that the system would not be as tight as it 92 00:04:42,760 --> 00:04:45,960 Speaker 2: is today if you were delivering that capacity that was 93 00:04:46,040 --> 00:04:47,359 Speaker 2: due to come online on time. 94 00:04:47,560 --> 00:04:48,600 Speaker 1: So that's really. 95 00:04:48,360 --> 00:04:51,520 Speaker 2: Limited the system's ability to diversify away from that reliance 96 00:04:51,520 --> 00:04:53,880 Speaker 2: on those old coal plants, which even still in twenty 97 00:04:53,920 --> 00:04:57,360 Speaker 2: twenty two are meeting well over eighty percent of total generation. 98 00:04:57,720 --> 00:05:01,680 Speaker 1: So you mentioned ESCAM, the national energy company for the country, 99 00:05:01,880 --> 00:05:04,960 Speaker 1: and you also had mentioned that there were maintenance issues 100 00:05:05,000 --> 00:05:07,719 Speaker 1: when it comes to the coal fired power stations. So 101 00:05:07,800 --> 00:05:09,720 Speaker 1: what I want to better understand is, you know what 102 00:05:09,839 --> 00:05:12,600 Speaker 1: is feeding into this is it essentially that the company 103 00:05:12,720 --> 00:05:17,880 Speaker 1: doesn't have the finances to essentially maintain their existing infrastructure 104 00:05:18,040 --> 00:05:21,159 Speaker 1: and can keep that power system going and is this 105 00:05:21,279 --> 00:05:24,760 Speaker 1: then becoming a self fulfilling prophecy with these blackouts? And 106 00:05:24,800 --> 00:05:27,000 Speaker 1: I guess understanding the scale of what the problem is 107 00:05:27,000 --> 00:05:29,560 Speaker 1: for s CLAM specifically is the first step in understanding 108 00:05:29,600 --> 00:05:30,600 Speaker 1: what the path out was. 109 00:05:30,839 --> 00:05:33,400 Speaker 2: Yeah, for sure, because ESCOM is so integral to the 110 00:05:33,520 --> 00:05:37,640 Speaker 2: entire electricity market, really you can't overestimate how important its 111 00:05:37,680 --> 00:05:40,400 Speaker 2: financial health is to the whole equation. And the government 112 00:05:40,440 --> 00:05:43,440 Speaker 2: has had to step in several times with debt support packages. 113 00:05:43,640 --> 00:05:46,120 Speaker 2: So escom's debt in twenty twenty three came in around 114 00:05:46,240 --> 00:05:49,480 Speaker 2: four hundred billion round which is around twenty two billion dollars. 115 00:05:49,600 --> 00:05:52,200 Speaker 2: And there are a few important drivers to understand, but 116 00:05:52,240 --> 00:05:55,080 Speaker 2: the biggest one is the construction of those two new 117 00:05:55,120 --> 00:05:57,880 Speaker 2: coal power plants, which come in at around three hundred 118 00:05:57,920 --> 00:06:00,960 Speaker 2: billion rounds, so a really significant portion of that total 119 00:06:01,000 --> 00:06:03,440 Speaker 2: can be attributed to the construction of those two new 120 00:06:03,480 --> 00:06:07,000 Speaker 2: power plants. There are other things relating to regulator Nurser 121 00:06:07,040 --> 00:06:10,120 Speaker 2: and Eskom keeping fairly low retail tariffs, so actually the 122 00:06:10,120 --> 00:06:12,039 Speaker 2: money that they can charge for the power that they're 123 00:06:12,080 --> 00:06:14,760 Speaker 2: selling being reasonably low. And there are some other issues 124 00:06:14,760 --> 00:06:18,120 Speaker 2: relating to some municipalities that by power have fallen behind 125 00:06:18,120 --> 00:06:20,240 Speaker 2: on payments to ESCOM, So there's this kind of vicious 126 00:06:20,279 --> 00:06:23,000 Speaker 2: cycle of some driving factors that haven't helped ESCOM to 127 00:06:23,200 --> 00:06:26,480 Speaker 2: maintain its debt servicing. So of course improving that performance 128 00:06:26,480 --> 00:06:29,760 Speaker 2: of ESCOM will be absolutely essential in order to ensure 129 00:06:29,839 --> 00:06:33,159 Speaker 2: that South Africa can deliver reliable power to its people 130 00:06:33,279 --> 00:06:36,000 Speaker 2: and to the companies and industries that operate in the market. 131 00:06:36,160 --> 00:06:38,719 Speaker 2: It will also be important to lower off take risks 132 00:06:38,760 --> 00:06:41,479 Speaker 2: and things like reducing the overall debt burden on the 133 00:06:41,520 --> 00:06:44,280 Speaker 2: South African government. The two ways that this has been 134 00:06:44,320 --> 00:06:46,440 Speaker 2: tackled is obviously, I guess we can think short term 135 00:06:46,440 --> 00:06:48,680 Speaker 2: and long term. So the immediate relief I mentioned this 136 00:06:48,720 --> 00:06:51,279 Speaker 2: government debt relief plan is a three year payout period 137 00:06:51,520 --> 00:06:53,719 Speaker 2: and process at the moment to support over two hundred 138 00:06:53,720 --> 00:06:55,840 Speaker 2: and fifty billion rund of the debt total bill. And 139 00:06:55,960 --> 00:06:58,640 Speaker 2: ESCOM has a lot of restrictions over this time. It's 140 00:06:58,680 --> 00:07:01,480 Speaker 2: prohibited from building new power plants, it can't borrow any 141 00:07:01,480 --> 00:07:05,400 Speaker 2: additional funds, and some capital expenditure even existing is going 142 00:07:05,440 --> 00:07:07,680 Speaker 2: to be limited. So as you can imagine, with this 143 00:07:07,839 --> 00:07:11,160 Speaker 2: ongoing power crisis, the role of ESCOM is also going 144 00:07:11,200 --> 00:07:12,920 Speaker 2: to be limited. In what it can do to help 145 00:07:13,040 --> 00:07:16,440 Speaker 2: address that problem beyond its existing requirements for like transmission 146 00:07:16,440 --> 00:07:19,720 Speaker 2: and distribution investments and just finishing the construction of those 147 00:07:19,760 --> 00:07:22,880 Speaker 2: two power plants that it intended to build. Longer term, 148 00:07:23,080 --> 00:07:25,760 Speaker 2: their plan is to really continue the unbundling process and 149 00:07:25,760 --> 00:07:28,840 Speaker 2: liberalize the power sector more so ESCOM will still maintain 150 00:07:28,880 --> 00:07:32,200 Speaker 2: a really important role, but I think proportionally its role 151 00:07:32,280 --> 00:07:35,640 Speaker 2: in generation supply. Possibly even on the grid side. They're 152 00:07:35,680 --> 00:07:38,960 Speaker 2: exploring options with private investment in grid infrastructure, and potentially 153 00:07:38,960 --> 00:07:41,240 Speaker 2: even the retail market could really shift away from just 154 00:07:41,280 --> 00:07:43,800 Speaker 2: this kind of escum only model. So yeah, I think 155 00:07:43,840 --> 00:07:46,120 Speaker 2: there's there's a number of things that need to go right, 156 00:07:46,280 --> 00:07:49,720 Speaker 2: but definitely we can't underestimate the importance of how the 157 00:07:49,720 --> 00:07:52,160 Speaker 2: financial health of ESCOM has contributed to the crisis that 158 00:07:52,200 --> 00:07:52,800 Speaker 2: we're in today. 159 00:07:53,320 --> 00:07:55,760 Speaker 1: We want to come to renewables, but before we go there, 160 00:07:55,840 --> 00:07:57,920 Speaker 1: you know, one of the things that's really resonating with 161 00:07:57,960 --> 00:07:59,640 Speaker 1: me with you what you just said is the fact 162 00:07:59,680 --> 00:08:02,960 Speaker 1: that they're two new coal fired power stations going in 163 00:08:02,960 --> 00:08:06,880 Speaker 1: in South Africa and closing coal fired powered stations has 164 00:08:06,920 --> 00:08:09,280 Speaker 1: been a strategy in various parts of the world to 165 00:08:09,400 --> 00:08:13,000 Speaker 1: reduce one's emissions and become more paras aligned in these 166 00:08:13,080 --> 00:08:15,800 Speaker 1: twenty fifteen net zero targets. So when we talk about 167 00:08:15,840 --> 00:08:19,640 Speaker 1: South Africa and them improving their security of supply, is 168 00:08:19,840 --> 00:08:24,240 Speaker 1: coal really an integral part of this, especially given some 169 00:08:24,400 --> 00:08:27,520 Speaker 1: of the considerations they need to think about associated with 170 00:08:27,640 --> 00:08:30,080 Speaker 1: their debt relief package, as you pointed out, means that 171 00:08:30,120 --> 00:08:33,720 Speaker 1: they can't build new things really and maybe that path 172 00:08:33,800 --> 00:08:37,319 Speaker 1: forward to retiring coal fired power stations and building more 173 00:08:37,320 --> 00:08:40,720 Speaker 1: renewables capacity might be a little bit out of reach 174 00:08:40,800 --> 00:08:42,960 Speaker 1: in the near term. So, yeah, let's talk about the 175 00:08:42,960 --> 00:08:45,720 Speaker 1: near term. Is coal essentially a big part of their 176 00:08:45,840 --> 00:08:48,120 Speaker 1: strategy out of blackouts? Yeah? 177 00:08:48,160 --> 00:08:50,440 Speaker 2: Sure, So, I think the biggest challenge for the government 178 00:08:50,480 --> 00:08:52,439 Speaker 2: over the next decade, and they are starting to think 179 00:08:52,440 --> 00:08:54,760 Speaker 2: about their twenty to thirty plan. On January fourth, they 180 00:08:54,960 --> 00:08:57,959 Speaker 2: just released their new Integrated Resource Plan, which basically is 181 00:08:58,000 --> 00:09:00,599 Speaker 2: a really important energy strategy for the outlook for the 182 00:09:00,640 --> 00:09:03,600 Speaker 2: sector because it then determines how things like procurement rounds 183 00:09:03,640 --> 00:09:06,319 Speaker 2: take place and the volumes that actually get contracted, and 184 00:09:06,400 --> 00:09:08,600 Speaker 2: so it's a really important document and they are starting 185 00:09:08,640 --> 00:09:11,400 Speaker 2: to think forward. One of the biggest challenges about thinking 186 00:09:11,679 --> 00:09:14,199 Speaker 2: that far ahead and trying to plan to actually solve 187 00:09:14,240 --> 00:09:17,080 Speaker 2: the electricity crisis within this decade. Is that the coal 188 00:09:17,120 --> 00:09:19,440 Speaker 2: fleet is very old. These plants are built for fifty 189 00:09:19,520 --> 00:09:22,240 Speaker 2: year lifetimes, and already by next year we estimate that 190 00:09:22,280 --> 00:09:25,480 Speaker 2: another two and a half gigawatts, which is maybe just 191 00:09:25,559 --> 00:09:27,480 Speaker 2: under eight per cent of the total, will have reached 192 00:09:27,480 --> 00:09:31,280 Speaker 2: this age. We see retirements are coming due to accelerate 193 00:09:31,400 --> 00:09:33,719 Speaker 2: through the twenty twenties, and most plants will need to 194 00:09:33,760 --> 00:09:36,280 Speaker 2: close by twenty forty. So yeah, given the load talling 195 00:09:36,280 --> 00:09:38,400 Speaker 2: crisis and where we are today, there are real discussions 196 00:09:38,400 --> 00:09:41,200 Speaker 2: happening about delaying those plant closures, and that could make 197 00:09:41,280 --> 00:09:45,040 Speaker 2: sense under very certain conditions, but the strategy really needs 198 00:09:45,040 --> 00:09:46,760 Speaker 2: to be to figure out how to replace the coal 199 00:09:46,800 --> 00:09:48,440 Speaker 2: fleet in the long term. Either way, you know, these 200 00:09:48,480 --> 00:09:50,599 Speaker 2: plants are very old, and it's certainly not going to 201 00:09:50,640 --> 00:09:52,640 Speaker 2: be a situation that we're seeing lots of new build 202 00:09:52,720 --> 00:09:54,840 Speaker 2: coal plants. I don't think anyone, even the government, is 203 00:09:55,160 --> 00:09:58,880 Speaker 2: entertaining that idea, but these delays are being actively considered 204 00:09:58,920 --> 00:10:01,720 Speaker 2: and there is press for it. Escom had planned to 205 00:10:01,720 --> 00:10:03,920 Speaker 2: decommission a couple of its plants by twenty twenty, and 206 00:10:03,960 --> 00:10:07,240 Speaker 2: it's already delayed. Those till twenty twenty seven. We've actually 207 00:10:07,280 --> 00:10:09,360 Speaker 2: run some of our power models to try and understand 208 00:10:09,440 --> 00:10:11,840 Speaker 2: what would happen if South Africa were to do a 209 00:10:11,880 --> 00:10:15,040 Speaker 2: really aggressive lifetime extension scenario on the coal fleet and 210 00:10:15,080 --> 00:10:17,440 Speaker 2: see how it actually compares to let's say, if you 211 00:10:17,520 --> 00:10:19,800 Speaker 2: allowed just economics to play out and for them to 212 00:10:19,800 --> 00:10:23,120 Speaker 2: build enough capacity to meet demand on an economic basis, 213 00:10:23,280 --> 00:10:26,520 Speaker 2: and we find that actually extending the coal plants would 214 00:10:26,559 --> 00:10:29,719 Speaker 2: probably increase running costs of the fleet. So obviously you're 215 00:10:29,760 --> 00:10:32,079 Speaker 2: burning more coal over a longer period. So that's probably 216 00:10:32,080 --> 00:10:34,560 Speaker 2: in the order of four billion dollars by twenty forty 217 00:10:34,640 --> 00:10:37,960 Speaker 2: cumulative running cost editions, which is around four percent increase 218 00:10:38,000 --> 00:10:40,520 Speaker 2: on what our baseline scenario would be. And then the 219 00:10:40,520 --> 00:10:42,760 Speaker 2: capital side of things, we actually don't know what it 220 00:10:42,800 --> 00:10:45,440 Speaker 2: would cost to retrofit the fleet in order to allow 221 00:10:45,480 --> 00:10:48,000 Speaker 2: them to extend longer. That's definitely something that you would 222 00:10:48,160 --> 00:10:50,440 Speaker 2: need kind of a very in depth technical analysis on 223 00:10:50,480 --> 00:10:54,040 Speaker 2: each plant to understand, but we can give a ballpark 224 00:10:54,080 --> 00:10:56,200 Speaker 2: on what we think you would need, what the budget 225 00:10:56,200 --> 00:10:59,120 Speaker 2: would need to be. Essentially, so per mega what of retrofit, 226 00:10:59,200 --> 00:11:00,720 Speaker 2: what would the cost need to be in order for it 227 00:11:00,760 --> 00:11:03,200 Speaker 2: to be a cheaper outcome, and if you extended the 228 00:11:03,240 --> 00:11:05,960 Speaker 2: coal fleet for less than we estimate three hundred and 229 00:11:06,200 --> 00:11:09,679 Speaker 2: eighty thousand US dollars per megawatt, then you're in the money. 230 00:11:09,760 --> 00:11:11,320 Speaker 2: So if you can do it at that cheap, and 231 00:11:11,320 --> 00:11:12,839 Speaker 2: that's not a lot of money, but if you can 232 00:11:12,840 --> 00:11:15,240 Speaker 2: do it on that basis, then the coal extension scenario 233 00:11:15,280 --> 00:11:17,760 Speaker 2: may be cheaper. But overall, we think there's a high 234 00:11:17,760 --> 00:11:20,920 Speaker 2: degree of uncertainty that on the cost and viability side 235 00:11:20,920 --> 00:11:22,520 Speaker 2: of things that you could even do this. So I 236 00:11:22,559 --> 00:11:26,319 Speaker 2: think maybe it's maybe an immediate near term patch solution 237 00:11:26,480 --> 00:11:28,080 Speaker 2: to where they are today, but it's definitely not going 238 00:11:28,160 --> 00:11:29,520 Speaker 2: to be a long term fix. 239 00:11:29,600 --> 00:11:32,600 Speaker 1: A patch solution for roughly how long because you would 240 00:11:32,640 --> 00:11:35,440 Speaker 1: reference it essentially they will need to be closed that 241 00:11:35,480 --> 00:11:38,840 Speaker 1: twenty forty is sort of that year where a large 242 00:11:38,880 --> 00:11:42,120 Speaker 1: amount of what's in their existing coal fleet really is 243 00:11:42,160 --> 00:11:45,200 Speaker 1: going to get to a point where even with great 244 00:11:45,280 --> 00:11:49,320 Speaker 1: maintenance and looking at elongating the lifetime, maybe that's the 245 00:11:49,400 --> 00:11:51,760 Speaker 1: end of it. Is that the year essentially that everyone 246 00:11:51,760 --> 00:11:53,000 Speaker 1: needs to be planning towards. 247 00:11:53,320 --> 00:11:56,240 Speaker 2: I think it's actually even sooner than that we see 248 00:11:56,280 --> 00:11:59,719 Speaker 2: the latest plan still keeping online a decent amount of 249 00:12:00,160 --> 00:12:03,400 Speaker 2: by twenty thirty but then the onslaught of coal retirements 250 00:12:03,440 --> 00:12:05,120 Speaker 2: really kicks in, and that's just a function of the 251 00:12:05,160 --> 00:12:07,680 Speaker 2: age of these assets. They will probably not be able 252 00:12:07,720 --> 00:12:10,199 Speaker 2: to operate beyond that time period. So even by twenty 253 00:12:10,240 --> 00:12:13,440 Speaker 2: thirty one, you're starting to have to replace significant amounts 254 00:12:13,480 --> 00:12:17,120 Speaker 2: of gig what volumes of coal capacity with something else, 255 00:12:17,320 --> 00:12:19,319 Speaker 2: and then what that would be. You know, the government 256 00:12:19,360 --> 00:12:22,480 Speaker 2: is leaning towards a lot more gas. Our models tend 257 00:12:22,559 --> 00:12:24,400 Speaker 2: to build a little bit more on the solar and 258 00:12:24,400 --> 00:12:27,680 Speaker 2: the storage side than the gas capacity that the government's targeting. 259 00:12:27,880 --> 00:12:30,079 Speaker 2: So yeah, the question of what comes next will definitely 260 00:12:30,120 --> 00:12:33,040 Speaker 2: be largely led by policy, but we are seeing some 261 00:12:33,080 --> 00:12:35,920 Speaker 2: shakeups happening already on the ground with more solar build 262 00:12:35,920 --> 00:12:38,199 Speaker 2: is essentially than what the government is thinking will happen. 263 00:12:38,600 --> 00:12:41,319 Speaker 1: I mean, it has certainly been a volatile couple of 264 00:12:41,440 --> 00:12:45,640 Speaker 1: years for gas prices. So that's an interesting forwardlooking strategy. 265 00:12:45,679 --> 00:12:48,080 Speaker 1: But let's talk about that with South Africa some of 266 00:12:48,080 --> 00:12:50,040 Speaker 1: the things that they're putting in place to think about 267 00:12:50,120 --> 00:12:53,000 Speaker 1: the future. So they have a new Integrated Resource Plan, 268 00:12:53,120 --> 00:12:56,080 Speaker 1: can you explain, well, first of all what that is, 269 00:12:56,320 --> 00:12:57,840 Speaker 1: and then let's talk about what's in it? 270 00:12:58,160 --> 00:13:00,719 Speaker 2: Yeah, So the Integrated Resource Plan is a document that 271 00:13:00,760 --> 00:13:02,760 Speaker 2: has existed for a long time in South Africa and 272 00:13:02,880 --> 00:13:06,280 Speaker 2: essentially governs how the government wants to see capacity in 273 00:13:06,320 --> 00:13:09,480 Speaker 2: the electricity mix going forward. It's been out or twenty 274 00:13:09,559 --> 00:13:11,320 Speaker 2: thirty for a number of years, but the new one 275 00:13:11,360 --> 00:13:13,520 Speaker 2: actually goes all the way out to twenty fifty, so 276 00:13:13,559 --> 00:13:16,040 Speaker 2: we can see how they're thinking about under different scenarios, 277 00:13:16,040 --> 00:13:20,600 Speaker 2: the evolution of what replaces coal essentially in those different parameters. Now, 278 00:13:20,760 --> 00:13:24,520 Speaker 2: the IRP that's just come out doubles the previous target 279 00:13:24,520 --> 00:13:26,319 Speaker 2: for new gas build so we're eight and a half 280 00:13:26,360 --> 00:13:29,200 Speaker 2: giga what's actually of additional gas plants by twenty thirty 281 00:13:29,400 --> 00:13:31,480 Speaker 2: And we've kind of touched on this a little bit already, 282 00:13:31,520 --> 00:13:34,240 Speaker 2: but the conditions for getting new build online has been 283 00:13:34,320 --> 00:13:37,080 Speaker 2: quite a difficult challenge for a number of technologies, including 284 00:13:37,200 --> 00:13:39,960 Speaker 2: thermal capacity. So actually giving a route to market for 285 00:13:40,040 --> 00:13:42,320 Speaker 2: private generators because largely this is going to have to 286 00:13:42,320 --> 00:13:45,200 Speaker 2: be non escumentities that are building new gas plants. That's 287 00:13:45,240 --> 00:13:46,880 Speaker 2: going to have to be solved very quickly if you 288 00:13:46,920 --> 00:13:49,200 Speaker 2: want that capacity online by twenty thirty, and you're also 289 00:13:49,240 --> 00:13:51,200 Speaker 2: going to have to build out the adjacent gas fuel 290 00:13:51,240 --> 00:13:54,480 Speaker 2: supply infrastructure, because South Africa isn't exactly a large gas 291 00:13:54,520 --> 00:13:56,560 Speaker 2: market at the moment, so it will be hard given 292 00:13:56,600 --> 00:13:59,160 Speaker 2: that relative early stage of the market. I want to 293 00:13:59,320 --> 00:14:01,880 Speaker 2: like caveat that by saying we do see an important 294 00:14:01,960 --> 00:14:05,280 Speaker 2: role for gas in South Africa's electricity mix after coal 295 00:14:05,440 --> 00:14:07,400 Speaker 2: and especially to help with some of the I guess 296 00:14:07,800 --> 00:14:11,120 Speaker 2: flexibility needs of the system as it moves towards more renewables, 297 00:14:11,360 --> 00:14:14,160 Speaker 2: But it's certainly nowhere near in the order of magnitude 298 00:14:14,160 --> 00:14:16,959 Speaker 2: of what the IRP is currently dictating. 299 00:14:17,440 --> 00:14:20,600 Speaker 1: Within that, what role does solar play because you see 300 00:14:20,640 --> 00:14:23,480 Speaker 1: in other parts of the continent that solar has become 301 00:14:23,520 --> 00:14:27,320 Speaker 1: a popular source of new builds across other different countries 302 00:14:27,360 --> 00:14:30,120 Speaker 1: in Africa, and rightfully so, given that you know, solar 303 00:14:30,200 --> 00:14:33,000 Speaker 1: modules are at an all time low in terms of price, 304 00:14:33,040 --> 00:14:35,000 Speaker 1: and it will be interesting to see what that means, 305 00:14:35,160 --> 00:14:37,280 Speaker 1: just even in the near term in twenty twenty four, 306 00:14:37,800 --> 00:14:41,560 Speaker 1: is solar featuring heavily in South Africa's path forward once 307 00:14:41,720 --> 00:14:45,520 Speaker 1: they are looking to replace what's in the coal fired 308 00:14:45,560 --> 00:14:46,240 Speaker 1: power space. 309 00:14:46,280 --> 00:14:48,920 Speaker 2: And how important is solid Yeah, so I think the 310 00:14:48,960 --> 00:14:52,800 Speaker 2: answer is very The government has set its biggest target 311 00:14:52,800 --> 00:14:55,960 Speaker 2: for solar that it ever has done in these plant exercises, 312 00:14:56,040 --> 00:14:58,400 Speaker 2: but it still comes in at what we estimate around 313 00:14:58,400 --> 00:15:01,720 Speaker 2: thirteen percent of generation by twenty That compares with BNFS 314 00:15:01,760 --> 00:15:04,360 Speaker 2: twenty five percent. So even though it's a step up 315 00:15:04,360 --> 00:15:07,240 Speaker 2: in ambition from the government's perspective, it's nowhere near where 316 00:15:07,240 --> 00:15:09,040 Speaker 2: we expect the market to be by that point in 317 00:15:09,080 --> 00:15:12,040 Speaker 2: time and our forecast. This is largely driven by benf's 318 00:15:12,080 --> 00:15:14,880 Speaker 2: outlook on what solar build will actually happen in South Africa. 319 00:15:14,880 --> 00:15:17,520 Speaker 2: It's not just economic building our in our models, it's 320 00:15:17,560 --> 00:15:20,720 Speaker 2: much more aggressive because the market conditions have changed really 321 00:15:20,840 --> 00:15:24,160 Speaker 2: rapidly over the last few years that have led already 322 00:15:24,240 --> 00:15:27,440 Speaker 2: to a big uptick in solar build. So rooftop solar 323 00:15:27,560 --> 00:15:30,360 Speaker 2: is growing rapidly because of the load shedding that we're 324 00:15:30,360 --> 00:15:34,120 Speaker 2: seeing and some regulatory changes like additional tax incentives that 325 00:15:34,120 --> 00:15:36,480 Speaker 2: are now in place. They've removed some of the generator 326 00:15:36,560 --> 00:15:40,680 Speaker 2: licensing requirements that was previously hampering the small scale solar sector. 327 00:15:40,880 --> 00:15:43,280 Speaker 2: Businesses can add their own solar for on site consumption 328 00:15:43,360 --> 00:15:45,480 Speaker 2: and even sell it to the grid. This is really 329 00:15:45,520 --> 00:15:49,800 Speaker 2: boosting activity both on residential, commercial and industrial for things 330 00:15:49,840 --> 00:15:52,560 Speaker 2: like mines and factories, and we're already seeing that in 331 00:15:52,600 --> 00:15:55,360 Speaker 2: the data. We can track export data of solar cells 332 00:15:55,360 --> 00:15:58,120 Speaker 2: and modules from China that boomed in twenty twenty three. 333 00:15:58,480 --> 00:16:01,160 Speaker 2: We tracked over three giga whatt'sth of shipments in the 334 00:16:01,160 --> 00:16:04,560 Speaker 2: first three quarters directed to South Africa. That aligns roughly 335 00:16:04,600 --> 00:16:06,880 Speaker 2: with what Escom's saying as well. They estimated around two 336 00:16:06,880 --> 00:16:08,720 Speaker 2: and a half giga what's was commissioned just over the 337 00:16:08,760 --> 00:16:11,400 Speaker 2: first three quarters of twenty twenty three. So we think 338 00:16:11,480 --> 00:16:15,000 Speaker 2: and our forecast maintains around that four giga what benchmark 339 00:16:15,080 --> 00:16:17,720 Speaker 2: for these small scale solar additions from twenty twenty four 340 00:16:17,800 --> 00:16:20,000 Speaker 2: through twenty twenty five, or maybe even longer if the 341 00:16:20,040 --> 00:16:22,800 Speaker 2: load shedding crisis takes longer to solve. So in our view, 342 00:16:22,960 --> 00:16:25,760 Speaker 2: the IRP, which just by comparison from that four gigga 343 00:16:25,760 --> 00:16:28,360 Speaker 2: what I mentioned for BENA forecast, it's around nine hundred 344 00:16:28,360 --> 00:16:31,160 Speaker 2: megawat's a year, so it's not even twenty five percent 345 00:16:31,400 --> 00:16:33,760 Speaker 2: of what we're expecting to happen. That's in the IRP. 346 00:16:34,040 --> 00:16:37,080 Speaker 2: So I think the ballpark estimates of where of where 347 00:16:37,120 --> 00:16:39,640 Speaker 2: the solar industry is from what we're observing versus what 348 00:16:39,680 --> 00:16:42,240 Speaker 2: the government actually thinks is happening and what will happen 349 00:16:42,320 --> 00:16:44,640 Speaker 2: is there's quite a disjunct there. I think the only 350 00:16:44,720 --> 00:16:47,640 Speaker 2: risk to our outlook being wrong is if Escorm manages 351 00:16:47,680 --> 00:16:50,600 Speaker 2: to deliver more reliable power sooner hopefully it does, then 352 00:16:50,640 --> 00:16:53,200 Speaker 2: the small scale solar industry might slow down a little bit. 353 00:16:53,440 --> 00:16:55,280 Speaker 2: Load shedding did e's a little bit in the last 354 00:16:55,320 --> 00:16:57,360 Speaker 2: part of twenty twenty three, and we did see some 355 00:16:57,720 --> 00:17:02,000 Speaker 2: downturn in the solar installations and volumes, but largely, like 356 00:17:02,040 --> 00:17:04,399 Speaker 2: the big picture is, we think this trend is definitely 357 00:17:04,400 --> 00:17:06,000 Speaker 2: here to stay in the immediate term. 358 00:17:06,080 --> 00:17:08,640 Speaker 1: Because small scale soilar is essentially a way to get 359 00:17:08,680 --> 00:17:11,520 Speaker 1: around the reliance on a grid, which then brings us 360 00:17:11,560 --> 00:17:15,480 Speaker 1: to another technology, which is batteries and storage. Is that 361 00:17:15,640 --> 00:17:20,000 Speaker 1: popular in South Africa and our individual companies and individuals 362 00:17:20,040 --> 00:17:23,640 Speaker 1: going out there and actually acquiring battery to guarantee security 363 00:17:23,640 --> 00:17:25,639 Speaker 1: of supply when the grid goes through a blackout and 364 00:17:25,640 --> 00:17:26,679 Speaker 1: has the See. 365 00:17:26,920 --> 00:17:29,479 Speaker 2: Yeah, storage storage is a really important part of our 366 00:17:29,520 --> 00:17:32,359 Speaker 2: outlook and we certainly expect there to be tens of 367 00:17:32,359 --> 00:17:35,359 Speaker 2: gig lots of installations by twenty forty in the market 368 00:17:35,400 --> 00:17:39,240 Speaker 2: to help accommodate that influx of solar. Even we were 369 00:17:39,240 --> 00:17:41,159 Speaker 2: there on a research visit just doing some of this 370 00:17:41,240 --> 00:17:43,320 Speaker 2: work in the build up for our outlook in October 371 00:17:43,400 --> 00:17:45,399 Speaker 2: last year, and in you land in the airports, and 372 00:17:45,440 --> 00:17:49,640 Speaker 2: there's adverts for residential storage solutions like all over everywhere 373 00:17:49,680 --> 00:17:52,040 Speaker 2: you see it. So there's definitely a big market for 374 00:17:52,080 --> 00:17:54,919 Speaker 2: the small scale battery installations. People want to have that 375 00:17:55,040 --> 00:17:58,320 Speaker 2: reliable power in their homes or businesses. And then equally, 376 00:17:58,640 --> 00:18:01,280 Speaker 2: Escom is interestingly actually one of the bigger buyers of 377 00:18:01,480 --> 00:18:03,600 Speaker 2: battery storage at the moment, and it's using it to 378 00:18:03,640 --> 00:18:05,840 Speaker 2: help manage some of the grid issues that it's having. 379 00:18:05,880 --> 00:18:08,359 Speaker 2: So they did a big like five hundred megawat plus 380 00:18:08,480 --> 00:18:12,480 Speaker 2: tend around reasonably recently. That's actually driving some utility scale 381 00:18:12,520 --> 00:18:15,600 Speaker 2: battery storage installations on the grid today. So we are 382 00:18:15,600 --> 00:18:18,639 Speaker 2: already seeing that similar uptick that again exceeds what the 383 00:18:18,640 --> 00:18:21,639 Speaker 2: government is expecting in the IP but yeah, it's definitely 384 00:18:21,680 --> 00:18:25,560 Speaker 2: someone to watch. The government is also expecting electricity demand 385 00:18:25,600 --> 00:18:28,480 Speaker 2: itself to recover and grow much faster than we are, 386 00:18:28,560 --> 00:18:31,200 Speaker 2: so we expect about twenty percent increase in demand by 387 00:18:31,200 --> 00:18:34,280 Speaker 2: twenty forty, whereas the government expects forty percent. So that's 388 00:18:34,320 --> 00:18:37,920 Speaker 2: another driver of their system needing more gas because obviously, 389 00:18:37,960 --> 00:18:41,679 Speaker 2: if you're limiting wind and solar and you're increasing demand, 390 00:18:41,720 --> 00:18:43,880 Speaker 2: something has to fill that gap for the core retirement. 391 00:18:44,000 --> 00:18:46,000 Speaker 2: So that's why they're leaning a lot more on gas. 392 00:18:46,040 --> 00:18:48,640 Speaker 2: We think than our outlook suggests. 393 00:18:48,560 --> 00:18:52,880 Speaker 1: Is that because it's going to be a nearer term solution, 394 00:18:53,040 --> 00:18:55,960 Speaker 1: that they can implement more quickly, because my understanding is 395 00:18:55,960 --> 00:18:58,159 Speaker 1: that building a new gas fired power station is not 396 00:18:58,440 --> 00:19:01,120 Speaker 1: a quick fix. And then actually you'd probably be able 397 00:19:01,160 --> 00:19:03,560 Speaker 1: to get something like solar online more quickly. 398 00:19:03,880 --> 00:19:06,960 Speaker 2: Yeah, no, and it definitely can take time. And there's 399 00:19:07,119 --> 00:19:11,040 Speaker 2: even the government did a kind of short term emergency 400 00:19:11,080 --> 00:19:13,480 Speaker 2: tender for capacity in twenty twenty one where actually a 401 00:19:13,520 --> 00:19:16,399 Speaker 2: bunch of gas powerships bid in to secure some of 402 00:19:16,440 --> 00:19:18,800 Speaker 2: those contracts and supply the system when it was down, 403 00:19:18,840 --> 00:19:20,840 Speaker 2: and they would do to come on within two years 404 00:19:20,840 --> 00:19:23,440 Speaker 2: of that tender happening, and there's still nowhere here because 405 00:19:23,440 --> 00:19:26,840 Speaker 2: they've been hamstrung by a lot of these environmental permitting arrangements, 406 00:19:26,840 --> 00:19:30,800 Speaker 2: like lots of local resistance, let's say, to gas power 407 00:19:30,800 --> 00:19:32,879 Speaker 2: supply in South Africa as well. So that's another element 408 00:19:32,920 --> 00:19:34,520 Speaker 2: that can delay things, and we see that all over 409 00:19:34,560 --> 00:19:38,080 Speaker 2: the world. Right there's challenges to actually procuring new gossil. 410 00:19:37,760 --> 00:19:40,960 Speaker 1: Generation which is largely coming from other countries and being 411 00:19:41,000 --> 00:19:43,680 Speaker 1: shipped in as LNG at this point exactly. So you 412 00:19:43,760 --> 00:19:46,119 Speaker 1: mentioned ever so briefly wind, but I think it's worth 413 00:19:46,160 --> 00:19:48,480 Speaker 1: bringing it up here since we're kind of doing this 414 00:19:48,680 --> 00:19:53,120 Speaker 1: around around our sources tour for escam in for South Africa. 415 00:19:53,240 --> 00:19:56,840 Speaker 1: So what about wind? Previous IRPs had a wind allocation 416 00:19:57,040 --> 00:19:59,160 Speaker 1: with something that they were actually looking at building out. 417 00:19:59,280 --> 00:20:01,680 Speaker 1: Is it still there and how much of the role 418 00:20:01,720 --> 00:20:02,960 Speaker 1: is it going to play in the future. 419 00:20:03,000 --> 00:20:05,440 Speaker 2: Yeah, kind of the opposite story to gas. Actually, they've 420 00:20:05,440 --> 00:20:09,080 Speaker 2: almost halved their previous target of over fourteen gigawats to 421 00:20:09,119 --> 00:20:11,439 Speaker 2: around eight and a half by twenty thirty, so it 422 00:20:11,480 --> 00:20:14,119 Speaker 2: is much more conservative. But in our view this is 423 00:20:14,160 --> 00:20:17,560 Speaker 2: actually a much more realistic alignment. Our forecast for wind 424 00:20:17,560 --> 00:20:20,120 Speaker 2: gets to around ten gigga what's by twenty thirty. I'd 425 00:20:20,119 --> 00:20:22,679 Speaker 2: say that's still somewhat conservative to what could happen if 426 00:20:22,720 --> 00:20:25,920 Speaker 2: stronger enabling policies were put in place. But for sure 427 00:20:25,960 --> 00:20:29,120 Speaker 2: it's a wind build on the ground has actually been slowing. 428 00:20:29,160 --> 00:20:31,760 Speaker 2: Grid connections are hard to obtain. We also do find 429 00:20:31,800 --> 00:20:35,560 Speaker 2: wind to be on a levelized basis more expensive than solar, 430 00:20:35,720 --> 00:20:38,280 Speaker 2: so that also weighs on the economics of the technology. 431 00:20:38,480 --> 00:20:40,600 Speaker 2: Just to give an example of this grid connection challenge 432 00:20:40,600 --> 00:20:43,280 Speaker 2: as well and the challenging conditions that some wind developers 433 00:20:43,280 --> 00:20:45,520 Speaker 2: are facing. One of the auctions run in twenty twenty 434 00:20:45,520 --> 00:20:48,000 Speaker 2: two for new renewbal capacity, they were targeting i think 435 00:20:48,000 --> 00:20:50,399 Speaker 2: around five gigawats of wind and solar build, but there 436 00:20:50,480 --> 00:20:53,560 Speaker 2: was basically no grid capacity for connections where wind developers 437 00:20:53,560 --> 00:20:55,720 Speaker 2: had proposed to build their project, and that led to 438 00:20:55,840 --> 00:20:58,840 Speaker 2: zero megawatts of wind clearing in this auction. So of 439 00:20:58,880 --> 00:21:01,440 Speaker 2: a massive target, they are ended up with nothing. Hopefully 440 00:21:01,440 --> 00:21:04,080 Speaker 2: that will change in the forthcoming round. That's happening actually 441 00:21:04,119 --> 00:21:06,600 Speaker 2: imminently as we speak. But yeah, it's certainly been a 442 00:21:06,600 --> 00:21:08,359 Speaker 2: difficult number of years for wind. 443 00:21:08,800 --> 00:21:12,360 Speaker 1: Even if you're thinking about existing grid connections and on 444 00:21:12,400 --> 00:21:14,960 Speaker 1: the same sites where you have coal fired power stations, 445 00:21:15,000 --> 00:21:17,800 Speaker 1: you're maybe putting something right there, gas fired power station 446 00:21:18,160 --> 00:21:21,000 Speaker 1: or a new coal fired power station perhaps, whatever it 447 00:21:21,040 --> 00:21:24,400 Speaker 1: is you're putting on there, the grid is very, very important, 448 00:21:24,440 --> 00:21:27,439 Speaker 1: but you're referencing that we're likely to see more demand. 449 00:21:27,640 --> 00:21:29,159 Speaker 1: So if you have more demand, you're going to need 450 00:21:29,160 --> 00:21:31,720 Speaker 1: more grid connections. Do you think that South Africa is 451 00:21:31,760 --> 00:21:33,520 Speaker 1: going to be able to rise to the challenge on 452 00:21:34,320 --> 00:21:36,240 Speaker 1: making a more robust grid now? 453 00:21:36,720 --> 00:21:40,120 Speaker 2: I think this is really important because ESCOM has been 454 00:21:40,359 --> 00:21:42,760 Speaker 2: raising for a while now that it needs to increase 455 00:21:42,800 --> 00:21:46,520 Speaker 2: its plans for spending on transmission and distribution grids. There 456 00:21:46,520 --> 00:21:49,239 Speaker 2: are a number of issues, not just new connections, but 457 00:21:49,359 --> 00:21:52,520 Speaker 2: actually operating the existing network is also quite old in 458 00:21:52,520 --> 00:21:55,399 Speaker 2: places and needs retrofit investments. So there's a number of 459 00:21:55,400 --> 00:21:57,879 Speaker 2: things that need to happen in order to enable that 460 00:21:57,960 --> 00:21:59,320 Speaker 2: new capacity to come in. 461 00:21:59,760 --> 00:22:00,000 Speaker 1: Right. 462 00:22:00,119 --> 00:22:02,679 Speaker 2: Figuring out what to do about multi giga what grid 463 00:22:02,720 --> 00:22:05,680 Speaker 2: connections that are attached to large core plants that get retired. 464 00:22:05,720 --> 00:22:08,119 Speaker 2: This is a big story elsewhere, and you know, I 465 00:22:08,200 --> 00:22:10,280 Speaker 2: usually cover the European market and we see this in 466 00:22:10,280 --> 00:22:12,679 Speaker 2: Germany and Poland. Lots of discussions around what to do 467 00:22:12,760 --> 00:22:15,159 Speaker 2: with those multi giga what grid connection assets. In some 468 00:22:15,200 --> 00:22:17,840 Speaker 2: places interesting discussions around tendering them out and trying to 469 00:22:17,880 --> 00:22:20,639 Speaker 2: allow new capacity to come in so that you're transitioning 470 00:22:20,760 --> 00:22:23,000 Speaker 2: the local economy. But I think, yeah, getting that right 471 00:22:23,119 --> 00:22:26,440 Speaker 2: is going to be absolutely essential. I think the positive 472 00:22:26,440 --> 00:22:28,720 Speaker 2: thing is that the tide is really starting to turn 473 00:22:28,760 --> 00:22:32,840 Speaker 2: and we are seeing investment in both renewables and discussions 474 00:22:32,840 --> 00:22:36,400 Speaker 2: around maybe more innovative financing mechanisms to help grid investment 475 00:22:36,760 --> 00:22:38,359 Speaker 2: to get where it needs to be in South Africa 476 00:22:38,440 --> 00:22:38,960 Speaker 2: take place. 477 00:22:40,440 --> 00:22:42,840 Speaker 1: Well, so then let's talk a little bit more about 478 00:22:42,840 --> 00:22:45,439 Speaker 1: the investment environment. One of the things we being in 479 00:22:45,440 --> 00:22:49,040 Speaker 1: the f do is our Climate Scope data and the 480 00:22:49,080 --> 00:22:50,840 Speaker 1: reports that come off the back of that, And for 481 00:22:50,880 --> 00:22:52,280 Speaker 1: those who want to check it out, there is a 482 00:22:52,320 --> 00:22:55,520 Speaker 1: website look for b and EF Climate Scope and you'll 483 00:22:55,520 --> 00:22:57,560 Speaker 1: find your way to that website. And one of the 484 00:22:57,560 --> 00:23:01,119 Speaker 1: outputs of that is to better understand of which countries 485 00:23:01,240 --> 00:23:04,480 Speaker 1: are favorable across various parts of the world for investment 486 00:23:04,600 --> 00:23:08,520 Speaker 1: in clean energy. How does South Africa really score in 487 00:23:08,560 --> 00:23:09,320 Speaker 1: that exercise? 488 00:23:09,720 --> 00:23:12,439 Speaker 2: So South Africa is now actually one of the most 489 00:23:12,480 --> 00:23:15,439 Speaker 2: attractive markets for renewable investment and the whole continent of 490 00:23:15,440 --> 00:23:18,200 Speaker 2: Africa according to Climate Scope. So in twenty twenty two 491 00:23:18,240 --> 00:23:21,080 Speaker 2: we saw that South Africa attracted over five and a 492 00:23:21,119 --> 00:23:24,520 Speaker 2: half billion dollars in renewable energy investment, and that's three 493 00:23:24,600 --> 00:23:27,080 Speaker 2: times what they attracted in twenty twenty one, which was 494 00:23:27,119 --> 00:23:29,639 Speaker 2: around the two billion dollar mark. Now, a number of 495 00:23:29,640 --> 00:23:31,760 Speaker 2: things have been driving that we've mentioned the small scale 496 00:23:31,800 --> 00:23:35,280 Speaker 2: solar boom that's really helped improve the outlook for that 497 00:23:35,400 --> 00:23:37,919 Speaker 2: part of the sector. But the country has also made 498 00:23:37,960 --> 00:23:40,960 Speaker 2: a lot of progress in re establishing itself as a 499 00:23:41,000 --> 00:23:43,399 Speaker 2: major auctions market. I mentioned some of the challenges with 500 00:23:43,440 --> 00:23:45,560 Speaker 2: the grid connection thing. I think they are starting to 501 00:23:45,600 --> 00:23:48,879 Speaker 2: iron out some of those creases and fix those problems. 502 00:23:49,040 --> 00:23:51,680 Speaker 2: But there is some good news from that same program, 503 00:23:51,880 --> 00:23:53,800 Speaker 2: the Round five that they ran for over two and 504 00:23:53,840 --> 00:23:56,080 Speaker 2: a half giga lots of wind and solar capacity in 505 00:23:56,080 --> 00:23:58,560 Speaker 2: twenty twenty one. We're seeing reports that most of those 506 00:23:58,600 --> 00:24:01,560 Speaker 2: projects have now reached FID so they're finance or they're 507 00:24:01,600 --> 00:24:05,080 Speaker 2: even under construction already, so that's great. That's a positive 508 00:24:05,119 --> 00:24:07,600 Speaker 2: sign that the auction program that was a very important 509 00:24:07,600 --> 00:24:11,000 Speaker 2: part of getting South Africa an early adopter of renewables 510 00:24:11,280 --> 00:24:13,960 Speaker 2: is starting to revive itself as one of the key 511 00:24:14,000 --> 00:24:17,320 Speaker 2: ways that developers can go at scale in this market. 512 00:24:17,520 --> 00:24:20,200 Speaker 2: Round seven was just launched, as I mentioned in December, 513 00:24:20,440 --> 00:24:22,720 Speaker 2: that will aim for five gigabats of wind and soda again. 514 00:24:22,880 --> 00:24:24,520 Speaker 2: Round eight will do the same again. So they're just 515 00:24:24,560 --> 00:24:27,639 Speaker 2: going with this like more frequent, more regular, less unstable 516 00:24:27,760 --> 00:24:29,960 Speaker 2: policy environment and that should really help to crowd in 517 00:24:30,000 --> 00:24:32,720 Speaker 2: private investment and help to keep that momentum that we've 518 00:24:32,760 --> 00:24:35,400 Speaker 2: seen in that you mentioned climate scope. I'd expect South 519 00:24:35,440 --> 00:24:37,399 Speaker 2: Africa to stay in that position as one of the 520 00:24:37,520 --> 00:24:40,720 Speaker 2: leading emerging markets and growth markets for renewables over the 521 00:24:40,720 --> 00:24:42,919 Speaker 2: coming years, particularly because of those two things. 522 00:24:43,160 --> 00:24:46,439 Speaker 1: You know, you're seeing inflation in interst rates and causing 523 00:24:46,480 --> 00:24:49,560 Speaker 1: problems for wind development, for example in the United States, 524 00:24:49,640 --> 00:24:53,439 Speaker 1: and with that also some considerations around supply chains. Is 525 00:24:53,480 --> 00:24:56,159 Speaker 1: South Africa also dealing with that because it sounds like 526 00:24:56,320 --> 00:24:59,320 Speaker 1: these auctions are actually resulting in the projects being built, 527 00:24:59,359 --> 00:25:02,080 Speaker 1: which is the desired outcome of any action. Are the 528 00:25:02,119 --> 00:25:04,200 Speaker 1: auctions just very well designed? 529 00:25:04,520 --> 00:25:07,160 Speaker 2: I think it's not immune to the same challenges. I'll 530 00:25:07,200 --> 00:25:10,720 Speaker 2: be honest. There have been lots of instances and news 531 00:25:10,760 --> 00:25:12,959 Speaker 2: coverage of the fact that many developers are thinking that 532 00:25:12,960 --> 00:25:15,040 Speaker 2: some of their bids from some previous rounds may be 533 00:25:15,119 --> 00:25:17,919 Speaker 2: too low for them to finish getting across construction. I 534 00:25:17,960 --> 00:25:20,480 Speaker 2: think the overarching trend that some of those supply chain 535 00:25:20,520 --> 00:25:23,480 Speaker 2: shocks have started to ease is maybe improving the picture slightly, 536 00:25:23,480 --> 00:25:26,000 Speaker 2: But I think it's definitely not the case that South 537 00:25:26,040 --> 00:25:29,040 Speaker 2: Africa is immune to those same macro challenges that are 538 00:25:29,080 --> 00:25:32,359 Speaker 2: affecting how policymakers are thinking about what works well in 539 00:25:32,359 --> 00:25:35,119 Speaker 2: auction designs and how do you make auction programs that 540 00:25:35,160 --> 00:25:37,840 Speaker 2: you need to have being regular and things that investors 541 00:25:37,840 --> 00:25:41,000 Speaker 2: can rely upon be really effective and resilient to those 542 00:25:41,160 --> 00:25:44,320 Speaker 2: kind of exogynous shocks that can deter them from, you know, 543 00:25:44,400 --> 00:25:45,960 Speaker 2: just derail them from being effective. 544 00:25:46,520 --> 00:25:50,040 Speaker 1: Let's talk emissions for South Africa, because on one hand, 545 00:25:50,200 --> 00:25:54,000 Speaker 1: there is of course creating a power system that provides 546 00:25:54,160 --> 00:25:57,399 Speaker 1: consistence supply, and I think for many countries that is 547 00:25:57,520 --> 00:25:59,919 Speaker 1: the number one most important thing. But we also need 548 00:25:59,920 --> 00:26:01,919 Speaker 1: to think about the Paris Agreement in the fact that 549 00:26:01,960 --> 00:26:04,000 Speaker 1: South Africa is one of the countries that has come 550 00:26:04,000 --> 00:26:05,720 Speaker 1: forward and said that, you know, it is in all 551 00:26:05,760 --> 00:26:09,119 Speaker 1: of our best interest to have net zero by twenty fifty. 552 00:26:09,400 --> 00:26:12,199 Speaker 1: What is the current state of play in terms of 553 00:26:12,240 --> 00:26:15,440 Speaker 1: South Africa and their emissions and how are they moving 554 00:26:15,480 --> 00:26:17,959 Speaker 1: towards their climate targets and how does the power system 555 00:26:18,080 --> 00:26:21,600 Speaker 1: feature in their view on their climate targets. 556 00:26:21,880 --> 00:26:24,800 Speaker 2: So, yeah, you're right, South Africa is a really important 557 00:26:24,840 --> 00:26:27,840 Speaker 2: market globally in terms of the greenhouse gas emissions challenge. 558 00:26:28,160 --> 00:26:32,879 Speaker 2: I think it's fourteenth worldwide for total GHD emissions every year, 559 00:26:33,040 --> 00:26:35,960 Speaker 2: and over half of South Africa's emissions come from the 560 00:26:35,960 --> 00:26:38,480 Speaker 2: power sector, So this is a really important problem to fix. 561 00:26:38,560 --> 00:26:41,800 Speaker 2: It's like a decent chunk of the challenge. It's contributions 562 00:26:41,800 --> 00:26:44,600 Speaker 2: to the Paris Agreement and what South Africa's currently committed to. 563 00:26:44,840 --> 00:26:47,639 Speaker 2: They're aiming for their emissions to fall within a range, 564 00:26:47,720 --> 00:26:50,720 Speaker 2: So a lot of emerging markets and developing economy set 565 00:26:50,720 --> 00:26:53,000 Speaker 2: targets in this way. They aim for a range of 566 00:26:53,359 --> 00:26:56,240 Speaker 2: emissions in absolute terms, which I think is helpful to 567 00:26:56,240 --> 00:26:58,639 Speaker 2: fall within within that twenty thirty time frame. And the 568 00:26:58,720 --> 00:27:01,080 Speaker 2: upper bound of that is four hundred and forty million 569 00:27:01,119 --> 00:27:03,000 Speaker 2: metric tons of CO two and the lower bound is 570 00:27:03,000 --> 00:27:05,880 Speaker 2: three hundred and fifty so it's quite a large range. 571 00:27:05,960 --> 00:27:09,159 Speaker 2: But actually even the upper bound of that target I 572 00:27:09,200 --> 00:27:11,679 Speaker 2: would describe as fairly ambitious, and you would have to 573 00:27:11,680 --> 00:27:13,760 Speaker 2: do quite a lot in the power sector even just 574 00:27:13,800 --> 00:27:16,480 Speaker 2: to achieve that. Obviously, if you want to move towards 575 00:27:16,520 --> 00:27:18,639 Speaker 2: the lower bound, you really start to look outside of 576 00:27:18,680 --> 00:27:21,720 Speaker 2: power and solving the emissions challenge in other sectors. So 577 00:27:21,800 --> 00:27:23,520 Speaker 2: I guess on that and what can you do to 578 00:27:23,560 --> 00:27:27,000 Speaker 2: actually scale up clean power faster and accelerate the transition 579 00:27:27,040 --> 00:27:29,920 Speaker 2: from coal. We have actually run a few scenarios and 580 00:27:30,080 --> 00:27:32,120 Speaker 2: checked our models to see what it tells us about 581 00:27:32,200 --> 00:27:34,840 Speaker 2: what would it look like to actually transition South Africa's 582 00:27:34,880 --> 00:27:37,200 Speaker 2: power system even faster, and we can put some numbers 583 00:27:37,200 --> 00:27:39,359 Speaker 2: on that. So if let's say the power sector wanted 584 00:27:39,400 --> 00:27:42,880 Speaker 2: to contribute around eighty percent of the total NDC budget, 585 00:27:43,040 --> 00:27:45,879 Speaker 2: you would need to really accelerate the transition from coal, 586 00:27:46,160 --> 00:27:49,639 Speaker 2: largely replacing that with wind, solar and storage. So renewables 587 00:27:49,720 --> 00:27:52,359 Speaker 2: grow absolutely the fastest in our models when we force 588 00:27:52,400 --> 00:27:55,719 Speaker 2: the system to solve for both cost and carbon constraints. 589 00:27:55,880 --> 00:27:59,040 Speaker 2: So over half of electricity generation by twenty thirty two 590 00:27:59,040 --> 00:28:01,879 Speaker 2: would just come from those renewables. So that's the first 591 00:28:02,119 --> 00:28:04,199 Speaker 2: step of the challenge. But it's not even just that. 592 00:28:04,240 --> 00:28:06,880 Speaker 2: You then need to start thinking about what can replace 593 00:28:06,960 --> 00:28:10,439 Speaker 2: coal even faster that's low carbon, and in this scenario 594 00:28:10,480 --> 00:28:13,440 Speaker 2: we do actually end up with slightly larger gas flle 595 00:28:13,440 --> 00:28:16,840 Speaker 2: including gas power plants that could be using carbon capture 596 00:28:16,840 --> 00:28:19,920 Speaker 2: and storage or burning clean hydrogen. So there's a decent 597 00:28:20,000 --> 00:28:22,919 Speaker 2: chunk of that question that not only I guess today 598 00:28:22,920 --> 00:28:25,159 Speaker 2: the dialogue is very much about investment in wind and 599 00:28:25,200 --> 00:28:27,520 Speaker 2: solar and storage. But actually you would need to have 600 00:28:27,560 --> 00:28:30,960 Speaker 2: conversations much sooner and have incentives to help support those 601 00:28:31,080 --> 00:28:34,080 Speaker 2: clean backup generators as well to come to the market sooner. 602 00:28:34,160 --> 00:28:36,600 Speaker 2: So you're solving both challenges at a very quick pace. 603 00:28:37,119 --> 00:28:40,360 Speaker 2: In terms of cost, we estimate that decarbonizing the power 604 00:28:40,360 --> 00:28:43,520 Speaker 2: system that quickly would probably be around seven billion dollars 605 00:28:43,600 --> 00:28:46,400 Speaker 2: a year between now and twenty forty and that's compared 606 00:28:46,400 --> 00:28:48,600 Speaker 2: to our base case of around six billion dollars. So 607 00:28:48,800 --> 00:28:51,000 Speaker 2: the fact of the matter is South Africa needs to 608 00:28:51,000 --> 00:28:53,479 Speaker 2: spend most of its money on new capacity anyway, so 609 00:28:53,520 --> 00:28:56,800 Speaker 2: the marginal addition to actually get to that climate target 610 00:28:56,920 --> 00:28:59,840 Speaker 2: is not that significant. So yeah, it's a big challenge 611 00:28:59,880 --> 00:29:01,520 Speaker 2: by I definitely think it would be doable. 612 00:29:01,800 --> 00:29:04,520 Speaker 1: So we've spent a lot of time talking about national 613 00:29:04,600 --> 00:29:09,360 Speaker 1: utility as well as nationally stated targets and stated goals 614 00:29:09,480 --> 00:29:13,160 Speaker 1: like Landc's and also the IERP. But if this is 615 00:29:13,200 --> 00:29:18,360 Speaker 1: becoming an increasingly liberalized market structure in South Africa, what 616 00:29:18,520 --> 00:29:21,200 Speaker 1: does that change and what do you see actually happening 617 00:29:21,400 --> 00:29:22,240 Speaker 1: in the future. 618 00:29:22,680 --> 00:29:24,800 Speaker 2: Yeah, I think this is going to be a really 619 00:29:24,800 --> 00:29:27,120 Speaker 2: interesting time because all of the rules of the game 620 00:29:27,120 --> 00:29:29,200 Speaker 2: that used to apply and it being a very high 621 00:29:29,200 --> 00:29:32,160 Speaker 2: You're right, a very highly regulated market where policy documents 622 00:29:32,240 --> 00:29:34,920 Speaker 2: like the Integrated Resource Plan really took center stage and 623 00:29:35,000 --> 00:29:40,200 Speaker 2: determining outcomes and essentially determining investment as well and opportunities 624 00:29:40,240 --> 00:29:42,360 Speaker 2: for developers. If you're starting to move to this more 625 00:29:42,360 --> 00:29:46,080 Speaker 2: liberalized market, we're already seeing that glimpse of change happening 626 00:29:46,120 --> 00:29:47,960 Speaker 2: in the small scale solar side, and I don't think 627 00:29:47,960 --> 00:29:50,480 Speaker 2: we're far from seeing that on the utility scale side either. 628 00:29:50,520 --> 00:29:52,880 Speaker 2: So I think the energy is changing on the ground, 629 00:29:52,960 --> 00:29:56,040 Speaker 2: and that could really change the game for do documents 630 00:29:56,080 --> 00:29:58,640 Speaker 2: like the IRP start to lose their relevance in terms 631 00:29:58,640 --> 00:30:01,360 Speaker 2: of determining the outcomes and their for DO economics and 632 00:30:01,160 --> 00:30:03,680 Speaker 2: the competitive drivers that we're seeing take place in other 633 00:30:03,760 --> 00:30:07,600 Speaker 2: markets around the world, and as a result, outlooks like 634 00:30:07,040 --> 00:30:09,960 Speaker 2: like we run a penf in These scenarios actually maybe 635 00:30:09,960 --> 00:30:12,320 Speaker 2: are more likely to happen in reality compared to what 636 00:30:12,480 --> 00:30:15,280 Speaker 2: the government wants to happen with its own capacity determination. 637 00:30:15,440 --> 00:30:17,880 Speaker 2: So yeah, it will be a really interesting one to 638 00:30:17,920 --> 00:30:18,560 Speaker 2: watch for sure. 639 00:30:18,680 --> 00:30:21,120 Speaker 1: It will certainly keep your team busy. Thank you very much, 640 00:30:21,160 --> 00:30:23,880 Speaker 1: Emma for sharing your thoughts on what the future holds 641 00:30:23,880 --> 00:30:25,320 Speaker 1: in store for South Africa. 642 00:30:25,360 --> 00:30:26,000 Speaker 2: Thank you so much. 643 00:30:26,080 --> 00:30:37,600 Speaker 1: Dana Switched On is produced by cam Gray with production 644 00:30:37,680 --> 00:30:41,880 Speaker 1: assistance from Camela Shelling and Alushi Corunarete. Bloomberg NEIF is 645 00:30:41,920 --> 00:30:45,000 Speaker 1: a service provided by Bloomberg Finance LP and its affiliates. 646 00:30:45,080 --> 00:30:47,760 Speaker 1: This recording does not constitute, nor should it be construed, 647 00:30:47,800 --> 00:30:51,680 Speaker 1: as investment advice, investment recommendations, or a recommendation as to 648 00:30:51,760 --> 00:30:54,600 Speaker 1: an investment or other strategy. Bloomberg NIF should not be 649 00:30:54,640 --> 00:30:58,440 Speaker 1: considered as information sufficient upon which to base an investment decision. 650 00:30:58,520 --> 00:31:01,520 Speaker 1: Neither Bloomberg Finance Lp nor any of its affiliates makes 651 00:31:01,520 --> 00:31:05,280 Speaker 1: any representation or warranty as to the accuracy or completeness 652 00:31:05,280 --> 00:31:08,280 Speaker 1: of the information contained in this recording, and any liability 653 00:31:08,320 --> 00:31:11,000 Speaker 1: as a result of this recording is expressly disclaimed.