ENERGY STORAGE

Marketwatch: Can storage save the South African economy?

The nation’s economy has been devastated by blackouts, now energy storage is being viewed as the solution to most of South Africa’s electricity problems

BEN COOK

July 14, 2023

  • South African blackouts total 157 days last year, but could be higher in 2023
  • Power outages cost the country $30.6bn in 2022
  • Energy storage seen as ‘strategic priority’ with economy in need of boost

South Africa’s future looks dark. Literally. Earlier this year, public utility Eskom warned that it may have to increase power cuts to an unprecedented level this winter – simply put, Eskom may have to shed 8,000MW from the national grid due to an ever-increasing gap between supply and demand. In effect, this would mean 16 hours of outages in a 32-hour cycle. It would deal a further blow to an already struggling economy. Many households and businesses in what is Africa’s most industrialised economy have already been subjected to outages of more than 10 hours per day.

Load-shedding – frequent scheduled power cuts – in South Africa began back in 2007 (see chart below), petered out for a number of years, and then returned with a vengeance last year. Why? The root of the problem lies with Eskom’s aging fleet of coal-fired power stations, which are in decline and producing less power. The problem is exacerbated by the fact that new power plants are not being built fast enough in the country. Problems came to a head in 2022 when more load was shed than in all previous years combined – it meant that collective power outages in South Africa last year totalled 157 days. The indications are that the blackouts will be even more devastating this year.

Source: International Institute for Sustainable Development (IISD)

The outages have had an extremely damaging impact on the nation’s economy. It is estimated that the direct, short-term cost to the economy of the blackouts in 2022 totalled ZAR 500 billion ($30.6 billion), but when “secondary effects” are considered, it could be in the trillions, according to some sources.

It’s clear that action needs to be taken to reduce the need for power outages in the country. South Africa is simply too dependent on the fading coal-fired power stations, which contribute more than 80 per cent of the nation’s nationally supplied electricity. The fleet’s energy availability factor (EAF) – the availability factor of a power plant is the number of hours it can generate electricity over a period of time divided by the number of hours in that period – has been in steady decline for the last 14 years (see chart below). This deteriorating performance meant the total electricity output from Eskom’s coal fleet decreased by 10 per cent between 2015 and 2022, despite an increase in total installed coal capacity of 17 per cent over the same period.

Source: International Institute for Sustainable Development (IISD)

Consequently, the International Institute for Sustainable Development (IISD) has, in a recent report, said that “energy storage, particularly national and municipal grid-located batteries, are becoming a strategic priority” for South Africa. Among the benefits batteries would offer the country would be a decrease in demand for Eskom electricity supply as well as ensuring the better use of existing power plants, the IISD has said.

“Grid storage can assist in several of the key challenges facing the South African power system, and batteries can be deployed faster and offer more services than other energy storage options,” the IISD report ‘Watts in Store Part 1: Explainer on how energy storage can help South Africa’s electricity crisis’ concluded. It’s key recommendation was the introduction of national and municipal strategies for the deployment of grid batteries, along with a “supportive environment” to implement grid battery projects. The report also added that it was surprised at the lack of attention given to grid storage in discussions about combating the South African electricity crisis.

Linking solar and storage is key

Key to the solution, some argue, will be linking battery storage with solar panels. Indeed, it has been claimed that adopting this approach will solve much of South Africa’s electricity-related problems. However, for this strategy to work, Eskom’s distribution monopoly would need to be brought to an end because energy customers would need to be able to pay different rates depending on the time of day when they used electricity and this would only work if there was competition between different market players. The problem is the unbundling of Eskom – which involves splitting the body into three entities, operations, distribution and transmission – is taking considerable time and causing frustration.

Despite the furore surrounding the future of Eskrom – and concerns about the utility being privatised – the South African government issued a request for proposals (RFP) for six battery energy storage projects, with a scale of 513MW/2052MWh, earlier this year. The RFP came after Eskom completed the procurement of around 343MW/1440MWh of battery storage systems in August 2022. The utility began deploying some of the systems late last year.

But this is just the start and South Africa’s battery storage market has considerably more potential. Data from the World Bank Group has shown that the country’s battery storage market can be expected to grow from 270 MWh in 2020 to 9,700 MWh in 2030 under the base-case scenario and to 15,000 MWh under the best-case scenario. Under the most ambitious scenario, South Africa would develop lithium-ion cell manufacturing plants and produce electric vehicle batteries for the local car industry in a push that could create 58,000 jobs and add R43.6 billion ($2.3 billion) to the country’s GDP.

The issue now is what approach should be taken to developing the nation’s storage industry.

5 steps for growing South Africa’s battery storage market

So what steps can South Africa take to ensure its battery storage market starts fulfilling its potential?

1. The country needs to invest in its burgeoning battery minerals refining and battery pack manufacturing industries. A further step would involve funding the expansion of local battery mineral refining to include lithium, graphite and cobalt imported from other African countries, according to the World Bank Group.

2. Develop an integrated value chain [that is, a process by which multiple enterprises within a shared market segment collaboratively plan, implement and manage the flow of goods and services] including EV battery and battery cell production.

3. Foster extensive engagements between the public and private sectors as part of the design of programmes and incentives in order to develop mutual trust and coordination.

4. Facilitate an increase in the proportion of renewables in the South African energy mix to improve access to green energy.

5. Facilitate access to finance by streamlining and accelerating application processes at financing institutions and leveraging international green funding.

Source: International Institute for Sustainable Development (IISD)

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