What does electricity actually cost?

With the advent of large renewable energy projects being built successfully in South Africa over the last few years and the challenges Eskom has faced, did you ever stop to wonder what the real cost of electricity is?

To try and fix a cost to the production of electricity across the various sources available to us in South Africa, requires some skilled analysis. The following are the most well-known sources of electricity that South Africa has available to it:

Conventional coal-fired power stations (think Medupi in Limpopo and Kusile in Mpumalanga), Nuclear power stations (Koeberg in the Western Cape), Hydroelectric power stations (Ingula pumped storage power plant in Kwazulu-Natal) Gas Turbines (Mossel Bay and Atlantis in the Western Cape), Solar PV plants (like the large utility-sized plants in the Northern Cape), Concentrated Solar Power plants (Northern Cape), and Wind turbine farms (all over the Western and Eastern Cape)

There are other sources such as smaller hydro, biomass and landfill gas power plants which all get lumped into the renewable category sources with the others listed above.

To have a common metric for comparative costs, a Levelised Cost of Energy must be determined. By definition: “The Levelised cost of electricity (LCOE) is a measure of a power source which attempts to compare different methods of electricity generation on a comparable basis. It is an economic assessment of the average total cost to build and operate a power-generating asset over its lifetime divided by the total energy output of the asset over that lifetime. The LCOE can also be regarded as the minimum cost at which electricity must be sold in order to break-even over the lifetime of the project.” Source: Wikipedia.

Thankfully in South Africa, we have a great organisation called the CSIR (Council for Scientific and Industrial Research) that has teams of highly skilled energy experts who have done some research on the matter, and Dr Tobias Bischof-Niemz ( the Head of the CSIR Energy Centre), recently presented his findings in terms of South Africa's REIPPPP programme and its costs as compared to existing sources.

As can be seen in the table below from Dr Bischof-Niemz's presentation, solar PV and wind power as of June 2015, offer the cheapest LCOE when compared to pre-existing non-renewable sources of power.

The Bid Window that is referred to in the table above is the REIPPPP (Renewable Energy Independent Power Producer Procurement Programme) bids whereby The Department of Energy accepted private energy suppliers' project submissions based on various factors but including the pre-approved electricity price to supply the grid (Eskom).

The IRP refers to the current Integrated Resource Plan of South Africa that outlines the country's future energy development programme including the REIPPPP.

What is important to note of course is the difference in price of a kWh produced by either solar PV or wind, when compared to all of the other sources. Aside from various technical and regulatory challenges of renewables versus non-renewable sources of power, it's something to consider whilst knowing that we as a country are looking to spend billions, if not trillions of Rands on new coal-fired and nuclear power plants in the future. There are of course many other considerations aside from the LCOE of the different energy sources available to us when considering all the available options. There is the environmental impact, the incidental maintenance and operational requirements as well as skillsets required depending on the chosen solution.

A critical issue is, of course, the debate of how renewable energy can facilitate the country's baseload energy demand. Non-renewables have the advantage of supplying energy on demand, whereas renewables are by and largely dependent on external factors – the sun needs to shine, wind needs to blow etc. The logical solution it would seem is to have a well-balanced mix. This topic warrants an individual thesis and I will leave it for a future article for further discussion

Whatever metric you decide to use to determine the best option for the country, the one that can have an immediate effect on everybody is LCOE, as it directly influences what we as homeowners and businesses pay for our electricity.

Terra Firma Academy.