Big Decisions: African Energy Futures

Channing Arndt

Outline

• Africa, mitigation pathways, and South Africa

• Regional approaches to electricity generation

• An integrated approach to energy modeling for South Africa

Emissions Paths for a Stable Climate(from IPCC AR5 WGIII)

• To achieve a 50% chance of stabilizing temperature increase below 2 degrees Celsius, global emissions must decline by between 25 and 55 percent by 2050 and then continue to decline rapidly thereafter.

• Hence, even if the countries of the OECD in 1990 eliminated emissions by 2050, the rest of the world must, at a minimum, hold emissions levels essentially constant in order to attain the lower end of the reduction range by 2050.

• This lower end is associated with negative emissions (net CO2 sequestration) in the second half of the 21st century.

Global emissions and energy use in 2007

4

Global CO2emissions

share (%)

Emissions per

person

(tons CO2)

Energy use

per person

(tons)

CO2 per ton

energy use

(tons)

World 100 4.5 1.8 2.5

Developed countries 46.6 12.5 5.2 2.4

United States 19.7 19.3 7.8 2.5

Euro area 9.0 8.2 3.8 2.2

Russian Federation 5.2 10.8 4.7 2.3

Japan 4.2 9.8 4.0 2.4

Finland 0.2 12.1 6.9 1.8

Developing countries 53.4 2.9 1.1 2.7

China 22.1 5.0 1.5 3.3

India 5.5 1.4 0.5 2.7

South Africa 1.5 9.0 2.8 3.2

Mozambique 0.01 0.1 0.4 0.3

Source: Davies et al (2011).Notes: Energy Use is measured in tons of oil equivalents.

South Africa:Cutting Carbon Emissions

• Africa’s largest electricity user (85%, mainly coal-fired)– High per capita emissions (9.3 tCO2)

– Target: 40% reduction relative to baseline by 2030

0

10

20

30

40

50

60

2010 2015 2020 2025 2030

New

syst

em c

apac

ity (G

W)

New renewables

New nuclear or gas

New coal

Committed investments

Total cost:

US$108 bil.

0

10

20

30

40

50

60

2010 2015 2020 2025 2030

Total cost:

US$171 bil.

Business-as-usual plan Low-emissions plan

Source: IRP2 (2011)

Issues with the Plans

• Electricity generation only accounts for about half of CO2 emissions in South Africa– See Alton et al. (2014) Applied Energy

• Forecasts assume a fixed electricity demand projection– No feedback effects from higher prices (e.g., slower growth in demand)

– Might lead to overinvestment

• Maintained electricity import restrictions– Only about 15% of total supply can be imported

– Underutilized regional low-cost, low-carbon options

Hydro-power and potential in Africa

How much hydro potential has Africa developed?

Grand Inga is very big

• Roughly twice the power output of the Three Gorges dam on the Yanghtze.

• More firm power output expected than current total South African demand.

• A relatively small reservoir. Largely a “run of the river” dam.

• Total project costs are approximately USD80 billion divided equally between generation and transmission.

• South Africa is likely not large enough to absorb Grand Inga by itself.

Coharra Bassa(2.1 MW of capacity)

Inga I and II(1.8 MW of capacity)

Inga Falls

A Pan African Grid?

An Integrated Approach to Energy Modelling in South Africa

Channing Arndt, Rob Davies, Sherwin Gabriel, Konstantin Makrelov, Bruno Merven and Faaiqa Salie, and James Thurlow

Economic Model (SAGE)

• Standard IFPRI Recursive Dynamic Model– Past investment and profitability determines capital accumulation rates

– Upward sloping labor supply curves

• Additional features:– Electricity investments amortized via electricity tariffs (+O&M costs)

– Energy coefficients are a function of energy prices and investment funds

• 2007 SAM merged with 2007 Energy Balance Table– 62 sectors; 49 products; 9 factors; 14 representative households

– Detailed energy subsectors (fuel and power)

– See Arndt et al. (2012) SAJE; Davies and Thurlow (2014) IFPRI SAM

Energy Model (SATIM)

• Version of TIMES– Inter-temporal bottom-up

partial equilibrium model

– Only use power component

• Solves for least-cost power plant mix – Subject to constraints (i.e.,

electricity demand; reserve margins; and resource limits)

– Given system parameters (i.e., load curves; fuel prices; existing plants; new plant options)

Coal-fired

Nuclear

Hydropower

Solar (PV)

Solar (thermal)

Wind

Gas-fired

Diesel

Imports

Coal-to-liquid

Gas-to-liquid

Refined oil

Gas

Coal

Crude oil

Electricity

Petroleum

Iterative Integration

SAGE

SAGE

SATIM

SAGE

SATIM

2010 2020 2030 20402007

2010

2020

2030

Forecast period in annual time steps

Iter

ati

ve c

ou

ple

d

run

s

Committed Forecast Extended

SAGE

SATIM

Electricity production mix

Final electricity price

Plant construction investment costs

Electricity demand

Fossil fuel prices

Convergence

480

490

500

510

520

530

540

550

560

2006 2010 2014 2018 2022 2026

Ele

ctri

city

dem

an

d i

n 2

03

0 (

GW

h)

Year of coupled run

Coupled runs every year

Coupled runs two years

Coupled runs every four years

Baseline

Carbon Tax

Three Policy Scenarios

Baseline– Tracks “business-as-usual” scenario (Alton et al. 2014 Applied Energy)

1. Carbon tax – US$30 per ton of CO2 from domestic burning fossil fuels

– Gradually introduced over 2015-2024

– Recycle revenues by uniformly lowering indirect tax rates

2. Lift import restrictions

3. Combined “tax with imports” scenario

Electricity Demand and Prices

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

2010 2015 2020 2025 2030 2035

Ch

ang

e fr

om

bas

elin

e (%

)

Carbon Tax

Import policy

Tax with imports

-10

0

10

20

30

40

50

2010 2015 2020 2025 2030 2035

Total demand (GWh) Average price (R/GWh)

Electricity Supply Mix

0

100

200

300

400

500

600

Baseline Baseline Carbon

Tax

Import

policy

Tax with

imports

Baseline Carbon

Tax

Import

policy

Tax with

imports

2010 2025 2035

Ele

ctr

icit

y s

up

ply

(G

Wh

)

Coal Nuclear Renewables Imported Diesal, gas and waste

Emissions Reductions

-25

-20

-15

-10

-5

0

5

2010 2015 2020 2025 2030 2035

Ch

ang

e fr

om

bas

elin

e (%

)

Carbon Tax

Import policy

Tax with imports

13.3

11.4

13.0

10.2

Final per capita tCO2

Economic Outcomes

Baseline Deviation from baseline, 2035

Carbon

Tax

Import

Policy

Tax with

Imports

Cumulative investment cost (US$ bil.) 94.90 19.10 -12.70 -53.80

GDP growth (%) 3.49 -0.98 0.20 0.49

Employment (%) 1.80 -1.56 0.05 -1.07

Wages (%) 1.15 -1.46 0.14 -0.82

Household welfare (%) 1.91 -0.96 0.24 0.61

Low-income (p0-50) 1.93 -1.17 0.24 0.33

Middle-income (p50-90) 1.85 -1.00 0.24 0.53

High-income (p90-100) 1.96 -0.84 0.25 0.79

Conclusions

• Regional energy strategy potentially offers a very inexpensive approach to “decarbonizing” the South African economy– Net present value of emissions avoided of about $20 billion for RSA

• Potential for very substantial positive spillovers– Impetus to create a pan-African grid anchored in hydro-power.

– Favorable to renewable energy sources (likely to be sunny and windy somewhere)

– Spurs regional integration and inter-dependence

• BUT, Much less straightforward than business as usual– Political risk

– Coordination issues

– Need to cope with long and short wave generation/demand variation

• Finance is crucial. Nearly all costs are up front.