Genesis assesses govt's energy 2030 price predictions

Genesis was requested by Business Unity South Africa to critically assess whether the price predictions generated in the Integrated Resource Plan for South Africa - 2010 to 2030 (IRP 2010 report) developed by the Department of Energy were likely to be a true reflection of the anticipated price increases over time.

This involved an assessment of whether the price curves generated in the IRP 2010 report reflected the likely tariff yield increases over time, taking into account the correct regulatory pricing methodology, the forecast cost and timing of the new build programme and the likely increases in operating costs arising from existing and new build assets.

The IRP 2010 report discloses price curves for several scenarios of capacity additions for the 2010 to 2030 period, involving a range of different generation technologies, including coal fired, gas turbines, wind, nuclear and solar energy. In total, the IRP 2010 report includes eight scenarios (and variations of each), which seek to estimate the impact on prices and emissions from different capacity options.

Genesis constructed a financial model that calculated forecast tariff yields and CO2 emissions for each year up to 2030 for three different scenarios namely: (i) moderate costs and emissions; (ii) low cost and high emissions and (iii) high costs and low emissions.

In addition Genesis highlighted risk factors that could potentially escalate tariff yields beyond those estimated including capex over-spend, poor operating efficiency and higher than expected inflation.