Investing in Gas-Fired Power Would Likely be a ‘Costly Mistake’ for South Africa

March 31, 2022—There is no need for South Africa to invest in a gas-to-power sector at this time and pushing ahead with such plans could negatively impact the country’s economy and climate, according to a new report by the International Institute for Sustainable Development (IISD) released today.

The study, titled Gas Pressure: Exploring the case for gas-fired power in South Africa, notes that developing an extensive gas-to-power sector in South Africa from scratch would involve significant investment in both gas supply infrastructure and power plants. 

Just to introduce the first 3000 MW of gas capacity and gas supply by 2030 could cost at least ZAR 47 billion—money that could ultimately be wasted as gas is squeezed out of the market by cheaper, low-carbon alternatives.

While gas was once seen as a necessary “transition fuel” in the shift away from coal power, rapid declines in the cost of renewable energy and battery storage technology have upended this view. The report found that renewables and storage should be the priority until at least 2030. 

“The risks associated with gas are increasing, while the alternatives to gas are rapidly improving. Since gas is not needed in the power sector until at least 2035, deliberations about the start of a gas-to-power sector should be shelved until at least 2030,” says Richard Halsey, a policy advisor at the IISD and co-author of the report. 

“When the government reassesses gas investments at the end of the decade, based on the availability and cost of alternative technologies such as green hydrogen, it is likely that there will be no logical role for gas in the mix.”

What’s more, the evidence suggests that gas investments would likely lead to higher energy costs for consumers, and additional just transition challenges for workers in the fossil fuel industry. And when considering methane emissions across the value chain, gas power could be as detrimental to the climate as coal.

Boosting renewables and battery storage capacity instead

The report argues that in an efficient energy mix, the majority (or bulk supply) of power should be as cheap as possible, while peaking plants should be used to cope with daily spikes in demand. Finally, balancing (or backup) power is needed to smooth out peaks and valleys of demand and supply.

Renewable energy—particularly wind and solar—is today easily the cheapest source of bulk supply, while battery storage is increasingly considered the most affordable, and widely deployable, new-build peaking technology.

In fact, the IISD authors found that wind and solar farms in South Africa are 57% cheaper* than combined-cycle gas plants for bulk electricity supply, while 3-hour battery storage is 30% cheaper* than simple cycle gas plants for covering peak power demand. South Africa’s existing electricity system, which mostly runs on coal power, can also provide some of the balancing function in the short to medium term. 

According to the report, significantly increasing renewables and storage capacity can address power system challenges that lead to frequent load shedding—the rotational power cuts by state-owned utility Eskom to maintain overall grid stability.

“To solve load shedding as quickly as possible, and to build the foundation of an optimal, low-cost future energy mix, South Africa should significantly ramp up its investments in solar, wind, storage, and technologies that integrate renewables into the grid,” says Halsey. “Since renewables contribute only a small part of the electricity mix, a combination of existing pumped storage, liquid fuel generators, grid integration methods, and the remaining coal fleet can provide the balancing function for at least the next 13 years.”

To artificially stimulate local demand for gas, South Africa’s Department of Mineral Resources and Energy has proposed establishing a gas-to-power sector.

“Based on system analysis, this would be a costly mistake,” says Halsey. “We strongly believe that a moratorium should be placed on the development of the gas-to-power sector, and further research should be done to better understand how advances in alternatives to gas will affect the optimal energy mix .” 

*based on Levelised Cost of Energy Analysis—a measure of what it costs to produce a unit of energy when the full lifecycle costs are taken into account.

Media Contacts

Richard Halsey, Policy Advisor, IISD: rhalsey@iisd.org
Richard Bridle, Senior Policy Advisor, IISD: rbridle@iisd.org