Long term modelling of the Republic of South Africa's national electricity market

Abstract

In a highly competitive and increasingly liberalized environment, multinational utilities look for business opportunities across all geographies worldwide. This continuous search of different alternatives is a fundamental step for the utilities to identify potential attractive business which may contribute to their economic growth and international expansion in the long-term. Long-term models are a powerful tool to support these decisions. To this extent, the optimization model that has been developed in this Thesis forecasts the electricity prices and the evolution of the capacity and generation mix until 2050 in South Africa. The model, which has been developed in-house using GAMS language, falls under the category of long-term capacity expansion model and it minimizes the total cost of expanding the system, taking into consideration both investment and operating costs. Several scenarios have been simulated with the aim of analyzing the expansion of the system and the evolution of the electricity price, as well as studying the profitability that renewables technologies would get under those conditions. The base case considers the renewable targets set by the Government of South Africa in its Integrated Resource Plan published last August, 2018 and a medium-demand projection provided in the same document. From this base case, the following scenarios have been proposed: i) High and low demand-projections and same renewable target and ii) medium demand-projections and high renewable penetration scenario. These simulations have been performed considering infinite transmission capacity among South African provinces. Finally, a sensitivity analysis has been developed considering a limited capacity in the transmission lines. The results show that coal generation, which is the dominant source in South Africa, will reduce almost by half in the long-term in exchange of a larger share of more efficient gas technologies and a strong increase of renewable sources. Electricity prices are forecasted to rise over the next decade - as gas technologies start to set the price most of the hours within a year- and reach a stable level afterwards, being prices contained by the high renewable penetration in the system. The profitability analysis of renewable technologies under the different scenarios shows that renewables are likely to become profitable in the market by 2030. However, the appropriate accomplishment of the transmission planning is found to be extremely relevant. The sensitivity analysis shows that renewable technologies may not become profitable if a decoupling among areas occurred, as it would lead to depressed prices in those areas where renewable penetration is higher. As a conclusion, South Africa could present potential favorable conditions for the deployment of renewable technologies but high attention should be paid to the risk of zonal markets decoupling and potential cannibalization between renewables sources if this was the case.