Mckinsey’s Latest Gas Report Contradicts Its Own Findings

Earlier this year Mckinsey came out with a report making the case for Natural Gas to be a dominant player in the energy mix for Sub Saharan Africa.

In addition this month Christine Wu of Mckinsey’s South African office appeared in an Engineering News article based on a press conference she held, making a few bold statements about pushing forward with Gas development in the region in order to close the 10GW capacity gap expected in South Africa between now and 2030. The recommendation is contained in a country-level report titled ‘South Africa’s Big Five: Bold Priorities for Inclusive Growth”[1].

This report gives an excellent analysis of the market dynamics and need for at least 23GW of new gas capacity instead of new nuclear and new coal due to the decommissioning of old coal power plants. This scenario is called the “Big gas case” The average levelized cost of the fleet under this scenario is assumed to be R1.01 per kWh.

What is missing is a reasonable explanation why gas is being preferred over renewables. Except for a brief mention that renewables are intermittent in a footnote[2], there is no mention of renewables.

So my question is What does Mckinsey really believe? Why is it prioritizing gas over more renewable energy? I am not looking for fossil fuel lobbyist conspiracy theories, so please don’t send us your comments if that is what you are thinking. I am also not keen on hearing why Mckinsey got it wrong since as I will show below, they mostly got it right. Perhaps my hope is that Mckinsey will realize their mistake of contradicting itself and apologize to the public for the confusion caused. If Mckinsey wants to keep it’s credibility in tact it will join the growing group of experts who are aware of the reality and will work with us to make a clean, low cost reliable and resilient power market happen within 10 years in Southern Africa and beyond.

Here are the reasons why:

  1. Mckinsey uses old data when modelling in particular solar as is evidenced in their report that came out earlier this year[3] which states that “by 2020 [the price of solar] would range from $106 per megawatt-hour to $147 per megawatt-hour, dropping to between $76 per megawatthour and $112 per megawatt-hour by 2040.” This does not fit well with facts on the ground which shows that we have already reached the lowest levels of these prices in 2015 for projects that won 4th round bides in the REIPPPP. The prices are now at 6 cents US per kWh or $60 per MWH[4].
  2. Battery technology has improved to the level that by 2020 allows one to install batteries and achieve a levelized cost of approximately R1 per kWh or less[5]. There are more than enough large scale installed systems around the world that have proven battery technology’s ability to deliver the performance required by high levels of solar and wind penetration into the grid[6] Let’s also not forget technology like Molten Salt storage that has hundreds of Megawatt installed and operating for many years with costs able to reach R1 per kWh today with the appropriate policy and build program. So there “intermittency problem” argument doesn’t hold water any longer.
  3. By upgrading our grid to the digital age, with standard software and hardware available today and provided by the likes of GE, Siemens, ABB and others, a modern grid is able to balance very high percentages of intermittent solar and wind power while at the same time guaranteeing power supplier 24/7/365. In fact due to the distributed nature of this type of technology, it will be less susceptible to transmission and distribution line failures due to bad weather or sabotage. Gas pipelines and storage facilities are vastly more difficult to protect against sabotage or accidents.
  4. Mckinsey’s own report[7] published last year April shows that South Africa is able to produce solar at less than the price of grid power.
  5. There is almost no limit on the potential of solar in Sub Saharan Africa as Mckinsey’s report states “Solar has more than 11 terawatts of potential capacity. We have excluded solar from the comparison in in Exhibit 13 because of its nearly unlimited potential”.
  6. There is more than enough land available again based on Mckinsey’s own report “Using a conservative estimate that 0.02 to 0.05 percent of landmass can be covered by solar panels, sub-Saharan Africa should be able to deliver 11.4 terawatts of solar capacity”.

Let’s wait and see what happens!

[1] http://www.engineeringnews.co.za/article/gas-represents-a-r250bn-opportunity-for-south-africa-mckinsey-2015-09-01 andhttp://www.mckinsey.com/insights/africa/south_africas_bold_priorities_for_inclusive_growth

[2] Footnote 22 Solar and wind capacity are excluded as they are not “dispatchable,” or the type of electricity generation that cannot be turned on or off or the level adjusted on demand. It therefore cannot be considered base load, whereas energy sources such as gas, coal, and nuclear are.

[3] Electric Power & Natural Gas Brighter Africa: The growth potential of the sub-Saharan electricity sector February 2015

[4] Council for Scientific Industrial Research “First half of 2015 sees financial benefits from renewable energy with huge cost savings” August 2015

[5] BATTERY STORAGE FOR RENEWABLES: MARKET STATUS AND TECHNOLOGY OUTLOOK January 2015 (IRENA) International Renewable Energy Agency, pages 5, 6 and 7 for up to date estimated costs/prices

[6] Renewables and electricity storage A technology Roadmap for Remap 2030 June 2015 (IRENA) International Renewable Energy Agency

[7] The disruptive potential of solar power As costs fall, the importance of solar power to senior executives is rising. April 2014 | by David Frankel, Kenneth Ostrowski, and Dickon Pinner

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