Wietze Post – Electricity supply: Wishful thinking and economic reality (Part 1)

The Department of Mineral Resources and Energy (DMRE) has released the draft Integrated Resource Plan (IRP 2023), suggesting new investments in gas, “clean” coal, and nuclear plants, along with solar PV, wind generators, and batteries. Despite the proposals, skepticism arises over the development of gas, coal, and nuclear projects due to financial challenges. Ir. Wietze Post explores global price trends, manufacturing experiences, and solar practices, introducing concepts like “Wright’s Law” and the “Duck Curve” to shed light on the evolving energy landscape.

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By Ir. Wietze Post

The Department of Mineral Resources and Energy (DMRE) has published the draft Integrated Resource Plan (IRP 2023). You can find the complete set of IRP documents here.

The IRP proposes new purchases of gas, “clean” coal, and nuclear plants. Also, solar PV, wind generators, and batteries. DMRE expects non-state entities to add 900MW of distributed generation annually. In 2023, South Africans made a good deal of progress. According to Eskom, every quarter we put up about 650MW of solar PV (photovoltaic) – 2,6GW in total. Chinese records show that they exported 4,345GW to SA.

I expect the gas, coal, and nuclear plants will not be developed. They will struggle to reach a financial close on the commercial market.

In the next few articles, I’ll explain why I have the expectations that I do. They’re based on global price trends, manufacturing experience, and solar usage practices. Besides, consumers want to pay as little as possible for electricity. Consumers want lots more electricity when it’s cheap.

I’ll introduce you to “Wright’s Law”, and the “Duck Curve.” Besides, I note that making things by hand causes each unit to be different. Yet in a factory products can be standardised.

Wright’s Law | The Learning Curve

Theodore Wright was a U.S. aeronautical engineer. In 1936, he published a paper “Factors affecting the costs of airplanes.” It describes what is known as Wright’s law or experience curve effects. The paper describes that “we learn by doing.” The cost of each unit decreases as a function of the cumulative number of units produced.

Wright found that every time total aeroplane production doubled, the labour time for a new one fell by 20%. This has become known as “Wright’s Law.” It’s also known as the learning curve.

Let’s bake a cake!

Let’s apply Wright’s Law to how you learn to bake a cake. The first time you ever bake a cake, you will get advice, follow a recipe, and take a lot of time. You may have to buy ingredients and equipment. The result may not be all that great.

The second time you bake that cake, you’ll make fewer mistakes. You’ll improve how you do things. Your process will be faster. The cake will look and taste better.

The third and fourth time you bake that cake, it will go faster and better. You’ll have some routine by the time you bake the eighth cake. You’ll be praised for how yummy your cake is!

That may encourage you to bake many more of those cakes and sell them. You’ll buy ingredients in bulk and get more equipment so you can speed things up. You’ll hire help and figure out how to sell better.

You may bake another sort of cake, for variety. You’ll have experience from the first cake, so you’ll avoid some mistakes.

The learning rate also applies to making each cake look the same, i.e., standardising. You’ll want to lower costs and improve quality. Especially when you start baking cakes in a dedicated kitchen, or factory bakery. When you expand and build a new bakery, you’ll include layout and workflow improvements.

You may have an idea that can radically speed up cake baking. That would be a step-change in baking cakes at a much lower cost, faster, and with higher quality. Then you can sell cheaper than everybody else. A slightly lower cost may be enough to sell many more. Yet you’ll make a bigger profit per cake because your costs are so much lower than your competitors. You’ll sell many more cakes because they’re cheaper than others. Besides, you’ll make a larger profit altogether, because you’re selling more cakes.

Wright’s Law says that you learn at a steady rate when going from 1 to 2 cakes, 2 to 4, 4 to 8, 8 to 16, and so on. In other words, the learning rate is steady across every doubling of what has gone before. You have the same rate of learning when going from 2 million to 4 million units, as you did from 1 million to 2 million. You’ll have the same percentage of cost reduction and quality improvements.

Making solar panels, batteries, and coal power plants

As it does for cakes, a rate of learning applies to making solar panels, inverters, batteries, and cars. It also applies to coal power plants. But coal power plants are nearly always one of a kind. They’re built by hand. Yet they may have components built in a small run. And there are lessons from building previous power plants, even if they’re not identical.

Yet those lessons may not apply to the current (coal power) project. They may thus be incorrectly applied. Medupi and Kusile’s design engineers had a particular knowledge set. Unfortunately, it was inappropriate for their boilers, grinding mills and fabric filters. Besides, these two plants were not identical. That led to exorbitant cost overruns.

Yet usually costs and quality improve with experience/learning. Prices drop, and quality improves, in line with Wright’s Law.

Note it’s the intrinsic value and quality of the items that improve. When we look at solar panels, we get more generation capacity for less cost. Meanwhile, manufacturing speed and uniformity improve. So the panels’ quality improves and with that it’s longevity.

Thus the generation capacity improves. The panel’s cost may increase, but it can generate much more power. So its cost per unit of generation capacity (R/kWp*) goes down.

Richard Swanson coined Swanson’s Law. It’s like Moore’s Law (computer chip capacity). Both Swanson’s and Moore’s Laws come from Wright’s Law. Swanson said the price of solar PV modules drops 20 per cent for every doubling of cumulative sales. Now PV panel costs go down about 75% in 10 years. That’s about 12% per year. PV panel costs have gone from $125,83/Wp in 1975 to $0,26/Wp in 2022 (constant 2021 USD/Wp). On a logarithmic scale, the annual price decrease resembles a straight line. Thus we can predict the likely price in future.

With batteries, the cost per unit of storage capacity improves. In other words, the cost of a kWh of storage capacity goes down. A quality and reliability measure is how often you can charge and discharge a battery. It’s measured in cycles of fully charging and discharging the battery. More cycles are better. So a battery should be better when this number goes down: Rand/kWh/cycle, e.g., R84000/11,2kWh/5000 cycles=R1,50. That’s the nominal cost for storing a kWh.

For vehicles, the cost, speed, comfort, and safety of travelling a kilometre improves. And pollution decreases.