The Impact of Stranding Power Sector Assets in South Africa Using a linked model to understand economy-wide implications

The potential impacts of stranded power sector assets in South Africa is highlighted in this paper, using a partially linked energy and economic model to examine the effect of increased mitigation targets for the risks of stranded assets and therefore the effects on electricity prices and investment. It was found that as mitigation trajectories for the electricity sector are lowered, the risk of stranding assets increases; from a 14Gt constraint without stranding, to a 12Gt scenario where older plant is stranded capacity and new coal is run below its designed load factors, and yet further to a 10Gt constant where assets are stranded and capacity is stranded. As is to be expected, stranding assets results in higher investment in the sector to meet demand, with higher electricity prices as a result of that. We argue that give the potential increase in global pressures to reduce emissions, that further investment in coal-fired power carries with it the risk of stranded capacity, stranded assets and thus higher electricity prices. Using a linked model, we have shown that the effects of this on the South African economy can be offset by structural changes to the economy, but that impacts on energy-intensive sectors could be significant.