Modeling the Water-Energy Nexus: How Do Water Constraints Affect Energy Planning in South Africa? Planning in South Energy Affect Constraints Water Do How Nexus: Water-Energy Modeling the Modeling the Water-Energy Nexus How Do Water Constraints Affect Energy Planning in South Africa? Modeling the Water-Energy Nexus How Do Water Constraints Affect Energy Planning in South Africa? © 2017 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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Contents Acknowledgments xi Abbreviations xiii Overview 1 Connecting the Water and Energy Sectors 2 Overview of the Modeling Methodology 3 Initial Findings on the Water-Energy Nexus 5 Section 1 Why the Water-Energy Nexus and Why South Africa? 17 Thirsty Energy: Toward Integrated Planning for the Global Water-Energy Nexus 19 The Rationale for South Africa: A Compelling Example of the Water-Energy Nexus 20 Section 2 Water in South Africa 23 Water for Energy 26 Non-Energy Water Needs 29 Section 3 Energy in South Africa 31 Resource Supply 32 The Electricity Sector 33 Refining of Liquid Fuels 37 Section 4 Water-Energy Challenges Facing South Africa’s Energy Sector 39 Water Consumed in the Production of Energy 40 Water Quality 44 Future Climate Change Impacts 45 Section 5 Integrating Water and Energy Planning: The Satim-W Model 47 The Beginnings of the Satim-W Model 49 Spatially Aligning the Water-Energy Systems in Satim-W 51 Regional Water Supply Cost Curves 52 Incorporating the Cost of Water into Satim-W 57 Modeling the Water-Energy Nexus iii Section 6 Exploring South Africa’s Water-Energy Planning Challenges: The Scenarios 61 Scenario Development 62 Key Features of the Reference (Water Cost) Scenario 64 Is the Current Policy of Dry-Cooling for Coal Power Plants Economically Justified? 67 How Do Stricter Environmental Controls Affect Coal Investments in the Waterberg Region? 71 How Does a Dry Climate Affect Coal Investments in the Waterberg Region? 73 How Does the Cost of Water Affect Shale Gas Production? 76 In a Carbon-Constrained World, what Is the Likelihood of Stranded Assets? 79 Why Does SATIM-W Select CSP with Wet Cooling in the Orange River Basin? 85 Section 7 Conclusions 89 General Findings 90 Findings for South Africa 91 Next Steps 96 Appendix A Water Demand in South Africa 99 Upper Olifants 100 Integrated Vaal System 101 Lephalale (Waterberg) Area—Crocodile West/Mokolo System 103 Orange River System 105 Appendix B Energy and South Africa 107 Resource Supply 108 Electricity Sector 109 Refining of Liquid Fuels 112 Air Emissions from South Africa’s Coal-Intensive Energy Supply 114 Appendix C Future Climate Change Impacts 115 Water Supply 116 Coal-Fired Power Stations 118 Irrigation Demand 118 Hydropower Potential 119 Catchment Runoff 119 Representing the Water Demands of the Non-Energy Sectors in Satim-W 120 iv Modeling the Water-Energy Nexus Contents Appendix D Scenario Development and Key Assumptions 123 Scenarios 125 Key Assumptions 128 Appendix E Detailed Modeling Results 131 Carbon Cap Scenarios 136 The Dry Climate + Environmental Compliance Scenario 138 The Investment Impact of Flue Gas Desulfurization Retrofits on Power Stations 140 Shale Gas Scenario 143 Water Intensity 146 CO2 Emissions 147 Appendix F Regional Water Supply Systems in Satim-W 151 Regional Water Supply Systems and Individual Schemes 153 Parameterization of Water Supply Technologies 153 Water Supply Costs 154 Appendix G Data and Sources 161 Power Plants 162 Coal Mines 169 Shale Gas Extraction 175 Water and Shale Gas Extraction 176 Refinery Technologies 181 Appendix H Flue Gas Desulfurization Systems 185 References 193 Box 1.1 South Africa: Basic Facts 21 Figures O.1 South African Water-Energy Nexus Modeling Framework 4 O.2 Difference in Electricity Generation by Type and Water Intensity for Reference (Water Cost) and Reference (No Water Cost) 7 Contents Modeling the Water-Energy Nexus v O.3 Impact on Power Sector Water Consumption under Various Scenarios 9 O.4 Water Supply Breakdown in Each Energy Area of Interest 11 O.5 Trajectory of GHG Emissions by the Power Sector under Various Scenarios 14 4.1 Water Supply Schematic for ESKOM Power Stations as Part of the Integrated Vaal River System 41 4.2 Estimate of National Water Allocation by Sector and Region 43 4.3 Power Sector Reliance on Water 44 5.1 Partial Illustrative Satim-W Water-Energy Diagram 50 5.2 Increasing Net Unit Water Supply Cost Necessary to Increase the Available Yield in Different Key Water Supply Regions of South Africa to Meet Increasing Demands for Water 58 5.3 A Generic Water Supply System in Satim-W 59 6.1 Comparison of Reference (Water Cost) Electricity Generation Portfolios, 2010 and 2050 65 6.2 Water Supply Breakdown in each Energy Area of Interest under the Reference (Water Cost) Scenario 65 6.3 Regional Water Supply Costs under the Reference (Water Cost) Scenario 66 6.4 Electricity Generation by Type (with Water Intensity) under the Reference (No Water Cost) Scenario 67 6.5 Electricity Generation by Type (with Water Intensity) under the Reference (Water Cost) Scenario 68 6.6 Water Consumption by Type in the Waterberg Region under the Reference (No Water Cost) Scenario 69 6.7 Water Consumption by Type in the Waterberg Region under the Reference (Water Cost) Scenario 70 6.8 New Coal-to-Liquids Capacity under Three Scenarios 72 6.9 Water Demand in the Waterberg Region under the Environmental Compliance Scenario Compared to the Reference (Water Cost) and Water Quality Scenarios 72 6.10 New Coal Capacity in the Waterberg Region under Reference (Water Cost), Water Quality, and Environmental Compliance Scenarios 73 6.11 New Coal Capacity in the Waterberg Region under the Dry Climate Scenario and Reference (Water Cost) Scenario 74 6.12 Difference in Installed Capacity Between Dry Climate and Reference (Water Cost) Scenarios 75 6.13 Water Supply for Shale Gas Production, by Mode 77 6.14 Electricity Supply Portfolio with Shale Gas 78 6.15 New Shale Gas Power Plant Builds with Shale Gas Availability 78 6.16 CTL Utilization under the Two Carbon-Constrained Scenarios and the Reference (Water Cost) Scenario 80 6.17 Imported Petroleum Products under Carbon-Constrained Scenarios (Difference from the Reference [Water Cost] Scenario) 81 6.18 Crude Oil Production under Carbon Constrained Scenarios (Difference from the Reference [Water Cost] Scenario) 81 6.19 Existing Coal Capacity with Production Factors under the Two Carbon-Constrained Scenarios and the Reference (Water Cost) Scenario 82 vi Modeling the Water-Energy Nexus Contents 6.20 New Coal Capacity with Production Factors under the Two Carbon-Constrained Scenarios and the Reference (Water Cost) Scenario 83 6.21 Water Supply Costs in Coal-Rich Regions under the Two Carbon-Constrained Scenarios and the Reference (Water Cost) Scenario 84 6.22 Water Supply Costs for Orange River under Three Scenarios 86 6.23 Lump-Sum Investments in Water Supply Infrastructure in the Orange River Region 86 6.24 Water Use and Transfers in the Orange River Water Management Area 87 6.25 Annualized Investment in Water Infrastructure in the Orange River Basin and Impact on the Average Cost of Water 88 7.1 Lump-Sum Investment in New Water Supply Infrastructure in the Four Regions under Four Scenarios 92 7.2 Water Intensity of the Power Sector under the Scenarios Analyzed 95 C.1 Impacts of Climate Change on Average Annual Water Supply, by Water Management Area 117 C.2 Climate Change Impacts on Runoff, by Catchment, 2040–50: The Unconstrained Scenario 120 C.3 Regional Water Demands for the Aggregated Non-Energy Sectors (Reference and Dry Climate Scenarios) 121 D.1 Scenarios Exploring the Water-Energy Nexus 124 D.2 Peak-Plateau-Decline (PPD) Emissions Trajectory for South Africa 125 D.3 GDP Growth Assumptions by Sector 129 E.1 Regional Water Demands by Supply Sector 132 E.2 Annual Investment in Water Supply Infrastructure 134 E.3 Average Regional Water Supply Costs 135 E.4 The Projected Regional Average Cost of Water Supply 137 E.5 Comparison of Generation Capacity for Coal and Renewable Energy Portfolio 138 E.6 The Relative Cost of Water Supply under the Dry Climate Scenario and Reference (Water Cost) Scenarios 139 E.7 Existing Coal