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PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGY ON THE DEPARTMENT‘S RESPONSE TO: PowerPoint Presentation
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PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGY ON THE DEPARTMENT‘S RESPONSE TO:

PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGY ON THE DEPARTMENT‘S RESPONSE TO:

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PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGY ON THE DEPARTMENT‘S RESPONSE TO:

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  1. PRESENTATION TO THE PORTFOLIO COMMITTEE ON ENERGY ON THE DEPARTMENT‘S RESPONSE TO: - the 2012 SONA - MDGs, Govt priority outcomes, SOOGs 1 to 4 and SIPs 1

  2. Introduction SONA – energy issues from the SONA Growing the economy Job creation The country’s 20 year plan (National Development Plan) Infrastructure development drive Department’s role in the electricity price path Renewable energy Demand side management NEPAD and SADC engagements (refer to the International Activities presentation) Women and Youth Empowerment State Owned Entities Alignment of the Government Outcomes, MDGs, SOOGs and Department’s Programmes 2

  3. Draft Integrated Energy Plan (IEP) Report covering the period up to 2050 completed - approved by Cabinet and published for public consultation - Integrated Resource Plan (IRP) for electricity – IPP - Financial Close was reached for Window 1 projects under the REIPP – 1 416 megawatts of renewable energy out of the 3 625 total required - bidding documents for base-load programme partially completed Ministerial and Cabinet approval of the Eskom Committed Capital Expenditure programme received Growing the Economy (1) Security of energy supply 3

  4. Nuclear – Cabinet approved establishment of NNEECC to lead, monitor, ensure oversight and take key strategic decisions on nuclear Cabinet endorsed Phased Decision Making Approach, Communication and Stakeholder Engagement Strategy Cabinet affirmed Eskom as the owner-operator INIR conducted by IAEA 9,6 GW to be generated by 2029 through new Nuclear power plants Growing the Economy (2) Security of energy supply 4

  5. Liquid Fuels Roadmap – In process of developing a 20 year Liquid Fuels Infrastructure Road Map Audit of refineries has been completed LP Gas and Gas Infrastructure Plans – developed a discussion document on the Maximum Refinery Gate Price (MRGP) of LPG which was published comments were received and a stakeholder workshop were held draft report for the second phase of the SA Coal Roadmap was developed Growing the economy (2) Security of energy supply 5

  6. IPP’s – R47 billion was invested as part of Window 1 Eskom Committed Capital Expenditure programme INEP funded the construction/upgrade of the following: 4 new substations completed 5 upgraded substations 275 km of new medium voltage lines 85 km of upgraded medium voltage lines 4 additional Integrated Energy Centres (IEC’s) were operationalised Economically recoverable coal seam and shale gas reserves- exploration for and exploitation of minerals is the mandate of DMR – DoE will support these endeavours by an enabling regulatory framework Exploitation of gas reserves is the mandate of PetroSA who operate a gas-to-fuel refinery on the West Coast and is in the process of expanding these operations Growing the Economy (3) Investments in the industry 6

  7. IPP - criteria-based bidding approach for proposals - includes consideration of potential for the creation of a local industry, job creation, black economic empowerment and technology transfer Nuclear - deployment of new nuclear power plants & associated industrialisation and localisation as well as related training and skills development NECSA’s functions include to undertake and promote research on nuclear energy, radiation sciences and technology DoE initiated and sustained multilateral and bilateral relations that focus on ensuring that the country has access to, amongst others, technology, capacity building and requisite skills to be able to deploy technology intensive projects, promote localisation and job creation Doe implemented other empowerment and skills learning programmes, targeting vulnerable sections such as women and youth – Learners Focus Week held in Mangaung Road Show in the Eastern Cape Side event at the UN Commission on the Status of Women Growing the Economy (4) Increased modern technology and skills & Localisation 7

  8. Job Creation DoE not a primary job creator – catalyst - • IPP procurement programme • Renewable energy industry in the rural areas • Localisation • New to industry service stations • Infrastructure upgrades - refineries upgrade = 1 000 + jobs • Department’s Internship programme = 56 • INEP = 33 interns as part of an in-service electrical engineering training programme

  9. The Country’s 20 year Plan (1) • 20 Year Liquid Fuels Infrastructure Roadmap • Audit of South Africa’s refineries completed • Liquid fuels infrastructure expansion needs – NMPP grant funding transferred to Transnet • Improved liquid fuels storage and distribution - national strategic fuels stock policy submitted to Cabinet - sets out the framework for the storage of fuels stock by government as well as industry - also seeks to guide the necessary investment decisions • Nuclear Procurement Programme (discussed on slide 4) • Nuclear Fuel Cycle Infrastructure is not critical to the Nuclear Programme as it forms part of the Phased Decision-Making Approach - rescheduled to 2013/14

  10. The Country’s 20 year Plan (2) • Integrated National Electrification Programme (INEP) - • Electrified 175 473 households • Eskom connections – 118 926 • Municipal connections - 47 204 • Non-Grid connections - 9 343 • Also funded the construction/upgrade of the following: • 4 new substations • 5 upgraded substations • 275 km of new medium voltage lines • 85 km of upgraded medium voltage lines

  11. INFRASTRUCTURE DEVELOPMENT DRIVE (1) • Electricity generation capacity • IPP - 2 416 megawatts of renewable energy out of the 3 625 total required by 2016 • Ministerial and Cabinet approval of the Eskom Committed Capital Expenditure programme • Nuclear - 9,6 GW to be generated by 2029 through new Nuclear power plants

  12. INFRASTRUCTURE DEVELOPMENT DRIVE (2) • Electricity distribution infrastructure • Improved electricity supply-demand situation - critical to address the problems facing the electricity distribution network • Approach to Distribution Asset Management (ADAM) programme has been launched to rehabilitate the identified municipal infrastructure which poses a risk to energy security • R320 million allocated to implement a ADAM pilot project • Two metros and seven municipalities were identified for this pilot

  13. INFRASTRUCTURE DEVELOPMENT DRIVE (3) • Independent Power Producers • Financial Close was reached for Window 1 projects under the REIPP – awarded preferred bidder status to 28 proposals out of the 53 - 1 416 megawatts of renewable energy out of the 3 625 total required • Window 1 surpassed the targeted 1 000 megawatts which was to be reached by the end of 2012/13. • Bidding documents for base-load programme partially completed

  14. INFRASTRUCTURE DEVELOPMENT DRIVE (4) • Renewable Energy investments – R47 billion was invested in REIPP in Windows 1 • Nuclear Build programme underwent internal and Cabinet processes during the year • Cabinet approved establishment of NNEECC - lead, monitor, ensure oversight and take key strategic decisions on nuclear • Cabinet endorsed Phased Decision Making Approach, Communication and Stakeholder Engagement Strategy • Cabinet affirmed Eskom as the owner-operator • INIR conducted by IAEA

  15. INFRASTRUCTURE DEVELOPMENT DRIVE (5) • Liquid fuels infrastructure • Transnet’s NMPP (New Multi-Products Pipeline) • Trunk line commissioned in January 2012 (will only transport diesel until end of 2013, while the DJP will transport other products) • Construction of accumulation terminals (Jameson Park & Durban) and auxiliary infrastructure for completion by Dec-2013 • Last tranche of R1.5bn (a total of R4.5bn over 3 years from 2010/11 FY) to be disbursed to the project in 2012/13

  16. INFRASTRUCTURE DEVELOPMENT DRIVE (6) • Liquid fuels infrastructure • Project Mthombo Refinery • New crude oil refinery by PetroSA in the Coega IDZ, Eastern Cape • Studies revising the capacity of the proposed refinery downwards, in line with RSA’s liquid fuels supply / demand balance, are underway - outcome of the studies is expected by mid-2012

  17. INFRASTRUCTURE DEVELOPMENT DRIVE (7) • Liquid fuels infrastructure • Refinery Upgrades For Cleaner Fuels Two (CF2) • Refinery infrastructure upgrades to meet new fuel specifications & standards (CF2 specs), being finalised but will to come into effect in 2017 • Oil companies’ decisions to invest depend on the outcomes of the investigation into the cost recovery mechanism

  18. INFRASTRUCTURE DEVELOPMENT DRIVE (7) • Liquid fuels infrastructure • Sasol’s Project Mafutha • 80,000 barrels per day coal-to-liquids (CTL) project in Lephalale, Limpopo • Sasol decided to slow down the project, reporting that it would not "progress into the feasibility phase within the originally envisaged timeline", pending clarity on "the large-scale coal gasification tests and the provision of a commercially viable carbon capture and storage (CCS) solution". • Sasol said that project progress depends on: Finding a storage solution for the CO2 emitted; Alignment to South Africa's fiscal priorities; Climate commitments; and Imposition of tax on carbon emissions investigated by the National Treasury

  19. DEPARTMENTS ROLE IN THE ELECTRICITY PRICE PATH • Update of IRP2010-2030 to be completed by end 2013 • Tariff implications to be modelled over the period up to 2030 and beyond • Tariff trajectory to be projected in line with the Electricity Pricing Policy • Critical parameters for considerations include: • Asset valuation methodology • Capital asset pricing model, including discounting approach • Rate of return allowed • This will inform the policy framework NERSA will apply during the next multi-year price determination (MYPD)

  20. Renewable Energy • Independent Power Producers • Bid Programme and Solar Water Heater Programme

  21. Background • IRP 2010-30 is a living Strategy • To be revised regularly • Indicates preferred electricity generation expansion • Does not indicate which entity will construct this capacity • Implementation – Critical Issues • Developing a funding plan to support the construction of the capacity, which reviews the potential future pricing of electricity and different forms of funding the capacity expansion • Identify the schedule for implementing the underlying programmes in the IRP and key decision points • Consider contingencies for programmes

  22. 7 Approved Integrated Resource Plan 90% 15% 5% 23% 6% 5% 6% 0% < 0,1% 9% 0% 42% 10,1 0,0 0,05 0,0 1,0 1,0 35,5 1,8 2,1 0,0 2,4 0,0 65% 20% 5% 1% < 0,1% 9% Policy-Adjusted IRP 2010 -2030 Total additional new capacity (without committed) until 2030 in GW 25 Share of total new GW 20 17,8 15 8,4 Solar PV 9,6 10 1,0 CSP 6,3 Import 3,9 5 8,4 Wind 2,6 2,4 0 Coal Nuclear Hydro Gas - CCGT Peak - OCGT Renew-ables Committed new builds Existing fleet (2010)  = 260TWh in 2010 Energy share  = 454TWh in 2030

  23. New generation capacity through Private Public Partnerships • Programme based on financial incentives derived from electricity tariff • Organs of State (s239 of Constitution) like Eskom, CEF, municipalities, etc. are excluded from participating as project developers. Rationale is • Risk transfer to private sector, in a private public partnership • Leveraging of outside investment, particularly Foreign Direct Investment • Creation of new employment opportunities throughout value chain • Skills development in various technologies

  24. Planning (IRP) Determination by Minister Power purchase agreement Grid connection Regulatory provisions for PPPs • Minister commissions feasibility study, with outcomes relating to: • allocation of financial, technical and operational risk between buyer and generator • Whether appropriate generator should be Eskom or an IPP • In consultation with Regulator – on licensing matters • Concurrence with National Treasury – buyer support • Standardized provisions for risk allocation to IPP • Regulator to ensure that buyer able to recover costs incurred by buyer over PPA term • Eskom required to enter into PPA with buyer • Buying function to be undertaken initially by ring-fenced entity within Eskom, ultimately separated out into ISMO • Balancing supply/demand plus meeting other objectives • - Carbon • - Supply adequacy • - Water • - Price • Non-discriminatory access • Transmission connection and expansion to facilitate the implementation of IRP (incl IPPs) • - evacuation corridors

  25. Preferred Bidders Salient Terms: Solar Photovoltaic

  26. Preferred Bidders Salient Terms: Wind

  27. Preferred Bidders Salient Terms: Small Hydro

  28. Preferred Bidder Salient Terms: Concentrated Solar Power

  29. Phased Approach - SWH New Contracting Model 1 2 3 WRAPPING UP PHASE - SUPPLY OF PRODUCT UP TO DEC 2012 QUALIFICATION PHASE – CONVERSION TO LOCAL PRODUCT AS PER LOCAL CONTENT THRESHOLD EXCLUSIVE PHASE – ONLY LOCAL STANDARD PRODUCT IS SUPPORTED Removing products that are not compliant with localization requirements • Designation of SWH local • content in Jan 2013 – min • 70% local content • Selection of qualified • local product suppliers through • bidding process • Pilot the separation of Suppliers • and Installers using the carried • over allocations from 2011/12 • (Musina, Polokwane & Buffalo • City) • Contracting only with • pre-qualified local • manufacturers

  30. Contracting Model - Manufacturers Provides policy framework & funding DoE Implementation Agreement Supplies local product that meets requirements as per designation, standards MoA Eskom Manufacturers Supply Agreement Implements policy framework, Including procurement of systems, installation and sustainability SABS Provides the support in relation to independent testing and compliance

  31. Contracting Model - Installations • Provides policy framework & funding • Project site selection • Monitoring and Evaluation of • System Performance DoE MoA Installers that meet requirements for installations and within the project site for maintenance purpose Installation Agreement Eskom Accredited Installers Implements policy framework, Including appointment of Installers, maintenance, and reporting Municipalities Identify project area, provide support to installation, linked to monitoring system to ensure functionality of the systems

  32. Standard Offer Concept • The Standard Offer Concept is based on the energy savings to be derived from an initiative, irrespective of the technology applied to achieve such savings. It is an intervention that is outcome based with the incentive flowing after delivery of the intervention, and subject to verification of the savings. The solar water heating system will have a deemed savings value. It is envisaged that the rebate will be attractive initially, in order to kick-start the market. Over time, it is predicted that costs will be reduced through economies of scale.

  33. Funding requirements “unpacked” • Owner/user • The intention is to create a market where the cost of switching to solar makes economic sense to the user/owner. Economic sense takes into account the cost of the unit, and the +/- 30% reduction of the household bill (factoring in tariff increases) over the repayment period of the Solar Water Heating geyser • Fiscal • The Fiscus has already provided funding into this programme. • Carbon credit • This income stream has been proven and is already benefitting specific Solar Water Heating programmes in South Africa. • Grants • There have been discussions with specific donors regarding grant funding.

  34. Funding requirements “unpacked” • MYPD3 • The intention was to use MYPD funding from the start of the programme. However, Eskom has committed the available MYPD2 funding. The Standard Offer will therefore run on a smaller scale until the new MYPD cycle kicks in, as this will allow for proper ring-fencing of the EEDSM funds within the next MYPD cycle. • The difference/shortfall between the total pool of funding required, and the sum of grants, carbon credit, fiscal and user/owner contributions will be funded by subsequent MYPD periods (in the same way as power stations are funded)

  35. What happens to existing initiatives • ESKOM Rebate • The ESKOM rebate currently makes an up-front capital subsidy available for +/- 260000 units. Discussions with numerous players in industry has highlighted the need for a transitional period between the approaches (up-front capital subsidy vs standard offer). This rebate scheme will therefore run side-by-side with the Standard Offer for the remainder of MYPD2. • Other programmes • All other known programmes are using the ESKOM rebate. These will continue for as long as the +/- 260 000 rebates do not run out

  36. How homeowner gets Solar Water Heater • There are currently a number of options available under the ESKOM rebate programme. These options will remain in place until the +/- 260 000 rebates under this programme run out. • Standard Offer programme will be administered by the Department of Energy, as a demand side initiative similar to the RE IPP Bidding Programme. At a high level • An organisation will transact with a homeowner to give the homeowner the Solar Water Heating Unit in exchange for the home-owners’ claim to the Standard Offer rebate and a top-up payment as required. • An individual not wanting to transact with an organisation, as described above, could purchase the Standard Offer him/herself and claim the standard offer rebate from an Energy Services Company or cooperative • Whether this is an aggregated approach (ESCO) or at an individual homeowner level, the benefits can be illustrated in the following slides

  37. Benefit Analysis – SWH...

  38. Cost Analysis - SWH

  39. WOMEN AND YOUTH EMPOWERMENT • Youth Empowerment Week • Youth Indaba • Youth Month • Learners focus week • Gender Policy • Participation in the UN initiatives on women empowerment • Clean Energy Empowerment and Education (C3E) • Women in Energy and Gas in South Africa (WOEA) • Women in Nuclear in South Africa (WINSA) • 16 Days Campaign of no violence against women and children • Take a girl child to work • Train 150 women on how to make wonder pots • Increased entrepreneurship uptake by youth

  40. SPECIAL COMMUNITY UPLIFTMENT PROJECTS • Nelson Mandela Day – various activities • Adopting a school – uniforms and bursaries. Over 300 uniforms been donated this year. • Disability and old age centres - Special beds and wheelchairs • Men in the making programme - Men’s forum in the Energy sector • Take a boy child to work • Men’s Day – 29 November

  41. Alignment of the Government Outcomes, MDGs, SOOGs and Department’s Programmes