1. Update on Regulatory Developments to Support Solar Park Concept 28 October 2010 Upington, South Africa ompi.aphane@energy.gov.za 1

2. Contents  Regulatory provisions for new generation capacity  Integrated Resource Plan  Solar Park Opportunity  Conclusion 2

3. Regulatory provisions for new generation capacity 3 Planning (IRP) Determination by Minister Power purchase agreement Grid connection Balancing supply/demand simultaneously as meeting other objectives - Carbon - Supply adequacy - Water - price 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 in relation to certain risk allocation Regulator to ensure that buyer able to recover full amount of costs incurred by buyer over PPA term Eskom will be required to enter into PPA with buyer that meets requirements set out Buying function to be undertaken initially by ring-fenced entity within Eskom, ultimately separated out Non-discriminatory access NTC and the Regulator to timeously provide assistance as Minister may require for purposes of developing and monitoring the implementation of an IRP - evacuation corridors Public consultation process to commence soon

4. Integrated Resource Plan IRP2010 has been completed and published for public comments The final draft will be published, taking into account the inputs from the stakeholders 4

5. No reserve margin period of high risk power cuts Restoring the requisite reserve margin The need to replace the old fleet Data source Eskom 5 Resolving Capacity constraints Resolving Capacity constraints Long Term – IP 2010 Medium Term – National Emergency Response and Business Continuity Plan Country Electricity Plan (IRP2010) This Presentation Country Electricity Plan (IRP2010) This Presentation National Emergency Response and Business Continuity Plan

6. Medium Term Risk Medium Term Risk All Indicators predict long and hard storms ahead Use of Emergency generators Increasing Use of Emergency generators Increasing Under Frequency Alarms Increasing Under Frequency Alarms Increasing Daily operating reserves Reducing Daily operating reserves Reducing Daily Unplanned capacity losses Increasing Daily Unplanned capacity losses Increasing

7. IRP 2010 - Balancing Competing Objectives Low Cost Low Carbon Security of Supply Low Water

8. Balanced Scenario Scenarios are not plans Scenarios are not plans They are simple glimpses of extreme futures used to evaluate trade-offs between competing objectives Reducing Uncertainty Scenarios Risk Adjusted Plan Policy Adjusted Plan

9. 15 Scenarios created and evaluated 15 Scenarios created and evaluated 3x Low Cost, 8x Low Carbon, 2x Reduced Demand, 2x Regional Development ScenarioConstraintsKusile Base Case 0.0Limited regional development options No externalities (incl carbon tax) or climate change targets Committed Base Case 0.1As aboveExcluded Base Case 0.2As aboveCommitted, but 24 month delay; and 12 month delay for Medupi Emission Limit 1.0 (EM1)Annual limit imposed on CO 2 emissions from electricity industry of 275MT CO 2 -eq Committed Emission Limit 1.1As aboveExcluded Emission Limit 2.0 (EM2)Annual limit imposed on CO 2 emissions from electricity industry of 275MT CO 2 -eq, imposed only from 2025 Committed Emission Limit 2.1As aboveExcluded Emission Limit 3.0 (EM3)Annual limit imposed on CO 2 emissions from electricity industry 220MT CO 2 -eq, imposed from 2020 Committed Emission Limit 3.1As aboveExcluded Carbon Tax 0.0 (CT)Imposing carbon tax as per LTMS values (escalated to 2010 ZAR) Committed Carbon Tax 0.1As aboveExcluded Regional Development 0.0 (RD) Inclusion of additional regional projects as optionsCommitted Regional Development 0.1 As aboveExcluded Enhanced DSM 0.0 (EDSM) Additional DSM committed to extent of 6TWh energy equivalent in 2015 Committed Enhanced DSM 0.1As aboveExcluded

10. From Scenarios to the plan ScenarioConstraintsKusile Balanced Scenarios Balancing Annual CO2 emissions Price path peak (R/MWh) Water Supply Uncertainty Localisation potential & Regional development NB: Adequacy of Security of Supply is equalized for all scenarios Committed, but 24 month delay; and 12 month delay for Medupi Policy adjusted IRP Development of the Policy-adjusted IRP can commence as soon as the stakeholder consultation completed.

11. Diversify Generation Mix – By 2030 Diversify Generation Mix – By 2030 Balancing Risk, Cost and Carbon Low Cost Scenario Balanced Scenario Low Carbon Scenario New Capacity Allocation

12. Affordability/Price Affordability/Price Indicative Price Paths Low Carbon Low Cost Scenario Balanced

13. RSA beneficiating competitiveness RSA beneficiating competitiveness Industrial electricity pricing comparison (2010-2020) Source: XTA Commissioned Frost and Sullivan Model If we do not balance RSA loses competitiveness

14. Balancing Affordability, Price & Carbon Balancing Affordability, Price & Carbon Diminishing returns on carbon reduction Bubble Six ~ Total MW Installed Low Carbon needs ~22GW more installed than Low Cost Diminishing Returns!

15. Water Water Total water consumption trends Low Carbon Low Cost Scenario Balanced

16. Solar Park Opportunity Opportunity

17. Funding Considerations Funding remains a serious issue. The majority of projects can be privately funded – removes the risk from the Govt. Certainly expect the renewable energy tranche to be private sector funded

18. Summary conclusions Summary conclusions From Scenarios evaluation Cost/Price/ Obligation to protect the environment prohibit the lowest cost Growth and job creation demand RSA protects competitiveness Carbon/Affordability We cannot afford Copenhagen but, We can get to LTMS by 2025 Security of Supply All scenarios equalized adequacy of Security of Supply

19. Summary Recommendations The public consultation process continuing The “Balanced Scenario” represents the best fit of the realities of known physical constraints, prescribed specific objectives or desired future conditions. Inherent uncertainties can be reduced (but never eliminated) by repeating the IRP planning process going forward as and when new information becomes available.

20. No reserve margin period of high risk power cuts Restoring the requisite reserve margin The need to replace the old fleet Data source Eskom 20 Way Forward Way Forward IRP 2010 - Proceed with Balanced Scenario to complete ASAP National Emergency Response and Business Continuity Plan – Launch ASAP Country Electricity Plan (IRP2010) National Emergency Response and Business Continuity Plan Under Control Proceed with Balanced Scenario to complete ASAP CRITICAL and URGENT Attention Required

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