1. Integrated Resource Plan 2/2010 Cape Town 20 October 2010 Durban 22 October 2010 Polokwane 1 November 2010 Pretoria 2 November 2010 Building on the Findings of the Electricity Governance Initiative South Africa

2. Understanding the Integrated Resource Plan (IRP 2010 Rev 2)

3. Purpose Review what is meant by IRP Examine some aspects of IRP 2010 Rev 2 Present key aspects in plain language Raise issues of interest or potential concern  Identify issues with biggest relevant impact and focus on these  There are looooooots of technical details… we will try not to chase red-herrings

4. Some basics: electricity demand and energy supply mix Electricity demand and energy mix Choosing an energy mix – Least financial-cost model – Constraints such as GHG emissions – Policy adjustment Integrated Resource Plan – The Negawatt: efficiency and DSM as a resource – Economy, environment, society

8. World 1World 2

9. World 3?

10. Electricity demand and energy mix Source: Draft IRP 2010 pg 5

11. Electricity demand and electricity mix Source: Draft IRP 2010 pg 8

12. Electricity demand and electricity mix Source: Draft IRP 2010 pg 9

13. What is an IRP ? … compared with traditional planning  There is a LARGE BODY of work and experience published on IRP

14. Traditional electricity planning Traditional methods of electric resource planning focused on supply-side projects only Demand-side options were not considered

15. Integrated Resource Planning IRP contrasts – with traditional planning that is typically top- down, with public consultation occurring only as a last step, when plans are virtually complete IRP considers the needs and ideas of all parties with a stake in the future of the electric system

16. Steps in the IRP process establish objectives [All stakeholders] survey energy use patterns and develop demand forecasts investigate electricity supply options investigate demand-side management measures prepare and evaluate supply plans prepare and evaluate demand-side management plans integrate supply- and demand-side plans into candidate integrated resource plans select the preferred plan [A broad range of stakeholders] during implementation of the plan, monitor, evaluate, and iterate

19. Traditional electricity planning Also, even the assessment of supply-side options was limited to a few major technologies – E.g. biomass cogen, distributed generation not considered or not properly considered Cost-benefit analysis of the alternatives was rudimentary

20. Traditional electricity planning Planning done by utility without stakeholder engagement In South Africa, was effectively a secret process run by Eskom

21. What IS IRP ? IRP makes planning more open to relevant governmental agencies, consumer groups, and others

22. What IS IRP ?

23. Integrated resource plan In a nutshell – Technical Incorporating environment Incorporating society Incorporating economy Treating all energy resources equally Includes all significant electricity system components Treating energy efficiency and DSM equally to supply – Process Attaining a balance on technical issues can only be covered in consistently transparent public process Environment Society Economy

24. Making choices How much electricity do we need? The DEMAND What do we want this electricity for? GROWTH sectors How can we use electricity more efficiently and wisely? EE and DSM What other national public development priorities should inform our decision? HEALTH, POLLUTION, JOBS, CLIMATE CHANGE, UNIVERSAL ACCESS TO ELECTRICITY

25. Typical broad IRP objectives Conform to national, regional, and local development objectives Ensure that all households and businesses have access to electricity services Maintain reliability of supply Minimize the short term or long term economic cost of delivering electricity services or their equivalent Minimize environmental impacts of electricity supply and use Enhance energy security by minimizing the use of external resources Provide local economic benefits Minimize foreign exchange costs

26. IRP in South Africa Is a requirement of recent legislation and regulations – Electricity Regulations Act (No. 4 of 2006) – Electricity regulations on new generation capacity (Aug 2009) (Revision to be announced ‘within days’)

27. Key Issues

28. “Revised Balanced Scenario” IRP 2010 Rev 2

29. Making choices How much electricity do we need? The DEMAND What do we want this electricity for? GROWTH sectors How can we use electricity more efficiently and wisely? EE and DSM What other national public development priorities should inform our decision? HEALTH, POLLUTION, JOBS, CLIMATE CHANGE, UNIVERSAL ACCESS TO ELECTRICITY

30. Demand forecast Source: Draft IRP 2010 pg 31 SO estimate CSIR estimate

31. Demand forecast (Even) in the enhanced DSM scenario we are proposing to go from a 260,000 GWh system to a 454,000 Gwh system – a 70% increase in installed capacity in one of the most energy intensive economies in the world EE can’t reasonably be consigned to decrease in intensity owing to price increase – This decrease happened in any case from 1985- 2007 when real price was decreasing – EE (per IRP) is the result of EEDSM plans

32. Making choices How much electricity do we need? The DEMAND What do we want this electricity for? GROWTH sectors How can we use electricity more efficiently and wisely? EE and DSM What other national public development priorities should inform our decision? HEALTH, POLLUTION, JOBS, CLIMATE CHANGE, UNIVERSAL ACCESS TO ELECTRICITY

33. Electricity demand forecast Big metros Mining Industry

34. Industrial demand forecast

35. Allocation of risk for investments Risk in a BIG smelter project Lead time Public sector role Smelter project Private sector Public sector

36. Allocating risk, balancing interests Xstrata Given 100 Megawatts by S. African Utility for Smelter By Carli Lourens - Oct 21, 2010 2:25 PM GMT “In its court papers, Eskom acknowledges that in 2008 the country would probably not have been subjected to power cuts and load-shedding had electricity not been delivered to the smelters.” Jun 10 2010 07:37 Jan de Lange Sake24.com “Regulatory Capture”

37. Regulatory capture occurs when a state regulatory agency created to act in the --public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating

38. Metros’s energy demand How is Eskom-SO re-distributor demand forecast done?

39. Example of Metro electricity planning: Energy Consumption for Different Scenarios Cape Town Optimum Energy Future energy efficiency measures result in lower energy demand than Business as Usual without compromising energy service delivery.

40. Total End User Expenditure for Scenarios Optimum Energy Future energy efficiency measures result in lower energy expenditure than Business as Usual without compromising energy service delivery.

41. Efficiency impact (incl transport) Renewable and other low carbon electricity supply impact Energy efficiency and Greenhouse Gas Emissions

42. Making choices How much electricity do we need? The DEMAND What do we want this electricity for? GROWTH sectors How can we use electricity more efficiently and wisely? EE and DSM Using realistic credible costs What other national public development priorities should inform our decision? HEALTH, POLLUTION, JOBS, CLIMATE CHANGE, UNIVERSAL ACCESS TO ELECTRICITY

43. Energy efficiency in the IRP2010 Rev 2 Potential vs proposed plan – 3,420MW vs at least 12,933MW** ** “Research conducted by Eskom indicates that this programme may only scratch the surface of the potential market for EEDSM (which has been estimated at 12933 MW of total market potential. ” (IRP 2010 Rev 2, page 33) Impacts – Costs and electricity price – Environment – The ‘needs’ and timing of the build programme

44. Making choices How much electricity do we need? The DEMAND What do we want this electricity for? GROWTH sectors How can we use electricity more efficiently and wisely? EE and DSM Using realistic credible costs What other national public development priorities should inform our decision? HEALTH, POLLUTION, JOBS, CLIMATE CHANGE, UNIVERSAL ACCESS TO ELECTRICITY

45. Cost curves without learning Cost Curves with learning

46. Potential learning rates Technology optionsLearning rate for each doubling in capacity – IEA, 2008 Wind (onshore)7 Photovoltaics18 CSP10 Biomass5 IGCC3 Nuclear III3

47. Learning curves Not used despite being included in revised assumptions – The IRP 2010 Rev 2 does indicate iterative process But does not say what happens if the IRP 2 changes but commitments to certain build options have already been made / contracts signed? Impacts – On technology choice through least-cost modeling – On relative costing – Knock-on » On energy mix and timing of build programme

48. Transmission and distribution not modeled Important investments Effects on EE, DSM and distributed renewable energy generation Assessment of INEP Assessment of locational aspects of generation and demand

49. The international context not explicitly addressed Globally RE electricity generation investments overtook investments in conventional (coal, gas nuclear) in 2008 Most of South Africa’s major trading partners have significant energy efficiency and renewable energy programmes Ditto for large renewable energy targets EE programmes have been implemented for decades

50. Global installed wind power Source: World Resources Institute / IEA

51. The nuclear ‘renaissance’ ?

54. The international context not explicitly addressed Renewables and efficiency pursued in many major economies including South Africa’s “competitors” in emerging market economies India: developing wind resources, a mission to develop 20 GW of solar power, and a mission to improve energy efficiency Brazil: exploring energy efficiency as an alternative to new generation in response to environmental impacts Although electricity costs in SA are on the rise, other companies in countries e.g. India have been paying 9 US c/Kwh for electricity for many years, and have much lower energy intensities

55. The combined effect of Increased energy efficiency and DSM Lower demand Learning curves on predicted technology costs The higher nuclear capital costs than predicted by EPRI More ambitious GHG emissions reduction targets and lower pollution Higher renewable energy levels Consideration of industrial development / jobs

56. Other issues 1 Other scenarios – It is possible that there are scenarios that could incorporate social, economic and environmental criteria more effectively at acceptable or even lower cost – There are scenarios that could explore uncertainties and risks  IRP 2010 Rev 2 document does not convince that these have been sufficiently explored

57. Other issues The basis for assigning values in the multi criteria decision framework** is not clear or defended or the stakeholders listed – The IRP 2010 Rev document states: “These preferences are by nature subjective, but by including numerous stakeholders in the workshops determining these preferences a broad and inclusive approach to the values can be determined.” “This process should include a broad range of stakeholders to capture all the preferences.” **see next slide

58. A Multi-Criteria Decision-Making Framework

59. Other issues Regional hydro options have potential complex challenges that are not addressed – Big Dams… Big environmental and social issues for our partners in the region – Transmission and distribution investment is a challenge This is noted in the draft but not addressed

60. Other issues Relationship between the IRP and the Medium Term Risk Management Project is not clear – See next slide – IRP could meet many of the near term needs Especially short lead time Wind and EE, and DSM

61. The next few years supply vs demand IRP 2010 p5 MTRMP p7

62. Other issues There is a need for clarity on next steps in the IRP

63. Other issues Lack of consistency with what major players are saying – Eskom statements about CSP – DoE statements about solar park – DoE statements in parliament (esp around resources for process = “process issue”) – Budget expenditure – Technical capabilities

64. Alternative scenarios in SNAPP

65. Elec. system costs irp2 plus 5% ee Elec system costs irp2 plus 19% ee Reserve margin in 2030 = 40% Reserve margin 2030 = 20 %

66. Elec. system costs irp2 plus 19% ee plus reduced nuclear Elec system costs irp2 plus 19% ee Reserve margin in 2030 = 40% Reserve margin 2030 = 28 %

67. Annual investment required irp2 with 19% ee Annual investment required irp2 with 19% ee and reduced nuclear Reserve margin in 2030 = 40% Reserve margin 2030 = 28 %

68. Annual investment required irp2 with 19% ee Annual investment required irp2 with 19% ee and WWF RE reduced Reserve margin in 2030 = 40% Reserve margin 2030 = 19 %

69. Electricity system costs irp2 plus 5% EEDSM Electricity system costs irp2 plus 5% EEDSM plus glimpse of real world Reserve margin in 2030 = 20%

70. Electricity system costs alternative irp2 business un- usual in real world Electricity system costs irp2 business as usual in real world Reserve margin in 2030 = 20%

71. Overall impressions 1 Many key issues relate to the modeling and the assumptions – not the “PLAN” – The IRP 2010 as it stands is essentially a Capacity Expansion Plan This is (sometimes, but inconsistently) stated This is not adequately justified “Lack of data” used as explanation for MOST IMPORTANT omissions – not credible / acceptable

72. Overall impressions 2 The “Revised Balanced Scenario” = the “PLAN” – The scenarios presented do not convince that all options have been explored – Shortcomings in modeling and assumptions lead to some problematic results Important options therefore cannot be properly considered

73. Issues of interest and potential concern (of the PLAN, not the methodology, which is what essentially leads to the deficiencies) Alignment with Economic and industrial policies – The plan appears to pre-empt (some) economic policy – Does not include information on economic and environmental impacts Does not include INEP – Does not address social policy – Does not include employment effects Does not meet UNFCCC commitments Explanation of implementation – Reasoning behind statements that decisions needed in early 2011

75. Jobs in South Africa

76. 20/06/07 Parliamentary Hearing on Nuclear Energy Employment potential in RE sector in SA Source: EPRESA report by Agama Energy for Earthlife Africa, 2003