Submission to NERSA: Eskom MYPD 3 application Johan van den Berg Chair: Steering Committee January 2013

IN SUMMARY The ultimate aim of discussion about MYPD3 should be to ensure the long term well-being and sustainability of the people of SA – renewables is uniquely placed to do this Coal power is unaffordable in the medium and long term – we require a mix of public and private energy generation that migrates towards clean, green, affordable energy The cost of energy should be reflective of what it costs so that we build a sustainable economy and use only what we really need, no more

THE SOUTH AFRICAN RENEWABLE ENERGY COUNCIL (“SAREC”) Umbrella body for industry bodies in renewable energy Founders were SESSA, SASTELA, SAPVIA and SAWEA Committed to government to form the Council during the NEDLAC discussions on the Green Economy Accord See: http://www.engineeringnews.co.za/article/sa-renewable-energy-associations-to-launch-umbrella-body-2011- 12-15; http://mg.co.za/article/2011-12-09-umbrella-body-becomes-sas-voice-on-renewable-energy; http://www.timeslive.co.za/local/2011/12/15/renewable-energy-sector-to-get-new-umbrella-body; http://www.esi-africa.com/Umbrella/body/SA/renewable/energy/associations

THE SOUTH AFRICAN RENEWABLE ENERGY COUNCIL (“SAREC”) (Continued) Goals: To act as a collective custodian and voice for the renewable energy in South Africa Work collectively towards optimising the regulatory and policy framework for renewables Collectively remove barriers to entry for renewable energy in South Africa; To provide expert resources that Government can draw on re energy policy; Liaise between international agencies and the South African Government on RE and CC; Promote public and private sector coordination towards the cost optimisation of renewable energy generation and localisation

About SAWEA The Collective and voice of the Wind Industry in SA - a regular contributor to various NERSA hearings in years past Founder member of SAREC Today’s presenter is the CEO of SAWEA, SAWEA has made the resource available for the broader industry In the interest of time SAWEA has informed the SAREC position and concurs with it NERSA is asked to note and minute that SAWEA is present and concurs with the SAREC position

ENERGY IN SA: WHERE DO WE WANT/NEED TO END? Fossil fuels will eventually run out Nuclear power not seen as sustainable by many after Fukushima The atmosphere can absorb a limited amount of pollution while sustaining a viable climate for mankind We need clean, long term and affordable energy sources Rapid transition to renewables is essential as the present decade is critical in terms of “catching the climate change train before it leaves the station” We need water

ENERGY IN SA: WHERE DID WE COME FROM? Eskom monopoly, no IPP’s Coal dominated grid No Eskom retained revenue - no project finance - all capital for new build have to be provided on “pay-as-you-build” Practically no renewable energy

ESKOM – SIZEABLE BALANCE SHEET SUPPORT BY GOVERNMENT Eskom’s effort to replace ageing power stations and add new capacity is costing minimum ZAR 337 billion – see MYPD3 p 9 – replacing present fleet will require ZAR 3,500 billion by 2030 (MYPD3 p 108) Government has supported Eskom’s new build by ZAR 350 billion in loan guarantees and shareholder loans/equity (Source: Standard Bank) This contingent liability for government cannot go any higher – result is we need capital from IPP’s and tariffs that are cost reflective For IPP’s we only pay for the power, if Eskom builds we have to pay everything upfront Difference same as hiring car/buying a new car cash

ESKOM – SIZE OF GOVERNMENT BAIL–OUT (Source – Standard Bank)

COMMENT 1: NEW POWER COSTS MONEY Any new electricity requires substantial capital investment Money can come from tax/rate payers (Eskom building) or from private sector (IPP’s) – the latter is much less stressful for consumers Had IPP’s not been built, Eskom would have had to build more Logical error to say “price has to rise because of IPP’s“ IRP renewables portion 2011 – 2030 will cost ZAR 340 billion plus in capital expenditure – if private sector brings the capital, the consumer pays only for the energy If Eskom builds, consumer pays for everything upfront In principle costs must rise – reasons must be clear

COMMENT 2: GOVERNMENT HAS CHOSEN TO FUNDAMENTALLY INVOLVE IPP’S Since 1998 (White Paper on Energy) through 2001 (Cabinet Decision on IPP’s building 30% of new capacity) to 2003 (White paper on Renewable Energy) the ground work for IPP’s has been laid in SA In terms of the Ministerial determination of December 2012, IPP’s will build about 10,000 MW’s of renewable and baseload plus industrial waste energy plants (See Government Gazette 19 December Vol 570, No 36005) Eskom need no longer model a scenario where they provide 100% of the new power

COMMENT 3: UNBUNDLE RENEWABLES FROM THE TERM “IPP’S” MYPD3 says “3% of the 16% to pay for IPP’s” – this sentence made it all the way to Davos and fails completely to convey that it is primarily the addition of new power that costs money - not the fact that it is sourced from IPP’s. This is likely to create misperceptions with the public Wrong for two reasons: Should only look at incremental cost (if any) over what it would have cost Eskom; “IPP’s” include peaker plants generating power at very high cost – this totally distorts the picture and fails to reflect that renewables are a cost saver. ZAR 13,3 billion will be spent on the peakers for peaking power, the peakers will over a 5 year period generate 1,926 GWh - price ZAR 6.93/kWh

COMMENT 4: RENEWABLES ARE A COST SAVER Weighted cost of REIPPP renewables round 1 approximately ZAR 1.75/kWh (calculated on wind and solar PV) Weighted average cost round 2 approximately approximately ZAR 1,12/kWh (calculated on wind and solar PV). Round 1 and 2 combined approximately ZAR 1,48/kWh Total projected generation Round 1 and 2 approximately 5,500 GWh’s per annum Cost of peaker power is approximately ZAR 6.93/kWh (Cost - see MYPD3 Table 55 p 136: 13,34 billion; Generation - See Table 17, page 63: 1,926 GWhs) - total average generation from peakers approximately 400 GWhs per annum (Total generation of 1,926 GWhs/5 years) Thus, if only 7% of REIPPP power occurs in peak hours, the country will save (ZAR 6.89 – 1.48)*400,000,000 = ZAR 2.164 billion per annum Has Eskom MYPD3 taken this into account?

COMMENT 5: SOME RENEWABLES CHEAPER THAN NEW COAL Round 2 wind power was procured at 89c/kWh Eskom new coal comes at 97c/kWh, pollution costs excluded (Source: Media reports and as calculated by NERSA – see http://www.techcentral.co.za/eskom-grilled-on-power-price/34420/ The more wind power we build, the more money we save

COMMENT 6 – EXTERNALITIES: RENEWABLES SAVING SA MONEY

COMMENT 6 (Continued) – REAL COST OF ENERGY

COMMENT 6 (Continued) If round 1 and 2 produce approximately 5,500 GWh per annum (5,500,000,000 kWhs), SA will annually save approximately (ZAR 1.94 – ZAR 1.48) * 5,500 GWh = approximately ZAR 2,5 billion in avoided environmental degradation, health costs, climate change impacts , water costs etc This saving will increase dramatically as competition drives the price down even further in subsequent REIPPP procurement rounds and more MWs get built

COMMENT 7: COST OF NO ELECTRICITY – RENEWABLE ENERGY HELPING TO GROW THE SA ECONOMY In 2008, NERSA found that the cost of the unmet electricity demand was ZAR 75/kWh (NIRP3) Renewables can create new capacity far quicker than coal If only 15% of all renewables purchased should be regarded as baseload (very conservative assumption), this is still equivalent to 5,500 GWhs * 0.15 * ZAR 75/kWh = ZAR 61 billion per annum If this figure is discounted by another 90% because of increased reserve margin and greater predictability in the electricity supply THAN IN 2008, it would still be ZAR 6 billion per annum

COMMENT 8: RENEWABLES PROJECTS INCLUDE AN INVESTMENT INTO SOCIAL UPLIFTMENT, JOB CREATION AND COMMUNITY DEVELOPMENT PLUS A UNIQUE “TAX” In terms of the REIPPP rules, 3-5% of ownership must lodge with local communities. This is an excellent initiative but needs to be financed. Other generators do not do this. Further, 1 - 1.5% of turnover must be spent on socio economic development, preferably within the immediate radius of the project (usually rural areas) 0.6% of turn over must be spent on enterprise development – most often this will target education and skills development These amounts become very significant over the project lifetime and are likely to make a strong contribution towards community upliftment, job creation and social development Additionally, in terms of the REIPPP rules, a 1% of Capex tax is payable to Government – our understanding is that this is meant to fund the transactions costs of the programme. During the MYPD3 timeframe, this “tax” will total a payment of more than ZAR 300 million to Government Other energy generators are not presently asked to make the above commitments

Distributions over Project Life for a 140 MW Wind Farm COMMENT 8 (continued) – community benefits funded by renewables Distributions over Project Life for a 140 MW Wind Farm SED (1.5% revenues) & Community Trust (5% ownership) (Source: Globaleq)

ASSISTING THE POOR AND THE NEEDY Whilst it is evident electricity prices must rise, care must be taken to protect the poor and needy, and safeguard jobs SAREC submits that extensive submissions have been made by various parties in this regard We have confidence that NERSA will balance this in an optimal way and leave it in the Regulator’s capable hands

AN EMERGING GLOBAL PLAYER: SA’S POSSIBLE PLACE IN THE 2015 GLOBAL PECKING ORDER (PV AND WIND)

THANK YOU Johan van den Berg Interim chair johan@sawea.org.za +27 82 925 5680