Electricity cost risk modelling of the Energy Conservation Scheme (ECS) for the Gold mining industry of South Africa Lodewyk van der Zee

Background of study Load shedding from 2008 cost the South African economy an estimated 50 billion rand. The Power Conservation Program (PCP) was developed as a mitigation strategy. Power Conservation Program (PCP) Energy Conservation Scheme (ECS): Voluntary or price driven Mechanisms 10% Load reduction Energy Growth Management (EGM) New connection management Network planning Demand Side Management (DSM) Pricing

Motivation for the study ≤ 2% : R0.99 per kWh (290%) No penalties Summer (2011)= R0.34 per kWh Winter electricity tariff (2011)=R0.66 per kWh >2 %≤ 10% : R3.97 per kWh(1100%) >10%: R11.91 per kWh(3500%)

ECS procedure 1.Baseline negotiations 2. Allocation of electricity quota: reduction target 10% 3. Reallocate electricity according to ECS rules 4. Settle bill and penalties if needed

Baseline negotiations Baseline consumption options Reference period A : Consecutive 10/ /2009 Reference Consumption A: 0.97 x sum ( Ref period A) Reference period B : 12 Consecutive 12/ /2009 Reference Consumption B: sum ( Ref period B) up to maximum of % of Ref consumption A Reference period C : 12 Consecutive 10/ /2007 Reference Consumption C: sum ( Ref period C ) Total energy allocation : A = B + C + D + E A: ECS customer total annual energy allocation B: ECS customers annual energy allocation in respect of reference loads. C: ECS customer's annual energy allocation in respect of post reference loads D: ECS customer's new connections and/or additional loads, if applicable E: ECS Customer's Investment Allocation(s)

Allocation management Default daily allocation : Divide total annual allocated energy by 365 and allocate to 366 days evenly. User defined: Throughout the ECS year the customer may redistribute the previously allocated energy provided that: Not less than 14 days ahead Not more than 126 days ahead The maximum monthly adjustment of 0.167%

Present situation of ECS Consultation draft by NERSA Negotiations with 40 top consumers have started Baselines have been put in place Voluntary partaking have started Safety net

Cost Risk for Gold mining industry Impact on direct mining cost Large loads are essential for production Electricity supply vital for safety Simulation assumptions 1. No transgression penalties 2. Average summer electricity tariff (2011)= R0.34 per kWh 3. Average winter electricity tariff (2011)= R0.66 per kWh

Scenario A Default allocation – no late rephasing

Scenario B Avoiding high winter month penalties

Mitigation strategies Invest in optimal load prediction Install required monitoring equipment Mine personnel must be trained Invest in EE loads and DSM Avoid penalties during winter months Identify and isolate non essential loads Communicate ECS rules with mitigation strategies

Conclusions ECS is uncertain but remains a risk If not well managed mining group could incur serious financial losses Investment in allocation management will lead to additional benefits

Questions

Goals of ECS Improved management of South Africa’s electricity system Enhancing information exchange between A. large industrial commercial customers B. System Operator Sustained reduction arising from improved energy efficiency Promotion of energy efficient growth in electricity consumption.