SANEA/NPC dialogue on energy in the NDP: Innovation and investment by the private sector Johan van den Berg Chair November 2014

IN SUMMARY 1 The country will be electricity constrained until 2020 and possibly beyond – NDP growth ambition requires approx. 3% p.a electricity growth. Only RE and cogen plus demand interventions can assist in this period RE is the cheapest source of new generation, often by a margin RE has brought ZAR 120 billion investment in 3 years and will invest ZAR 11 billion into rural communities over the next 20 years Correct assumptions in the Integrated Resource Plan lead to a future with very high RE A dramatic increase in RE ambitions pre-2020 will lead to the local content levels that unlock local manufacturing and job creation while modernising our electricity sector Electricity “Plan A” has stalled/failed, plan “B” urgently needed The RE industry is willing and able to assist

THE SOUTH AFRICAN RENEWABLE ENERGY COUNCIL (“SAREC”) 2 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: associations-to-launch-umbrella-body http:// associations-to-launch-umbrella-body ; voice-on-renewable-energyhttp://mg.co.za/article/ umbrella-body-becomes-sas- voice-on-renewable-energy; sector-to-get-new-umbrella-bodyhttp:// sector-to-get-new-umbrella-body; africa.com/Umbrella/body/SA/renewable/energy/associations

THE SOUTH AFRICAN RENEWABLE ENERGY COUNCIL (“SAREC”) (continued) 3 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

ASSUMPTIONS (AXIOMS?) 4 Medupi/Kusile only fully operational in 2020 or later Eskom availability to average perhaps 70% until then, cost of grid power to escalate appreciably Costs of doing nothing can be OCGT cost, blackout cost and/or the economic opportunity cost of insufficient supply. Conservatively ZAR 11 billion per annum for 5 years. In 2008, NERSA found that the cost of the unmet electricity demand was ZAR 75/kWh There is opportunity cost to build energy on the national balance sheet that is alleviated/avoided when IPP’s build

WE NEED POWER NOW - CAPACITY FACTOR/AVAILABILITY OF PLANT: WIND FARM VS MEDUPI 5

RENEWABLES ARE A COST SAVER 6 Wind power, despite adverse exchange rate moves, has been bid at an average of approx 65c/kWh in REIPPPP round 4. Solar PV figures not known but perhaps 80 c/kWh. Latest estimates for Eskom Medupi perhaps ZAR 1.05/kWh

REIPPPP investment rounds Approx ZAR 120 billion over 4 years Close to 4,000 MW procured Early projects being commissioned on time and on budget without construction risk to “SA Inc” Commitments to community development of ZAR 11 billion for next 20 years

IRP assumptions and outcomes 8 Arbitrarily assumed we can only build 1,600 MW of wind and 1,000 MW of PV per annum Assumed wind capacity factors of 30% while reality is often 40% + Assumed no interest during construction? Assumed no constraints/opportunity costs to government investment and/or no benefit to IPP’s investing and SA Inc only paying for electricity Assumes international benchmarks for costs as opposed to far lower actual costs in SA (RE) and far higher internationally (Nuclear) Removing only the first assumptions gives an output of 12,000 MW of wind and 29,000 MW’s of solar in the IRP What would a model with correct assumptions on all counts do?

ESKOM – SIZE OF GOVERNMENT BAIL–OUT ( Source – Standard Bank ) 9

10 Local content/industrialisation demonstrated with reference to wind Round 3 showed LC of perhaps 46% Ultimate level of 68% is possible under a scenario of perhaps 1,200 MW per annum Adopting the draft IRP as is would leave us stranded at 45% for another decade Publication of draft IRP with lower wind allocation led directly and immediately to cancellation of local investment by LM Blades that would have created jobs and raised LC to 53%

Mega projects lock us into old ways and will lead to stranded assets 11

12 International Energy Agency views on “baseload” (Windaba 2014, 3 – 5 November 2014) “Retire the term” There is flexible supply and flexible demand, match them Denmark often supplies more than 100% of their power from wind power Portugal (part of “Iberian power island”) often produces 85% of needs from RE

13 Energy Plan B (own opinion) Leave REIPPPP more or less as is, finetune Start a medium scale procurement programme with higher and perhaps fixed prices (20% > REIPPPP for previous year?) and high thresholds re local content, job creation, local ownership. Cap at 10 – 50 MW These projects will be able to connect to grid in places where larger projects cannot This category of projects will pursue value for “SA Inc“, more than price Pursue solar water heating with the greatest focus and urgency Make rooftop PV happen at scale, perhaps with storage Have dual metering – municipalities to be paid for electricity used, Treasury to pay producer for power exported, safeguarding municipality finances Treasury payment to come from savings on “doing nothing” Auction building of new grid

14 THANK YOU Johan van den Berg Chair