1. 1

2. Integrated Resource Plan Stakeholder Consultation Process - IDASA

3. 3 Contents Context Generic Inputs Formulation of the problem Solving the objective function Integrated Resource Planning in SA

4. 4 Context The Integrated Resource Plan in the South African context is not the Energy Plan – it is a National Electricity Plan. It is a subset of the Integrated Energy Plan. The IRP is also not a short or medium-term operational plan but a plan that directs the expansion of the electricity supply over the given period.

5. 5 Context The Long-term Electricity Planning goal is to ensure sustainable development considering: Technical constraints Economic constraints Social constraints Externalities What is its purpose? In theory, identification of the requisite investments in the electricity sector that maximize the national interest. In practice - identification of the investments in the electricity sector that allows the country to meet the forecasted demand with the minimum cost to the country.

6. 6 Context – Why a long-term plan Electricity Availability is directly correlated with the economic growth (GDP) and social welfare of a nation (especially for developing countries) –Industry, services, communications, airports –Education, health, safety, food.. Anticipation is Essential Anticipation of the needs: future demand of the customers must be projected. Anticipation of the supply: facilities must be prepared to supply at the right time with the right amount of energy at the right quality of service and at the right price Electricity cannot be effectively stored Electricity demand must be met instantaneously Requirement of several years for new supply commissioning Linked to other infrastructure development

7. 7 The IRP needs to answer the following questions What are the electrical energy requirements for South Africa to achieve the aspiration of sustainable economic growth? By when is the capacity needed? What is the appropriate mix of technologies to meet these needs that ensures South Africa can meet its commitments to climate change initiatives, ensures adequacy of supply, creates a local manufacturing base, maintains a competitive position in the global arena and ensures sustainable use of local and regional resources?

8. 8 The IRP needs to answer the following questions What are the linkages and dependencies on other resources such as water, primary energy sources, skills, sorbents, transmission infrastructure and land? What is the role of Government, NERSA, Eskom, IPPs and other stakeholders in meeting these needs whilst building a sustainable industry?

9. 9 The IRP needs to answer the following questions What will it cost to meet these needs and how will it be funded? What will be the impact on future electricity prices and will they remain competitive? What is required to implement this plan, what is the level of confidence in achieving this, what are the commitments required and who are these required of?

10. Formulation of the Problem PRIME OBJECTIVES OF THE ELECTRICITY GENERATION SYSTEM: – To satisfy the demand instantaneously for each eventuality –Within a defined level of reliability Loss of Load Probability (LOLP) Cost of Unserved Energy –At the least cost Expansion plan Min [NPV (Investments +fixed cost variable cost+ cost of failure+ cost of externalities) ] 10

11. 11 Decision making under uncertainty Since the plan is about making decisions about the future state. It is a plan developed with a degree of uncertainty. This requires at least 2 approaches: –THE STATIC APPROACH –THE DYNAMIC APPROACH (PROBABILISTIC) Two main Techniques – Convolution – Monte Carlo

12. 12 Multi-criteria decision-making MCDM incorporates more than one criteria to resolve trade-offs and objectives outside the traditional least (direct) cost approach The approach applies the four criteria to each plan resulting from the scenarios –Develop partial value functions for each criteria –Apply the partial value functions to the metrics for each criteria (measuring different aspects of the plans) –Determine swing weightings for the criteria –Select an optimal plan based on these weightings and value functions

13. Key IRP Outcomes Price Cone –RSA Ave Price Cone –Gx Price Cone Carbon –Emission Constrained –Cost of Carbon Security of Supply –Adequacy –Cost of Unserved Energy Generation Mix –Technology Economic Multiplier Effect Social Impact

14. 14 Partial value functions Provides a mechanism to map each criterion metric to a value scale reflecting (subjective) group preferences For each criterion: –worst performing plan gets value of 0 –best performing plan gets value of 100 –All others have values within this range reflecting the relative importance of the metric outcome Important to avoid linear relationships (values across the range rarely change in a linear pattern), interested in marginal value change from a change in the metric result. E.g. reducing emissions by 10Mt/a from 330MTt/a not likely to have the same value as reducing emissions by 10Mt/a from 250Mt/a

15. 15 Swing weighting Mechanism to determine relative importance of the criteria Establish set of hypothetical cases in which a plan performance best in one of the criterion and worst in all others, thus Plan A has lowest cost, Plan B least CO2 emissions, Plan C best diversity, Plan D least risk, Plan E scores 0 for all. Look at relative importance of each plan: possibly: –Possibly: [A] > [B] > [D] > [C] > [E], such that [A]:[B]:[D]:[C]:[E] = 10:7:5:3:0

16. IRP requires Policy Inputs and Scenario Planning Energy Policies and Strategies: –Nuclear Policy –Renewable Energy Policy (Climate Change) –Import (Regional Development) Policy –Diversity of energy sources –Energy Efficiency Policy/Strategy –Adequacy (Reliability) criteria for generation –Industrial Development Policy

17. IRP requires Policy Inputs and Scenario Planning Scenarios that require investigation –Demand scenarios –Supply scenarios –Economic scenarios –Climate change scenarios –Import & Export scenarios (Regional Development)

18. 18 Generic Inputs In developing an IRP there are many variables which need to be exogenously determined (inputs). Most important ones are: Fuel prices projections –Crude oil barrel, ton of coal, m3 of Natural gas Description of the existing generation mix –Capacity, fuel, efficiency, FOR, POR, decommissioning date, C02 emissions, fixed cost and variable cost, required reliability Investment criteria : – Discount rate Demand projection (s) – Annual peak load in MW & Energy in GWh

19. The Models require the following Inputs for each scenario General Inputs –Discount rate –Cost of unserved energy –Reliability criteria Demand Inputs –Demand profile Supply Inputs Externalities

20. Demand Inputs Different demand scenarios based on different assumptions: –Explanatory variables (determinants of electricity demand)  Gross Domestic Product (GDP)  Output from specific industries, in particular manufacturing and mining (gold, PGM, iron, coal)  Electrification  Population  Energy intensity = relationship between production output and electricity demand.

21. Demand Inputs Different demand scenarios based on different assumptions: –Additional considerations:  Electricity Prices (elasticity)  Weather effects (especially temperature)  Viable substitutes to electricity  Technology impacts (Smart Grids & electric cars?)  Known large-scale projects –Demand side management (DSM) programmes  Expected energy impact  Expected demand profile impact  Costs (fixed and variable)

22. Supply Inputs Potential technologies –Coal, Nuclear, Gas: CCGT and OCGT, Renewable technologies (Wind, Solar, Biomass and Geothermal), Hydro and Pumped Storage etc Plant Costs (Exchange Rate required) –Investment ( Total overnight costs, Expense schedule, Lead- times) –Refurbishment –Decommissioning

23. Supply Inputs 23 –Fuel  Cost in each year for economic life of plant or price at reference date plus expected escalation during economic life of plant  Fuel energy content (where applicable) and availability (water) –Operation and Maintenance (O&M)  Cost in each year for economic life of plant or price at reference date plus expected escalation during economic life of plant

24. Supply Inputs Plant Availability Data –Maintenance (or Planned Outage), Unplanned Outages Plant Technical Parameters –Plant Economic life, Efficiency(ies) and/or Heat Rate(s), Plant Load factor Plant Water Usage –The water usage per unit of energy output for each Plant Technology Type. Plant Sorbent Usage

25. Supply Inputs 25 Plant Emissions –The costs of pollution control equipment, waste management and any required health and environmental protection measures –Pollution Control Technologies included in, and the impact thereof on  Plant cost, Plant availability and Plant technical parameters

26. Externalities and constraints Emissions - Co2, other particulates Water Skills Bulk Transportation (Elecrical & Primary Energy Finance / Funding Policy Directions on technology - Nuclear, coal and Renewables Plant Sorbent Usage restrictions

27. Current Models Load Forecasting –SO: A time series analysis of historic trends at individual customer and/or sector level, adjusted for non-repeatable events, is adjusted through expert knowledge and judgement for known and assumed parameters that will impact future electricity consumption. –CSIR: An econometrics model utilising economic and demographic parameters has been constructed that calculates the forecast based on algorithms that utilise these parameters in the input function. Expansion planning model –Plexos:  Capable of doing static and dynamic (Convolution and Monte Carlo)  Can include additional requirements such as emission constraints

28. 28 Planning Criteria used in IRP Draft AreaCriteria NameMetricDirection Financial Cost of plan & Funding Model Total PV cost of plan per MWh Cost of Finance Minimise Environmental Absolute CO 2 emissions Water consumption Average annual CO2 emissions (2009-2028) kL/MWh Minimise Policy Installed coal- fired capacity % of total energy generated from coal-fired options Minimise Security of supply Risk factors Index of numerated risks associated with each project Minimise Job Growth and Job preservation Multiplier EffectsStill to be determinedMaximise

29. IRP 2010 Scenarios Baseline / Reference (See SO IRP Oct2009 ) Carbon - emission constrained Carbon – carbon taxed Generation diversity Policy & Risk adjusted (IRP 2010 recommended) This scenario will include sufficient detail on issues for immediate policy implementation such as: –Non Eskom generation –Critical decision milestones –Critical actions for other ministries –Inputs to national planning

30. Reviewing Output and making recommendations Review each Scenario modelled –Output needs to be scrutinised to:  Find potential modelling and input errors  Unrealistic expansion options  Review Reserve Margin, (Reliability Criteria)  Review load factor (Gas turbines – fuel logistics), pumped storage operations, energy limits  Review practicalities – Expansion Plan is a simplification of the problem  (Time between units commissioning, Is CCGT load profile practical/ day not night - continuous). Test the plan with a production study Iterative Process

31. Reviewing Output and making recommendations Cost the plan and estimate the tariff impact –Even if the costs are benchmarks (or not final) Review if Policy objectives are met –Competitiveness, Social development issues, localization etc Review against the broader picture of infrastructure development Recommend the most suitable plan –Develop a decision making framework

32. Integrated Resource Planning In South Africa

33. Eskom (Assumption on process – not specified in regulations) Project Development, Investment Governance, PFMA adherence Eskom (Assumption on process – not specified in regulations) Project Development, Investment Governance, PFMA adherence IRP Process according to new regulations (high level) IPP Proposed IRP System Operator to develop With DoE & NERSA Proposed IRP System Operator to develop With DoE & NERSA Approved IRP Minister of Energy Approved IRP Minister of Energy Procurement (bid evaluation, negotiating PPAs) System Operator with the Buyer Procurement (bid evaluation, negotiating PPAs) System Operator with the Buyer Feasibility Study System Operator Feasibility Study System Operator Determination Minster of Energy, with Minister of Finance Determination Minster of Energy, with Minister of Finance

34. Integrated Resource Planning Consultation Process

35. Parameter Sheets Process Input Parameters Using input parameters Develop scenarios Modelling Price cone Security of supply Multiplier effects Carbon effects Gx diversity IRP Outcomes IRP consultation points IRP Key Required Outcomes (Per Scenario) Policy, Facts, Information Method

36. The critical consultation sheets ParameterOwnerKey Outcome Discount rateNTPrice cone Demand ForecastDOESecurity of supply Energy Intensity (Long)DTISecurity of supply Energy Intensity (Short)DOESecurity of supply Economic multipliersNPlanningKey Outcome Rate of ExchangeNTPrice cone InflationNTPrice cone GDPNTPrice cone Cost of energy not servedDOESecurity of supply Price ElasticityNTPrice cone DSMDOESecurity of supply EEDOESecurity of supply DMPSOSecurity of supply ConservationDOE/NERSASecurity of supply Gx Mix ParameterDOEPrice cone CogenerationDOEPrice cone NuclearDOECarbon Funding / FinancingNTPrice cone

37. ParameterOwnerKey Outcome Gx Lifecycle CostsDOEPrice cone Reserve MarginDOESecurity of supply Own GenerationDOEPrice cone ImportsSAPPSecurity of supply Price coneDOEKey Outcome RenewablesDOECarbon WaterDWAFExternality IRP 2010 Approach & Methodology Overview DOEGovernance IRP Consultation Plan DOEGovernance Carbon & Climate ChangeDEATCarbon Carbon taxesDEATCarbon DistributionDOEExternality Base ScenariosDOE/NERSAKey Outcome Gx LocationDOEExternality 37 The critical consultation sheets

38. Key IRP 2010 milestones Key MilestoneDescriptionDate Registration as IRP Stakeholder closed Cut off for registration as an IRP stakeholder 03 rd May 2010 Release of Parameter fact sheets Parameter fact sheets are released to registered stakeholders for inputs 03 rd – 16 th May 2010 Stakeholder WorkshopIntroduction to IRP process and overview presentation 07 th May 2010 Submissions on Input Parameters closed Close submissions on input parameters to allow for collation 22 nd May 2010 Stakeholder WorkshopClose-out workshop on Parameter submissions 21st May 2010

39. Key IRP 2010 milestones Key MilestoneDescriptionDate Modelling StartsThe SO starts the modelling process using the agreed parameter values 01 st June 2010 Modelling completeComplete the modelling and prepare the scenarios 30 th June 2010 Draft IRP sent to Stakeholders Provide stakeholders the draft IRP for comment 5 th June 2010 Stakeholder Workshop Workshop on draft IRP12 th June 2010 Publication of IRP in Gazette Publication of IRP and start of public participation process. 17 th September 2010

40. Conclusion The consultation process is designed to ensure broad consultation BUT also effective consultation. It allows consultation at critical points: –Input stage –Modelling stage –Draft IRP stage We look forward to you participation. 40