1. S Damba Senior Scientist- ISEP-Eskom Presentation to Infrastructure Workshop National Integrated Resources Planning

2. National Integrated Energy Planning Integrated Strategic Electricity Planning

3. National Integrated Energy Planning

4. Energy White Paper: December 1998 The Department of Minerals and Energy will ensure that an integrated resource planning approach is adopted for large investment decisions by energy suppliers and service providers, in terms of which comprehensive evaluations of the economic, social and environmental implications of all feasible supply and demand side investments will have to be undertaken

5. Energy Overview: Energy Flows SUPPLY TRANSFORMTRANSPORTEND USE Oil Natural Gas Coal Gas Electricity Eskom and Others Coal PetroSA Export Sasol Road/Rail Pipeline Oil Refineries Rail Road Pipeline Liquid Fuels Biomass Wood Person/Road Hydro Nuclear Transmission Wires “Washery” Koeberg Sasol

6. Primary Energy Supply

7. Final Sectoral Energy Consumption

8. Electricity: Generating Capacity

9. Oil Refinery : Capacity FacilityBarrels/day (Crude or equivalent Calref (Capetown: Caltex)100 000 Sapref (Durban: BP/Shell)180 000 Genref (Durban: Engen)105 000 Natref (Sasolburg: Sasol/Total)86 000 Sasol (Coal to Liquid)150 000 PetroSA (Gas to Liquid)45 000 TOTAL666 000 Diesel/Petrol Mismatch Addressed through Diesel Export

10. South Africa Energy Resources Energy CarrierReserve/ResourceComment Coal55 billion tonnesCoal technology well developed and inexpensive. Coal resources/reserves are currently under re- appraisal. OilPPotential reserves (P90) 40 million barrels. Oribi/Oryx audited remaining reserves 12 million barrels plus Sable field reserves of 150 million barrels sufficient for four years production. Untested deep-water potential. Natural GasReserves (P50): 1.3 tcf Potential (resource): 25 tcf F-A/E-M and satellites audited (P50) 0.5 tcf and 11.8 million barrels condensate plus Ibhubesi field. Upside potential of untested areas. Uranium261 000 TonnesUranium beneficiation (conversion and enrichment) and fuel fabrication are done outside the country. Hydro~300 MWe potentialSouth Africa classified as a “water stressed” country and therefore has limited potential for hydro-power. RenewableUndefinedLargely untapped solar based resource that is variable depending on weather conditions. Non-commercial biomass energy mainly used in rural areas and is currently not being replenished. Technologies not fully developed and expensive.

11. Integrated Energy Planning IEP involves estimating how much energy needs all the different end-users will need in the future to deliver certain services; and then identifying a mix of appropriate sources and forms of energy required to meet these energy service needs in the most efficient and socially beneficial manner

12. Integrated Energy Planning Methodology Computing Tools –Simulation –Capacity expansion and optimization Data Scenarios to be modelled Stakeholder involvement –Workshops –Surveys –etc

13. History of IEP in RSA IEP 1 was completed in 2002 – Consultants commissioned to develop IEP1 IEP 1 report published in 2003 Report available on the DME website- www.dme.gov.za DME currently in the process of conducting IEP 2 in house

14. Background on IEP 1 Drivers Security of Supply Government Policies –diversification –poverty alleviation –job creation –Energy efficiency targets –Renewables targets –Energisation policies International Commitments, Pressure and Co-operation –CDM, Kyoto, Carbon trading, globalisation Economic Growth Availability of Resources –Financial, –human –capital –energy reserves Demographics –Population growth –Urbanisation and migration –Health hazards (HIV, TB etc.) Technological Developments –Research and Development Fuel Prices Political Stability

15. Background on IEP 1 cont (1) Assumptions –20 year planning period (2001-2020) –Process performance data and costs and commodity prices at 1 January 2001 values –1$=R8 (2001) –Net discount rate 11% –Inflation rate 5.5% (SARB target 3-6%) –GDP growth rate 2.8% pa –Population growth rate declining over time 44-57 million between 2001-2020 Modelling requirements –Leap-Simulation –Markal-Optimization

16. Background on IEP 1 (2) IEP1 Scenarios –“Baseline Simulated” scenario is “business- as-usual”, continuing present trends based on coal; – “Baseline Optimised” optimises that scenario on least cost, taking into account energy efficiency and fuel switching; – “Siyaphambili Simulated” scenario promotes fuel diversification away from coal, prescribing other energy technologies at set times; and – “Siyaphambili Optimised” optimises that scenario based on least cost, using energy efficiency and fuel switching. Simulated: Options prescribed Optimised: Least Cost

17. Scenario Outputs: Description Baseline SimulatedBaseline OptimisedSiyaphambili SimulatedSiyaphambili Optimised Electricity Generation Based on coal as primary fuel source: o builds 3556MWe mothballed PF Stations from 2007 o Four sites for new 6X640MWe dry- cooled coal-fired plants with FGD from 2013 o 1x750MWe CCGT plants in 2014 o Four sites with each 3x333MWe pumped storage plants from 2011 o 5x240MWe simple cycle gas turbines (oil) for peaking built at max rate of one pa. from 2011 o No new hydro imports, nuclear, renewable energy sources are built o Builds 3556MWe mothballed PF Stations from 2011 o Builds Four 6X640MWe dry-cooled coal-fired stations without FGD from 2015. o Build pumped storage plants from 2011 o No new hydro imports, nuclear, renewable energy sources are built New technologies built before new coal options as specified: o 3556MWe mothballed PF Stations from 2007 at a max rate of 500MWe/a o 3x750MWe CCGT plants in 2005, 2006, 2007 using Kudu gas o 1X750MWe CCGT using Pande gas in 2014 o Builds part of the four sites with each 3x333MWe pumped storage plants from 2011 o 2684MWe imported Hydro Electricity from 2008 at max rate of 550MWe/a o 125MWe PBMR in 2005 followed by 250MWe/a from 2008 with a max of 1375MWe. o 2333MWe new FBC built at max rate of 466MWe/a from 2015 o 5x240MWe simple gas turbines (oil) for peaking at max rate of 1 pa from 2020 o 5% of electricity generation supplied by renewable options as specified by DME o New 6X640MWe dry-cooled coal- fired plants with FGD are only considered once previous alternatives are built o Builds 3556MWe mothballed PF Stations at a max rate of 500MWe/a from 2018 o Builds 1X750MWe CCGT using Pande gas from 2014 o Builds pumped storage plants from 2011. o Builds 2333MWe new FBC built at max rate of 466MWe/a from 2020 o Builds 5x240MWe simple gas turbines (oil) for peaking built at max rate of one pa from 2020 o No new hydro imports, nuclear, renewable energy sources are built Liquid Fuels o All the oil refineries increase their capacity to 307 million bbl/year o Imports of finished liquid fuel products to meet increased demand. o All the oil refineries increase their capacity to 307 million bbl/year o Imports of finished liquid fuel products to meet increased demand o All the oil refineries increase their capacity to 307 million bbl/year o Imports of finished liquid fuel products to meet increased demand. o All the oil refineries increase their capacity to 307 million bbl/year o Imports of finished liquid fuel products to meet increased demand. Energy Demand No active fuel switching or energy efficiency measures o Moderate uptake of efficient practice, high during times of low capacity, from 2005 onward. o General switching to coal and some biomass away from electricity and oil. Increasing the system efficiency. o In the transport sector there is switching from oil to electricity. Partial taxi-recapitalisation takes place. Generally there is also a move away from petrol to more efficient diesel vehicles. Moderate fuel switching to gas, and switching from petrol to diesel due to petrol taxi recapitalisation. o High uptake of energy efficient practice especially during times of low power plant capacity from 2005 onward. Fuel switching away from oil and electricity to natural gas. At the end of the period there is some switching from electricity to oil, when the marginal cost is of electricity is high. At the beginning of the period there was some fuel switching from oil to electricity, especially in the transport sector. o In the transport sector there is partial petrol taxi recapitisation, and a move toward electric trains, especially during the beginning of the period. Generally there is also a move away from petrol to more efficient diesel vehicles.

18. Scenario Outputs: Costs wrt Baseline Simulated Siyaphambili Simulated: –More expensive –Gas combined cycle plants, renewable energy, PBMR, imported electricity implemented early instead of coal. Siyaphambili Optimised –Less expensive –Energy efficiency, fuel switching (oil to electricity and gas, electricity to gas) delays the onset of new electricity generation and liquid fuel refineries Baseline Optimised –Less expensive –Efficiency measures, fuel switching (electricity and oil to coal) delays the onset of new electricity generation and liquid fuel refineries

19. Integrated Strategic Electricity Planning in Eskom

20. Context for planning in Eskom It is a cross-functional process intended to optimise the investments required in new Generation capacity The objective is to provide a reliable supply of electricity of adequate quality at a cost effective price for: –Optimal utilisation in the total energy market –New investment to grow the electricity market –Maximising shareholder value With due attention to environmental and externality considerations

21. What is the demand for electricity likely to be? How can Eskom influence that demand? How can Eskom meet that demand? What should Eskom’s strategy be, in the light of various constraining factors? Eskom, like every other electricity supplier, has to answer 4 questions...

22. Answering these questions in the medium- term and long-term forms part of Integrated Strategic Electricity Planning (ISEP), Eskom’s long-term planning activity (5-20 years). In the USA and elsewhere, this activity goes under the generic name of Integrated Resource Planning (IRP). The IRP methodology can also be applied to gas, water, other forms of energy, etc.; in short, to plan economic allocation of any resource.

23. Electricity is vital to the successful development of the economy. It is critical that resources are optimally utilised. There are long lead times to build new coal mines, new power stations, transmission and distribution networks, etc. High investment costs; assets must be fully used to be productive Keep the ship on course in a complex environment….. Why does Eskom need ISEP ?

24. Eskom’s Environment NEPAD realisation Ageing plant Below inflation increases Rand strength and volatility ESI and EDI restructuring Volatile oil and gas prices Diversification challenges Skills shortages Environmental pressures

25. ELECTRICITY INDUSTRY SPECIFIC LONG TERM STRATEGIC PLANS ESTABLISHED IN THE CONTEXT OF THE REGULATORY ENVIRONMENT DEFINES OPTIMAL BUSINESS STRATEGIES MAXIMISE COMPETITIVE ADVANTAGE - DEFINE CUSTOMER REQUIREMENTS FACILITATE DECISION MAKING FOR COMPETITIVE SUPPLY AND DEMAND SIDE BEHAVIOUR AND MIX NATIONAL INTEGRATED ELECTRICITY PLAN ESTABLISH MACRO PLAN BASED ON NATIONAL ENERGY PLAN DEFINES OPTIMAL CONDITIONS FOR THE ELECTRICITY SECTOR MAXIMISE NATIONAL ADDED VALUE - INCLUDING DESIRABLE SUPPLY AND DEMAND SIDE BEHAVIOUR AND MIX - EG ELECTRIFICATION SOUTH AFRICAN NATIONAL POLICY NEPAD, GEAR, ENERGY, ENVIRONMENTAL, WATER POLICIES ETC NATIONAL INTEGRATED ENERGY PLAN DEVELOP STRATEGIES FOR KEY ISSUES, LIQUID FUELS, ELECTRICITY, NUCLEAR, COAL, RENEWABLES, REGULATION, ETC SA GOVT DME NER ESKOM, MUNICS ETC South African Context

26. National IRP The National Integrated Resource Plan (NIRP) is developed and published under the auspices of the NERSA Because the requisite expertise within Eskom, Eskom has assisted in the production of the NIRP 1 & 2, under the guidance of the (old) NER-chaired Advisory and Review Committee (ARC), (individuals appointed by the NER), which also assists in defining the relevant assumptions and data inputs This process uses public domain data pertaining to new investments, rather than confidential data from any specific stakeholder

27. What are the basic steps in the ISEP process ? Forecast energy and load shape Identify demand side options Identify supply side options Determine appropriate combination of above Evaluate risk and uncertainty Select and justify preferred plan

28. Energy and load shape forecast

29. Eskom & SA electricity sales market - 2004 Elec & wat Economic sectors Traction Mining Industry Commerce Agriculture Residential Prepaid Eskom generation Imports Munics & Industrial generation Foreign 1.5% 39.0% 15.9% 29.8% 7.5% 6.3% Others 5% of RSA Eskom (95% of RSA) RSA - Industry 51.0% - Mining 16.8% - Commerce 9.5% - Agriculture 3.5% - Residential 17.5% - Transport 1.7% 100%

30. Long term sales forecast methodology Sectoral approach - disaggregate the market More than 100 individual sectors Sound knowledge of international and local economy In depth analysis and research of sectors Analyse and consider market trends Use of customer input Correlation between GDP and electricity growth? Monitor actual SO growth weekly and sales growth monthly Regularly update track record of forecast Cross-check with Eskom colleagues Methodology successfully used & refined over 12 yrs

31. Long term sales forecast credibility How good is the methodology ?? ISEP process audited by external consultants in 2002/3 Audit report by Technology Audit Department expressed confidence in methodology in 2003/4 Methodology acceptable to NERSA and EIUG Cone approach followed to address uncertainty Forecast done in 1995 for 2004 - 205475 GWh vs actual for 2004 of 206800 GWh - variance of 1325 GWh (200MW) or 0.6% Long term track record - see graph

32. Long term forecast performance

33. Comparison of Eskom and Independent Forecast

34. Sales forecast – main assumptions (1) Proposed new major projects included: - Coega aluminium smelter, Billiton HS expansions, Ticor expansion, Namakwa expansion, Sasol expansions, Mozal expansion & Gamsberg - Platinum mining expansions - Unforeseen future major projects over LT Considered closing of existing plant where known Included known changes in LT trends e.g. gold mining output will continue its slow decline

35. Expect large producers to continue to adapt to changes in commodity and metal markets Electricity intensity expected to decrease over time - improved energy efficiency - structural changes in economy Price of electricity to remain competitive and affordable Considered new developments e.g. fuel cells and gas Sales forecast – main assumptions (2)

36. System Disaggregation - Average Winter Week in 2016

37. Identify demand-side management options

38. DSM Process by which electric utilities achieve predictable or influence changes in customer demand Considered as alternatives to the provision of additional generation plant. But do not necessarily replace supply side management options Includes load management and energy efficiency Benefits –Participant Financial savings –Utility: Lower cost than generation plant Lower lead time to implementation –Nation: Better utilisation of national resources Lower environmental impact Job creation

39. DSM can be implemented at a lower cost than building a new power station…

40. R/MW Comparison of DSM and Supply Side Options between 6&7pm 0 2 4 6 8 10 12 14 16 New Pump Storage New Coal-fired IMEE - Efficient Lighting CEE - Efficient Lighting CEE - VSD IMEE - VSD IMEE - Fans&Pumps CEE - Fans&Pumps REE - HW Insulation ICLM RLM REE - Efficient Lighting R/MW DSM OptionsSupply-side Options

41. …. And DSM can be implemented much quicker than building a new power station….

42. DSM target 4255 MW saving over 20 years ….. basically a saving of one of these…

43. Identify supply side options

44. Many capacity projects in funnel Build 1000 800 1700 110 Feasibility, Business Case, Contract Concluding Pre-feasibility Research Opportunity Identification PBMR Monontsa Hwange 5800 Greenfield FBC Komati FBC 150 Morupule Ext 1500 Moatize 1800 Matimba FBC Matimba & Lethabo 1130 Grootvlei Camden Arnot Inga 1 & 2 Refurb 800 Kafue W Westcor W Scheme D W Steelpoort W Braamhoek 600 Cahora Bassa Kudu 800 Saldanha GT 1000 OCGT 1000 Coega GT 3572 Orange River Hydro 3800 Inga 3 1300 Mphanda Nkuwa Pande / Temane 240 Richards Bay FB 75 Zonga / Sanga 40000 Grand Inga HCB 5 th Unit 20 Gove Dam W Lunsemphwa & Mulungushi Swaziland PS Van Eck PS Coal Fired PS Nigeria 4000 Vaal Triangle 2400 BPC New PF 3600 Kendal Arnot Ph3 200 Koeberg Upgrade W Epupa Falls 920 Komati Coal Transport UCG 7 th Units LNGI GT - Coal W - Hydro - Nuclear - Gas - Coal Pipeline 23 157 MW (excl. Grand Inga) 13 600 MW (excl. WestCor) 7 582 MW

45. … lets look at certain of these options in more detail….

46. Simunye (MothBalled Plant)  Camden  Grootvlei  Komati  Scheduled to return to service from 2005- 2011

47. New Gas-Fired Plant  Simple Cycle Gas Turbine  Combined Cycle Gas Turbine  Kudu (Namibia)  potential for about 2000 MW along South African West Coast  Pande (Mozambique)  potential for about 1000 MW along KwaZulu-Natal coast  Other potential being explored

48. (Relative) Merits of Gas Fired Generation Advantages –Lower lead time to construction –Lower environmental impact than coal fired stations –Lower capital cost –Location Disadvantages –Gas price volatility –Growing concerns over global gas supply –Cost of fuel

49. New Hydro-Electric Plant  Imported Power  Mepanda Uncua (Mozambique)  Cahora Bassa North (Mozambique)  Inga 3 (DRC)  Grand Inga (DRC)  Batoka Gorge (Zimbabwe)  Kafue Lower (Zambia)  Kariba North (Zambia)

50. Click to add title GABON CONGO ZAIRE Kolwezi ANGOLA Matala ZAMBIA KENYA UGANDA TANZANIA MALAWI MOZAMBIQUE Ruacana NAMIBIA Windhoek BOTSWANA Gaborone ZIMBABWE REPUBLICOF SOUTHAFRICA SWAZILAND ApoloSubs CahoraBassa LESOTHO Inga RWANDA BURUNDI Capanda 350 Kariba Kafua 450 Batoka 600 C Basa 1400 450 Ipupa Ruacana 240 Capanda 600 3000 Inga 500 40000 2500 Mepanda Nkua Future Southern Africa Hydro Plants? Total Potential ~ 52,000 MW

51. Renewables www.sabregen.co.za  Bulk Supply of Electricity (Sabre - Gen)  Bulk Solar Thermal (DFS underway plus small scale dish stirling))  Large Wind Turbines (EIA for demo facility 2002)  Biomass Generation (Desk top study)  Wave/Tidal Generation (Desk top study)  Stand alone systems  Photovoltaics - implemented  Fuel cells - pilot planned - 2003?  Biomass - small scale pilot  National renewable resource database

52. Identify and manage risks

53. What is meant by Risk Today, planners have to deal with: –Multiple conflicting objectives –A broad range of options –Pervasive uncertainty Risk is the hazard resulting from uncertainty and is characterised by the following properties: –the likelihood of making a regrettable decision (robustness) –the amount by which the decision is regrettable (exposure)

54. Some Uncertainties Plant failure leading to longer than expected plant outage; Unavailability of municipal / Eskom / imported generating capacity; Degree of market penetration of DSM and maintaining current level of interruptible loads; Unexpected decrease / increase, spurious or sustained, of electricity demand; Changes to the load shape associated with the forecast electricity demand; Unexpected decommissioning / de-rating of existing generating capacity Uncertain and prolonged lead times for building new plant; Project slippage Inclusion of co-generation options; Embargoes on nuclear energy; Shortage of skills to maintain and grow the system; Other energy forms displacing electricity in the energy market; Revolutionary technologies coming on the scene and stranding existing assets; Internalisation of externalities, such as introduction of a carbon tax and environmental levy; Plant life expectations not met; Deterioration in credit rating, exchange rates etc. resulting in a higher cost of capital; Electricity supply and sales contracts (import and export contracts) being reneged upon; Effect of AIDS on the electricity market. Drought and Floods

55. Select and justify the preferred plan

56. Typical Levelised cost of Supply-side options Life cycle levelised cost to build and operate base-load supply-side options Load Factor Levelised Cost Nuclear consisting: 10X110MW PBMR 4X114MW Fluidised Bed Combustion Coal-fired, 6X640MW Dry-cooled, PF plant with Flue Gas Desulphurization 3 X750MW Gas Combined Cycle plant (CCGT) using off-shore gas 750MW CCGT using On-shore Gas

57. Typical Levelised cost of Supply-side options

58. Multi-criteria problem! We want power stations that are: –Low cost –Contributing to NEPAD (imports) –Environmentally friendly –Creating jobs for South Africans –Perfectly reliable –Low risk –…….. Unfortunately no power plant option can satisfy all the above We need to decide which criteria are more important than others and apply investment portfolio theory to select an optimal set of investments

59. What criteria should Eskom use to select between different possible plans?

60. Capacity Outlook (IL De-rated)

61. Illustrative Independent Power Producer Plan

62. Thank you!