INTEGRATED ENERGY PLAN PRESENTATION PORTFOLIO COMMITTEE ON ENERGY 20 NOVEMBER 2012

HIGH-LEVEL APPROACH

Key planning parameters and assumptions

BASE CASE The Base Case (also referred to as Baseline or Reference Case) encapsulates the state of energy demand and supply over the planning horizon, which is most closely informed by current energy market trends; the national macroeconomic outlook; assumed energy prices; existing energy infrastructure and the existing suite of policies and government programmes The Base Case is not a representation of the most likely future or most likely scenario, but is rather a simplistic representation of a future outcome that could materialise in light of current policies and macroeconomic trends. It represents a Business-As-Usual or Status Quo scenario where current trends continue into the future.

TEST CASE A deviation from the status quo where current trends do not continue into the future and deviations are as a result of specific policy interventions. A Test Case therefore defines a set of circumstances and resultant outcomes or impacts which is informed by the possible impacts of policies and policy interventions. A Test Case does not indicate what will happen but rather tests what could happen if a particular course of action takes place. While Test Cases are sometimes also referred to as scenarios, for the purposes of common interpretation, a Test Case is specifically differentiated from a scenario in that a scenario is largely influenced by exogenous forces which the policy maker has no control over.

KEY GLOBAL PLANNING PARAMETERS

KEY BASE CASE ASSUMPTIONS

HIGH-IMPACT POLICY:COMMITTED IRP 2010 The IRP committed build plan is included in the Base Case

POLICY-DRIVEN PARAMETERS Annual Emissions Limits Emissions Penalties Minimum Renewable Energy Production Reserve Margin

POLICY-DRIVEN PARAMETERS: MINIMUM RENEWABLE ENERGY PRODUCTION Electricity: Will be based on total renewable energy in IRP2010 Liquid Fuels/Petroleum: Regulations on Blending of Biofuels not yet promulgated

RESERVE MARGIN The Energy Security Master Plan for Electricity, ESMP-Electricity, of 2007 recommended a reserve margin of 19% for electricity generation capacity in South Africa A reserve margin of 19% indicates the point where the trade-off between costs and reliability is minimum. (Based on costs as calculated during the drafting of the ESMP 2007)

MACROECONOMIC INDICATORS Discount Rate: 11.3% as provided by National Treasury Economic Growth: Based on National Treasury 2012 Budget Forecast (Provided prior to the 2012 Medium-Term Budget Policy Statements - MTBPS) Global Oil Price: Based on the Energy Information Administration (EIA) Annual Energy Outlook 2012 (AEO2010) Projections

GDP GROWTH RATE GDP growth scenarios are based on National Treasury 2012 Budget Forecast Base Case: GDP growth forecasts will be based on “Moderate Growth Scenario”

GDP GROWTH RATE

Historical Projections 2011 GDP GROWTH RATE

GLOBAL OIL PRICE PROJECTIONS The Global Oil Price projections made by the Energy Information Administration (EIA) on an annual basis within the Annual Energy Outlook, 2012 (AEO2012) have been used as a basis for the projection of future global oil prices for the purposes of the IEP The AEO2012 makes projections for High, Moderate and Low price scenarios which are informed by various assumptions about the global geopolitical and macroeconomic environment. The AEO2012 global oil price projections are defined as the average price of crude oil similar to the price for West Texas Intermediate (WTI) crude oil, which is traded on the New York Mercantile Exchange Although daily spot prices of crude oil from different sources vary, trends for annual averages are similar and therefore the AEO2010 projections deemed independent and reliable source of future projected prices Projections up to 2035: The key assumptions which inform the global oil price projections and the actual projections have been taken directly from the Annual Energy Outlook 2012, which has projections up to 2035. Projections from 2036 to 2050: The oil prices from 2036 and 2050 have been extrapolated using a straight line based on the average price increases of each of the three scenarios from 2012 to 2035. (More information available in the Annual Energy Outlook 2012 which is available at www.eia.doe.gov)

GLOBAL OIL PRICE PROJECTIONS Historical Prices 2010 Projections from AEO2012 Extrapolation to 2050

ASSUMPTIONS FOR VARIOUS TEST CASES

TEST CASES

ANNUAL EMISSIONS LIMITS The South African Government has made a commitment to reduce emissions by 34% by 2020 and 42% by 2025 which was informed by the outcomes from a study on the Long-Term Mitigation Scenarios (LTMS) Two scenarios: “Business As Usual” which led to a range of trajectories - BAU lower and upper bounds “Required by Science” which led to the “Peak Plateau Decline” emissions trajectory The findings of the LTMS study also determined that South Africa’s energy use emissions constituted just under 80% of total emissions, of which the majority arose from electricity generation (40% of total emissions) in 2000. Emissions from oil refining and production of synthetic fuels (CTL and GTL) were estimated to contribute 9% towards total emissions. Therefore, total emissions from the energy transformation and conversion processes contributes approximately 49% towards total emissions. The “Peak Plateau Decline” trajectory will inform the emissions constraints for electricity generation and petroleum refining in one of the IEP Test Cases

TEST CASES

EMISSIONS PENALTIES In 2010, the National Treasury published a discussion document on a proposed carbon tax policy The policy document is near finalisation and could potentially be promulgated in the short-to-medium term The introduction of a Carbon Tax has significant implications for the energy sector and will be considered as a Test Case in the IEP

TEST CASES

progress to date

HIGH-LEVEL WORKPLAN

THANK YOU

INTEGRATED ENERGY PLAN PRESENTATION PORTFOLIO COMMITTEE ON ENERGY 20 NOVEMBER 2012