DRAFT INTEGRATED ENERGY PLANNING REPORT PRESENTATION TO PORTFOLIO COMMITTEE ON ENERGY

1. DRAFT INTEGRATED ENERGY PLANNING REPORT PRESENTATION TO PORTFOLIO COMMITTEE ON ENERGY 20 AUGUST 2013

2. KEY QUESTIONS • Historical overview of energy planning locally and globally • What is the relationship (and significance thereof) between IEP vs IRP vs MTEF vs NDP vs NGP vs IPAP • How does IEP factor in Eskom Medium-Term Risk Mitigation Plan Coal-based Build Programme including Coal 3, NNBP, Regional Power Pooling Programme, etc • Is there adequate provision of policy, legislative and regulatory framework? • What about institutional arrangements? Are they adequate? • What about the overall preparedness to implement and manage IEP? • Does IEP address skills development, if so how? • What are the assumptions that IEP is based on? • Is IEP iterative just IRP?

3. HISTORICAL OVERVIEW OF ENERGY PLANNING(LOCALLY AND GLOBALLY)

4. HISTORY OF ENERGY PLANNING IN SOUTH AFRICA 1998 2003 2007 2008 2009 2013/14

5. Energy White Paper of 1998 Integrated Energy Planning is not a new paradigm in South Africa • Although the energy sector landscape has changed significantly since, the need for Integrated Energy Planning was already identified in the EWP of 1998 • Emphasised IEP approach that commences with focus on demand: • “To cope with multiple causal linkages, energy policy analysis usually commences with the demand side by means of the process entitled- ‘integrated energy planning’” • “Energy is not an end good in itself, but rather an end-good to be consumed as a means to an end” • Policy must facilitate optimal energy consumption and production to meet social needs • Integrated Resource Planning approach that includes evaluations of the economic, social and environmental implications of all feasible supply and demand side investments • Recognised historical fixation on supply capacity • By virtue of its size and economic importance, investments decisions for new supply capacity, were primarily driven by concerns with maintaining supply (without giving full consideration to economic, environmental and social impacts of all alternatives)

6. ENERGY PLANNING IN SOUTH AFRICA: PRIOR TO 2007

7. ENERGY PLANNING IN SOUTH AFRICA: PRIOR TO 2007 • Overarching Long-Term Energy Sector Plan • Defined scenarios based on an analysis of policy and the environment • Covered the full energy spectrum: Electricity, Liquid Fuel, Renewable Energy, Demand-Side Interventions • Last IEP published in December 2003

8. ENERGY PLANNING IN SOUTH AFRICA: PRIOR TO 2007 • Two-tiered planning approach • DME and NERSA: National Integrated Resource Plan (NIRP) • Focused on electricity infrastructure planning • Informed the detailed investment plans found in the ISEP • Eskom: Integrated Strategic Electricity Plan (ISEP) • A company-specific long-term planning tool which allowed Eskom to make and execute investment plans

9. ENERGY PLANNING IN SOUTH AFRICA: PRIOR TO 2007 • Planning executed by individual companies. • Focus on individual supply and demand planning for commercial purposes • Independent studies conducted collectively to establish supply constraints within the industry • No integrated or coordinated plan before ESMP of 2007

10. KEY DRIVERS FOR CHANGE • Energy crisis showed need for coordinated planning • Liquid Fuels shortages in 2005 • Electricity disruptions in 2006, 2007 & early 2008 • Disparate plans created potential for contradictory initiatives and activities • No integrated or coordinated view of- • energy sector • impacts of the different plans • The need for the ability to develop • Numbers-driven or fact-based energy plans • Analytical tools to evaluate proposed energy policies

11. ENERGY PLANNING IN SOUTH AFRICA: 2007

12. ENERGY PLANNING IN SOUTH AFRICA: AFTER 2007

13. ENERGY PLANNING IN OTHER COUNTRIESLESSONS LEARNT FROM IEA MEMBER COUNTRIES • An analysis was conducted long-term energy policy development and planning in some of the member countries of the International Energy Agency (IEA) – (e.g. Austria, Belgium, Canada, the Czech Republic, Italy, Japan, Luxembourg, the Netherlands, Norway Spain and Sweden) by drawing on various pieces of research and work which had been undertaken through different studies over the years • Special focus on the use of long-term scenarios and forecasting for energy and climate change policy development and planning • Many IEA member countries use long-term energy forecasts and scenarios, though there are some differences in their time horizons and roles

14. ENERGY PLANNING IN OTHER COUNTRIESFROM ENERGY SECURITY TO THE “3 E’s” • At the IEA Governing Board Meeting at Ministerial Level on 6 October 1977, Ministers reviewed world prospects of energy demand and supply, and expressed the determination of the IEA member countries to reduce the risk of severe economic, social and political consequences of a shortage of energy supply • Initial planning was oriented on conducting long-term energy forecasts to understand future possible supply constraints. Due to this strong interest to plan adequately, IEA members countries worked on continuously improving forecasts of energy demand and supply on a global scale and as a basis for decision making • Energy forecasts were thus used primarily to predict possible risks and avoid them by taking the right measures and in order to ensure energy security, but their role today seems to cover broader, more complex energy issues. • Through time, over and above energy security, environmental issues and climate change have started to take centre stage. As energy consumption and CO2 emissions are inextricably linked, long-term energy policy development has over the last decade and longer often been conducted in conjunction with long-term climate change policy • With the paradigm shift to sustainability, stonger emphasis has also been put on focusing on the 3E’s (Energy Security, Economic Growth and Environmental sustainability) during long-term planning

15. ENERGY PLANNING IN OTHER COUNTRIESSCENARIO PLANNING AS A TOOL FOR LONG-TERM PLANNING IN AN UNCERTAIN ENVIRONMENTS • Dynamic changes within the energy sector (e.g. the growing interdependence between producing, consuming and transiting countries) made it continually difficult to forecast the energy future, especially in the long term • It thus became more effective to explore alternative pathways or scenarios rather than focus on just one. This approach enabled policy-makers to choose from among a series of events that are likely to have an impact on the energy future and take them into account in their policies. • Some key challenges that increase the level of uncertainty included: • Energy no longer seen as only a commodity as it is linked to some difficult political issues • Development of energy resources largely depends on human activities and decisions and it is therefore difficult to assess the future economic, social, political and technological contexts which influence such developments • The longer the planning horizon, the less accurate any forecast will be. It is therefore wiser to devise various scenarios, making room for possible changes, in order to enable policy choices. • IEA publishes a quantitative analysis of energy supply and demand in the medium and longer term in its annual World Energy Outlook (WEO). Results are provided sector by sector and region by region. The WEO provides various scenarios: the reference scenario which assumes no change in policy; and alternative policy scenarios which analyse the impact of a range of possible future policy interventions.

16. 2007 CASE STUDY: NORWAY National Planning for the electricity sector • Ministry of Petroleum and Energy (MPE) • Norwegian Water Resources and Energy Directorate (NVE) • Energy planning is decentralised and occurs at different levels • Power companies responsible for plans within area of operation which are submitted to local authorities • Planning by local authorities, influences regional planning, which in its turn provides input towards transmission planning by National Transmission Operating Company (Statnett) • Centralised assessment and coordination of plans done by NVE • The Energy Act: • Regulates Norway’s power system, through the issuing of licences for such diverse activities as power line construction, local area operations, trading and district heating. • Regulations relating to energy planning: • Provide for coordinated power system planning, a platform for the processing of licence applications, the contents of energy plans for the national or regional grids, as well as the definition of various roles for energy planning purposes.

17. 2007 CASE STUDY: US (1/3) • ‘Oil independence’ and energy security was one of the key drivers for long-term energy planning in the US • The form in which energy planning has taken place has evolved over the years, with the main emphasis being on collecting the relevant data required Energy planning • Department of Energy: Responsible for federal energy policy • Energy Information Administration (EIA) • Rendered “the single Federal Government authority for energy information” • Independent from the DOE and the rest of government • A number of pieces of legislation have been enacted to expand the EIA’s data gathering and analysis activities • The collection of energy information, as well as its analysis and dissemination, has been supported by comprehensive legislative provisions, which have taken a number of years to develop, and have largely been the result of supply-side shocks and the policy thrust of ensuring energy security

18. 2007 CASE STUDY: US (2/3) • The energy information collected, analysed and disseminated by the EIA, is used primarily to facilitate public policy decision-making (e.g. by Congress) and commercial decision-making (by the private sector) • Owing to the competitive nature of the US energy industry, the EIA’s focus is therefore limited to energy modelling at federal level (i.e. analysis of information and simulation of scenarios) and information dissemination • Planning, which involves decision-making about the courses of action to take given available information, is therefore a separate process, largely performed in a decentralised manner by the private sector • The information used and provided by the EIA reflects the competitive nature of the US energy industry. For example: • Equilibrium market prices given demand and production levels, as opposed to prices determined on the basis of economic regulatory processes • No explicit indication of logistic infrastructural requirements (e.g. capacity expansion requirements for petroleum pipelines or transmission lines) is provided

19. 2007 CASE STUDY: US (3/3) • A ‘policy-neutral ‘ approach is used to determine the reference scenarios – i.e such scenarios are modelled solely on the assumption that existing policies, legislation and industry structure, known technology, etc. prevail • The scenarios are then used as a basis for assessing ‘what-if’ questions, either by the EIA itself, or other entities. This essentially means that the EIA does not engage in policy formulation or advocacy, although its analysis is often used in support of DOE initiatives. • Some of the EIA’s primary products include the Annual Energy Outlook (which details annually revised projections over the period 25 to 30 years into the future. • Further, specific reports are compiled as and when required for policy-making (e.g. as per requests from Congress

20. ENERGY PLANNING IN OTHER COUNTRIESENERGY PLANNING APPROACHES • Industry structure determines the nature and role of publicly available information, as well as its use in planning. • Where an industry is monopolistic (or oligopolistic), detailed information, including on operations, investment plans and costs, is generally required for regulatory agencies to approve proposals from regulated entities, the main aim being to mitigate any market-power effects that may arise from strategic or operational decisions. • In a competitive industry, however, the only information that tends to be publicly available is on prices (and perhaps market-shares), while the rest of the information is kept closely guarded (by the market players) for commercial reasons.

21. ENERGY PLANNING IN OTHER COUNTRIESENERGY PLANNING METHODOLOGIES • There is no single prescribed or best suited method or process for long-term planning or for developing long-term energy plans • Different countries use different methodologies for long term planning and in most instances the choice of methodology has been informed by various factors such as data availability, purpose of the plan, existing planning frameworks and systems • Market structure and key players within the market is also a key determinant to the approach to plan • The critical factor is to ensure that the methodology followed is well understood, transparent and all-inclusive • The structures and systems should also be put in place to ensure that the process is repeatable

22. The EWP envisaged a liquid fuel industry of ‘limited Government intervention and regulation” The key policy challenge for government was “to determine the appropriate level of involvement during the transition to a rapidly globalising and internationally competitive environment” South Africa as a “developmental state” Aligned with ‘transition’ phase as espoused in EWP “State should maintain strategic role in shaping the key sectors of the economy… (intervening strategically to drive growth, development and transformation of the structure of the economy)” APPROACH TO INTEGRATED ENERGY PLANNING IN SOUTH AFRICA The role of Integrated Energy Planning has changed with the changing landscape of economies EWP Developmental State

23. RELATIONSHIP BETWEEN IEP AND OTHER NATIONAL POLICIES

24. ALIGNING OBJECTIVES AND STRATEGIES A’s) IEP

25. ALIGNING OBJECTIVES AND STRATEGIES A – Objectives B – Assumptions C – Policy options/choices D – Recommendations

26. HIGH-IMPACT POLICIES NEW GROWTH PATH, NATIONAL DEVELOPMENT PLAN The IEP seeks to quantify and provide feedback on the extent to which policy objectives outside the sector may impact on the attainment of energy sector imperatives and vice versa

27. ENERGY VALUE CHAIN Integrated energy planning seeks to consider all the key elements of the energy value-chain

28. ILLUSTRATION IEP INFORMS DEVELOPMENT OF FUTURE ENERGY SECTOR ROADMAPS Natural Gas Strategy IEP TAKES INTO CONSIDERATION EXISTING POLICIES

29. ADEQUACY OF LEGISLATIVE FRAMEWORK AND INSTITUTIONAL ARRANGEMENTS

30. LEGISLATIVE FRAMEWORK • The IEP is legislated in the National Energy Act of 2008 and is a policy which should guide, inter alia, infrastructure investment and development to ensure energy security in the country • The Energy Act does not provide the Minister of Energy any powers to enforce the implementation of the recommendations of the IEP. This is a key challenge which in the worst case can mean that the IEP can become a policy document which is never instilled into existing or future government policies and whose recommendations do not inform infrastructure investments • However not all government policies have a legislation to ensure their implementation and implementation is enabled through the MTSF process

31. WAY FORWARD • The IEP is legislated in the National Energy Act of 2008 and is a policy which should guide, inter alia, infrastructure investment and development to ensure energy security in the country • The Energy Act does not provide the Minister of Energy any powers to enforce the implementation of the recommendations of the IEP. This is a key challenge which in the worst case can mean that the IEP can become a policy document which is never instilled into existing or future government policies and whose recommendations do not inform infrastructure investments • However not all government policies have a legislation to ensure their implementation and implementation is enabled through the MTSF process

32. HIGH-LEVEL STAKEHOLDER ENGAGEMENT PROCESS

33. HIGH-LEVEL PROCESS

34. HIGH-LEVEL PROCESS

35. THANK YOU