The National Energy Bill

1. The National Energy Bill The DME briefing National Council of Provinces Select Committee on Economic and Foreign Affairs 2 September 2008

2. The team from Department Nhlanhla Gumede DDG Hydrocarbons & Energy Planning Zombango Nondabula Energy Officer � Petroleum Regulation Elias Modiba Energy Officer - Energy Planning Tembile Vilo Director General�s office Kwazi Mhlongo Director General�s office

3. Long title To ensure that diverse energy resources are available, in sustainable quantities and at affordable prices, to the South African economy in support of economic growth and poverty alleviation, taking into account environmental management requirements, and interactions amongst economic sectors; to provide for energy modelling and planning, increased generation and consumption of renewable energies, contingency energy supply, holding of strategic energy feedstocks and carriers, adequate investment in, appropriate upkeep of and access to energy infrastructure; to provide measures for the furnishing of certain data and information regarding energy demand, supply and generation; to establish an institution to be responsible for promotion of efficient generation and consumption of energy and energy research; and to provide for matters connected therewith.

4. Objects of the Act (cont) 2. The objects of this Act are to� (a) ensure uninterrupted supply of energy to the Republic; (b) promote diversity of supply of energy and its sources; (c) facilitate effective management of energy demand and its conservation; (d) promote energy research; (e) promote appropriate standards and specifications for the equipment, systems and processes used for producing, supplying and consuming energy; (f) ensure collection of data and information relating to energy supply, transportation and demand; (g) provide for optimal supply, transformation, transportation, storage and demand of energy that are planned, organised and implemented in accordance with a balanced consideration of security of supply, economics, consumer protection and a sustainable development;

5. Objects of the Act (cont) 2. The objects of this Act are to� (h) provide for certain safety, health and environment matters that pertain to energy; (i) facilitate energy access for improvement of the quality of life of the people of Republic; (j) commercialise energy related technologies; (k) ensure effective planning for energy supply, transportation and consumption; and (l) contribute to sustainable development of South Africa�s economy.

6. Energy policy formulationHow do we evaluate the impact of our policies

7. Energy policy formulationPolicy impacts depend on where you sit

8. BackgroundSome facts

9. Some of us would argue that we do not have an electricity but an energy challenge

11. BackgroundSome facts

12. BackgroundSome facts

13. An alternate end of oil view

14. Peak oil view with lower recovery factors

15. Peak oil view with lower initial-in-place estimates

16. The Bill background Was first developed in 2003 to cover all EWP not covered that far Cabinet approved public consultation in 2004 Widely consulted in 2004 Withdrawn in 2006 to effect certain changes Key focus now is energy security Constructive engagements at Nedlac All stakeholder comments considered

17. White Paper on Energy Policy, 1998 (EWP) Bill based on the EWP of 1998 Some assumptions underpinning the EWP - no longer valid Assumed that energy security can be achieved through greater diversification and flexibility of supply Asserted that the energy sector relied on market-based pricing Placed greater emphasis on commercialisation and competition However acknowledged that competitive energy markets need sophisticated regulatory regimes Assumed that government will promote investment into energy sector rather than use energy to drive investment in other sectors of the economy Also assumed that there will be a healthy balance between the interest of capital and national objectives Experiences in other competitive markets have shown that markets work well in a situation of over capacity In 1998, RSA had over capacity in all areas of energy In drafting the Bill, validity of the assumptions underpinning the policy was a concern

18. Interface with other legislation Energy Bill interfaces with a number of pieces of legislations

19. National Energy Bill in perspective Whilst most of existing legislation are about the past and present, the National Energy Bill is about future

20. Energy Bill aims to address all energy security issues Energy Security Framework

21. The National Energy Bill essentially about Provision of energy data and information Energy modelling and integrated energy planning Energy development Alternative and future energy Efficient production & use Coordinated research on carriers & technologies Security of supply (both carriers & feedstock) State participation in key energy infrastructure planning and development The essence of the Bill

22. General guiding principles The Energy Bill does not seek to replace existing institutions but to strengthen them �Energy is the lifeblood of energy economy� Economic decisions made w/o consideration of energy availability and price are problematic Focuses on issues intended to strengthen energy security Seeks to complement data collection and facilitate sharing

24. Energy Bill energy data & modelling & 1998 White Paper on Energy policy P19: For various reasons South Africa has very limited energy data and, furthermore, very limited capacity to perform this sort of policy analysis P81: Informed decision making, at all levels, is only possible when suitable and credible statistics and information are available

25. Energy Bill energy data & modelling & 1998 White Paper on Energy policy P84: Government will ensure that the necessary resources are made available to establish structures and systems, and put in place legislation to facilitate the specification, collection, acquisition, storage, maintenance and supply of energy data, and energy-related data, according to the requirements of integrated energy planning and international standards. Government will facilitate the establishment of information databases. Government will provide information to the public at a reasonable price. The provision of this information will not compromise the commercial position of parties supplying data to government.

26. Energy Bill: Energy planning & 1998 White Paper on Energy policy EWP:84 The data should be collected, stored and reported in accordance with international specifications and standards to facilitate easy comparison, integration and exchange Data should be collected regularly and the database kept up to date EWP:90 The Department of Minerals and Energy will include explicit environmental considerations into studies regarding energy suppliers and users, and will integrate these results through Integrated Energy Planning

27. Provision of high-quality, energy information, in manner that promotes sound policymaking, efficient markets and public understanding, to Cabinet Ministers National, provincial & local governments Markets (for efficient market operation) Public (communication) Data collection, integrated energy modelling & planning EIA�s primary reasonability is the provide high-quality, policy-neutral energy information in a manner that promotes sound policymaking, efficient markets, and public understanding. This conference is part of that process. It allows us to communicate the results of our effort to you, the customer, and provides an opportunity for you to give us feedback. We believe the EIA is meeting our primary challenge. EIA has developed a transparent approach, methodology, and presentation of the results for each of its products that has allowed us to gain the trust of Congress, the Administration, and the public at a time when energy issues are very much on the front page.EIA�s primary reasonability is the provide high-quality, policy-neutral energy information in a manner that promotes sound policymaking, efficient markets, and public understanding. This conference is part of that process. It allows us to communicate the results of our effort to you, the customer, and provides an opportunity for you to give us feedback. We believe the EIA is meeting our primary challenge. EIA has developed a transparent approach, methodology, and presentation of the results for each of its products that has allowed us to gain the trust of Congress, the Administration, and the public at a time when energy issues are very much on the front page.

28. Modelling vs. Planning Should be descriptive and avoids policy advocacy Modeling should, as a basis for the development of energy plans, be undertaken in such a way as to use prevailing policy, legislative arrangements, proven or almost proven technology or industry structural conditions Is essentially prescriptive, and advocates for certain policy approaches. Involves deliberate policy choices, which may go beyond empirical evidence Should be about handling of sometimes conflicting objectives

29. Demand driven energy planning

30. Energy Bill: Energy planning & 1998 White Paper on Energy policy EWP:6 To cope with multiple causal linkages, energy policy analysis usually commences with the demand side by means of the process entitled- �integrated energy planning�. This recognises that energy is not an end-good but is rather consumed as a means to an end. Policy must facilitate optimal energy consumption and production to meet social needs. This requires consumer choice and the operation of market forces. Integrated energy planning suffers from the same drawbacks as other ideal models. It requires a great deal of data and analysis to implement, of which South Africa has a scarcity. Nonetheless, this white paper identifies integrated energy planning as the most suitable base for planning purposes and also addresses the issue of data scarcity

31. Energy Bill: Energy planning & 1998 White Paper on Energy policy EWP:82 clearly articulates the IEP: �Integrated energy planning (IEP) is a process which entails the following technical functions: interpreting the requirements of national economic, social and environmental policies for the energy sector analysing energy needs in terms of how their fulfilment will contribute towards attaining national economic and social goals analysing the potential of energy supply systems and demand side management to meet current and potential future energy needs. This would include analyses of individual supply sub-sectors and the linkages between sub-sectors analysing energy sector linkages to the macro-economy analysing the potential effects on the energy sector of global and technological developments evaluating the effects of legislative, institutional and industry structure arrangements on energy supply and demand specifying, sourcing and presenting data on energy supply and demand, energy sector institutions, and linkages with economic and social factors in order to provide a statistical description of the energy sector�s historic evolution and current impact on economic and social development

32. Energy Bill: Energy planning & 1998 White Paper on Energy policy EWP:82 Government will facilitate the provision of the necessary resources to establish IEP structures and systems to develop energy policy 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. In the electricity sector�s case, the National Electricity Regulator will only license new facilities upon the satisfactory completion of an integrated resource plan

33. Energy Bill: Energy planning & 1998 White Paper on Energy policy EWP:84 Not only is good data required for the energy policy process but it is fundamental to the implementation of integrated energy planning. To facilitate integrated energy planning a database needs to be maintained covering at least the following areas: energy resources energy production from indigenous resources (mining, renewables, oil and gas) international energy trade (imports and exports) energy transformation (production of liquid fuels and electricity from other sources) storage, transport and distribution of energy national energy trade (wholesale and retail) investment in plant and infrastructure associated with the above areas disaggregated energy usage, expressed in energy and cost terms energy efficiency energy related environmental emissions average sectoral energy prices and taxes institutions linked to all the above areas similar data from regional and international sources

35. Proposed energy modelling Represents energy supply, conversion, and demand in a unified, but modular system Detailed structural and process models in most energy sectors Typically a bottom up approach of model formulation Models real consumer, supplier and equipment behaviour

36. Track changes to building stock and equipment & appliance stock by type and region Rely on data from residential and commercial energy surveys Choose new or replacement equipment for each energy service based on cost and performance characteristics and modelled economic behaviour Technology characteristics to reflect future cost reductions and performance improvements, and mandated efficiency standards and building regulations Residential and Commercial Demand Modules Residential module includes 3 building types, 20 end-use services, and 34 end-use technologies, plus fuel cells and PV. Also, includes regional �supply/price curves� for new shell efficiency. Commercial module includes 11 building types, 10 end-use services, and 64 end-use technologies, plus 10 distributed generation technologies. Stock accounting includes housing starts and new commercial floorspace which are estimated by the macroeconomic module. Residential module explicitly tracks appliance stocks while commercial module tracks equipment by service demand due to data limitations. Retirements of both buildings and equipment are accounted for. Technology choice is based on capital, operating, and maintenance costs and efficiencies for allowable and available equipment in each end-use service. Replacement purchases allow some limited fuel switching, based on assumed shares. Behavior: In the residential module, discount rates are derived from shipping data. In the commercial module, the market is segmented into ranges of implied discount rates. End-use service demand is derived from historical data and adjusted for short-term price elasticities and shell efficiencies.Residential module includes 3 building types, 20 end-use services, and 34 end-use technologies, plus fuel cells and PV. Also, includes regional �supply/price curves� for new shell efficiency. Commercial module includes 11 building types, 10 end-use services, and 64 end-use technologies, plus 10 distributed generation technologies. Stock accounting includes housing starts and new commercial floorspace which are estimated by the macroeconomic module. Residential module explicitly tracks appliance stocks while commercial module tracks equipment by service demand due to data limitations. Retirements of both buildings and equipment are accounted for. Technology choice is based on capital, operating, and maintenance costs and efficiencies for allowable and available equipment in each end-use service. Replacement purchases allow some limited fuel switching, based on assumed shares. Behavior: In the residential module, discount rates are derived from shipping data. In the commercial module, the market is segmented into ranges of implied discount rates. End-use service demand is derived from historical data and adjusted for short-term price elasticities and shell efficiencies.

37. Sector energy consumption By fuel type (electricity, coal, gas, etc) End-use (heat, lighting, cooking, etc), Building/housing type Region Households and floor space New construction, surviving, building type Energy consumption intensity (use per square foot) Delivered (site), electricity losses, total (primary) Sector carbon emissions by fuel type Average residential equipment stock & efficiency By end-use By fuel type (commercial), By equipment (residential) Stock (residential) Buildings (Residential/Commercial) Sector Projections

38. Heating Cooling Water Heating Refrigeration Freezers Cooking Clothes Drying Clothes Washing Coffee Makers Handheld Rechargeables Lighting Dishwashers Televisions PCs Furnace Fans Spas Security Systems Home Audio Microwaves Ceiling Fans Residential End Use Services

39. Heating Cooling Water Heating Ventilation Refrigeration Cooking Lighting Office Equipment (PCs) Office Equipment (non-PCs) Other Commercial End Use Services

40. Industry sector decomposed into manufacturing industries, agriculture, construction and mining Energy use estimated by major process steps or end uses based on major technology bundles Energy intensity for each bundle declines based on time, rate of capacity additions, and energy prices Motor stock model included for manufacturing industries Combined heat and power (CHP) technology adoption simulated Fuel switching, recycling, and byproducts included Industrial Demand Module �Technology bundles� characterize energy use by process steps or end uses The industries represented by process/assembly steps are Pulp and Paper, Glass, Cement, Steel, and Aluminum. The other manufacturing industries are represented by major end use (heating, refrigeration, machine drive, electro-chemical, other) As appropriate, each industry is modeled by process/assembly, boilers/steam/cogeneration, and building activities. Energy intensity is represented by �technology possibility curves� for each bundle. Intensity declines, for both existing and new technologies, based on time, rate of capacity additions, and energy prices. Capital stock is vintaged, accounting for retirements and capacity additions. Additions are a function of industrial growth by industry from the macroeconomic module. Fuel switching, cogeneration, recycling, waste products, and byproducts included. Cogeneration includes �traditional� cogeneration, which is represented in a structural component with eight distinct explicit technologies. A model of motor stocks with 7 size groups has been added for the food, bulk chemicals, and the 8 non-energy intensive manufacturing industries�Technology bundles� characterize energy use by process steps or end uses The industries represented by process/assembly steps are Pulp and Paper, Glass, Cement, Steel, and Aluminum. The other manufacturing industries are represented by major end use (heating, refrigeration, machine drive, electro-chemical, other) As appropriate, each industry is modeled by process/assembly, boilers/steam/cogeneration, and building activities. Energy intensity is represented by �technology possibility curves� for each bundle. Intensity declines, for both existing and new technologies, based on time, rate of capacity additions, and energy prices. Capital stock is vintaged, accounting for retirements and capacity additions. Additions are a function of industrial growth by industry from the macroeconomic module. Fuel switching, cogeneration, recycling, waste products, and byproducts included. Cogeneration includes �traditional� cogeneration, which is represented in a structural component with eight distinct explicit technologies. A model of motor stocks with 7 size groups has been added for the food, bulk chemicals, and the 8 non-energy intensive manufacturing industries

41. Distinct approaches for light-duty vehicles, trucks, rail, shipping and air travel. Energy use in light-duty vehicles Vehicle-miles traveled estimated based on cost of driving, income, and demographics Tracks light-duty vehicle stocks by type and age Fuel-saving technologies selected for cost effectiveness and compliance with fuel economy standards Alternative-fuel and advanced technology vehicle sales are a function of technology attributes, costs, and fuel prices Freight truck and air are also vintaged stock models Commercial, medium, and heavy trucks Regional, narrow, and wide body aircraft Transportation Demand Module Model segmented into light-duty vehicles, commercial and freight trucks, rail, shipping, and air Light-Duty VMT based on cost of driving, income, and demographics. Freight travel by all modes is a function of industrial production, translated into ton-miles traveled for ship and rail and into vehicle-miles for trucks. Air travel is based on the cost of travel, economic growth, and income. Light-duty vehicle module includes 6 car and 6 light truck sizes, gasoline, diesel, and thirteen alternative-fuel engine technologies, and 63 conventional fuel-saving technologies. Vehicle stock accounts for 20 vintages (age classes) with survival rates applied. Total new sales are derived from the macroeconomic drivers and are shared to cars, trucks, and the various size classes based on fuel prices and demographics. Fuel-saving technologies penetrate based on cost-effectiveness and the value of efficiency vs. performance, subject to meeting CAFE standards. AFV sales shares result from a nested logit algorithm that shares between conventionally-fueled vehicles, including flex- and bi-fueled; hybrids; dedicated AFVs; fuel cells; and electric vehicles, then into individual vehicle technologies. A variety of vehicle attributes, including costs, range, fuel availability, and space, factor into the algorithm based on national survey data. Both air and freight truck are also vintaged stock models, disaggregated into regional, narrow and wide body aircraft and medium and heavy trucks. Technologies improvements for aircraft and freight trucks based on year of availability and trigger prices and include 6 advanced aircraft and 37 advanced truck technologies. Rail and ship efficiencies are based on assumed trends. Model segmented into light-duty vehicles, commercial and freight trucks, rail, shipping, and air Light-Duty VMT based on cost of driving, income, and demographics. Freight travel by all modes is a function of industrial production, translated into ton-miles traveled for ship and rail and into vehicle-miles for trucks. Air travel is based on the cost of travel, economic growth, and income. Light-duty vehicle module includes 6 car and 6 light truck sizes, gasoline, diesel, and thirteen alternative-fuel engine technologies, and 63 conventional fuel-saving technologies. Vehicle stock accounts for 20 vintages (age classes) with survival rates applied. Total new sales are derived from the macroeconomic drivers and are shared to cars, trucks, and the various size classes based on fuel prices and demographics. Fuel-saving technologies penetrate based on cost-effectiveness and the value of efficiency vs. performance, subject to meeting CAFE standards. AFV sales shares result from a nested logit algorithm that shares between conventionally-fueled vehicles, including flex- and bi-fueled; hybrids; dedicated AFVs; fuel cells; and electric vehicles, then into individual vehicle technologies. A variety of vehicle attributes, including costs, range, fuel availability, and space, factor into the algorithm based on national survey data. Both air and freight truck are also vintaged stock models, disaggregated into regional, narrow and wide body aircraft and medium and heavy trucks. Technologies improvements for aircraft and freight trucks based on year of availability and trigger prices and include 6 advanced aircraft and 37 advanced truck technologies. Rail and ship efficiencies are based on assumed trends.

42. NIEMS Macroeconomic Activity Module Could use Global Insight Macro Model Links all energy variables within the GI model to NIEMS energy variables Global Insight model has 26 energy variables Uses Input/Output model with dynamic specification for industrial output Global Insight model has 60 industrial sectors We would require an employment model We could calibrate existing similar models to suit South Africa

43. NIEMS Macroeconomic Activity Module Regional Model Forecasts regional product, wages and salaries, disposable income, consumer prices, population and housing activity Uses Census projections for population and national concepts to estimate regional results Regional commercial floor space model estimates floor space stock and additions for floor space types Major explanatory variables include income, interest rates, population by region

44. Emissions accounting included in NIEMS design Each solution generates and accounts for GHGs and other emissions Embedded cap and trade system Marginal abatement cost for other GHGs to simulate reductions under economy-wide policies All other environmental issues are determined in each module Cap on CO2 Emissions

45. Energy efficiency & EWP 98 EWP deals energy efficiency in detail P10: It is estimated that greater energy efficiency could save between 10% and 20% of current consumption. Government needs to facilitate increased energy efficiency. Obstacles include: inappropriate economic signals lack of awareness, information and skills lack of efficient technologies high economic return criteria; and high capital costs. Government commits itself to facilitate greater energy efficiency

46. Energy efficiency & EWP 98 P14: Government will create an energy efficiency consciousness and will encourage energy efficiency in commerce and industry. Government will establish energy efficiency norms and standards for commercial buildings and industrial equipment, and voluntary guidelines for the thermal performance of housing. A domestic appliance-labelling programme may also be introduced. Publicity campaigns will be undertaken to ensure that appliance purchasers are aware of the purpose of appliance labels

47. Energy efficiency & EWP 98 P15: Government's capacity to implement energy efficiency programmes is currently limited Government will investigate the establishment of appropriate institutional infrastructure and capacity for the implementation of energy efficiency strategies (p29) The functions of such an institution are outlined Targets for industrial and commercial energy efficiency improvements will be set and monitored P27: energy-efficiency targets will be established and programmes will be mounted to conserve energy

48. Energy efficiency & EWP:87 Government's capacity to undertake the energy efficiency programmes described herein is rather limited. Other countries in similar circumstances have found the establishment of an agency to be an effective means of providing the necessary capacity and flexibility to implement such programmes. The functions of such an agency could include: building consumer awareness of energy utilisation and cost-saving measures demonstrating to consumers the benefits of energy efficiency measures through audits, demonstrations, sectoral analyses and other activities building the capacity to implement targeted energy efficiency programmes training people in energy efficiency methods identifying and facilitating the removal of barriers to energy efficiency Government will further investigate the establishment of appropriate institutional infrastructure and capacity for the implementation of energy efficiency strategies

49. Energy research & EWP 98 P15: Government expects energy suppliers and the private sector to carry out appropriate research P28: Stimulate energy research and development partnerships between local role players and international agencies Facilitate the development of a research strategy to improve energy research and development P29: Develop and implement an appropriate system to co-ordinate energy research P64: promote research, technology development and technology transfer to stimulate the optimal development of the country�s oil and gas resources P94: Energy research is currently supported by government, government agencies, parastatals and the private sector The Department of Minerals and Energy manages a limited non - nuclear research programme

50. EWP and Energy Research P96: Government will consider the development of a system to prioritise national research funding into the three main research categories in order to address the medium to long-term research needs in the energy sector. This will consist of an integrated, multi-year, national, needs-driven, energy research strategy, developed from time to time by an experienced team of experts appointed by the Minister. This strategy will identify medium and long-term priority programmes and themes Extensive energy-related research is taking place in other countries, the results of which may be of value in South Africa. These developments are monitored by researchers, energy industries, energy consumers and others

51. Renewable energy & EWP P7: The research and development of alternative and renewable energy sources is also being promoted P14: Government believes that renewables can in many cases provide the least cost energy service, particularly when social and environmental costs are included Government will also promote appropriate standards, guidelines and codes of practice for renewable energy and will establish suitable renewable energy information systems P29: Investigate an environmental levy on energy sales to fund the development of renewable energy, energy efficiency and sustainable energy activities

52. Renewable energy & EWP P79: Government policy on renewable energy is thus concerned with meeting the following challenges: ensuring that economically feasible technologies and applications are implemented ensuring that an equitable level of national resources is invested in renewable technologies, given their potential and compared to investments in other energy supply options; and addressing constraints on the development of the renewable industry P80: Government will provide focused support for the development, demonstration and implementation of renewable energy sources for both small and large-scale applications Government will support renewable energy technologies for application in specific markets on the basis of researched priorities

53. Renewable energy & EWP P81: Government will establish suitable information systems of renewable energy statistics, where justifiable, and will assist with the dissemination thereof The capacity of the Department of Minerals and Energy is presently being improved in order to cater for the need to implement the proposed renewable energy policies and programmes

54. Security of supply and EWP P27: Objective 5 - Securing supply through diversity P55: Concerns are, however, being raised in some countries about the impact of competition on equity and environmental goals and the ability of a competitive market to ensure sustained investment and security of supply at low prices in the long term Security of supply not well captured in the EWP

55. Security of supply The Bill allows the Minister to, for the purposes of ensuring security of supply, direct any state-owned entity to acquire, maintain, monitor and manage national strategic energy feedstocks and carriers in accordance with the relevant published security of supply strategies or policies to� undertake security of supply measures provide for adequate investment in energy infrastructure invest in critical energy infrastructure ensure upkeep of all critical energy infrastructure

56. Thank You