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Imperatives for the South African Power Sector 2012

Imperatives for the South African Power Sector 2012. Doug Kuni - MD SAIPPA 1 Mar 2012. Power Industry analysis in RSA. The Structure of the Electricity Industry in RSA Supply Side Issues – Generation - Gx The IRP2010 – Integrated Resource Plan and the Renewable Energy Bid program.

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Imperatives for the South African Power Sector 2012

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  1. Imperatives for the South African Power Sector 2012 Doug Kuni - MD SAIPPA 1 Mar 2012

  2. Power Industry analysis in RSA The Structure of the Electricity Industry in RSA Supply Side Issues – Generation - Gx The IRP2010 – Integrated Resource Plan and the Renewable Energy Bid program. The Distribution Industry Issues - Dx ESI Policy & Regulatory Environment Issues facing IPP’s in SA

  3. 1.Structure of Electricity Industry in RSA • Since the formation of Eskom in 1920’s essentially vertically integrated State monopoly • Eskom owns 95% of Generation- Gx • Eskom owns 100% of Transmission Tx & System Operational Control (System Ops) • Distribution Dx owned by Munics & Eskom(Electrification program) • Formation of National Energy Regulator(NERSA) • Since 2011 Energy is a separate Ministry(DoE) • Power outages started occurring since 2007

  4. 2.Supply Side Issues – Generation Gx • Since Jan 2007 we are(officially) in a Power Crisis – new capacity ordered late(2006) and Eskom also late on new build schedule. Shortages expected till 2018/19. • Medupi 1st commissioning has moved from June 2011 to Jan 2014 with massive cost overruns. • Kusile 1st commissioning only likely 2 years after Medupi 1st commissioning. • No further contracts placed for new capacity (IRP2010) so late on Supply Side again. ??? Why ? • Security of Supply issues and Tariff increases have prompted IPP development by Anglo/Xstrata/Exxaro • ESI Structure & Regulatory Environment are IPP hostile.

  5. 3. The IRP2010 and RE Program. • First public consultation IRP plan for Supply Side Gx. • Produced in the run-up to COP17 and heavily influenced by Copenhagen pledges on CO2 reduction. • Galvanised effort by DoE to get Renewable Energy projects into the mix and got Treasury to run a IPP procurement program through the Treasury PPP unit. • First tranche secured through MYPD2 budget allocation. (Nersa approval on tariff model) • Total of 1015MW’s hallmarked in Phase 1 from total 3725MW’s. Further Phases 2012/2013/2014 • Allocations of RE projects in the IRP2010 ambitious.

  6. 4. The Distribution Industry - Dx. • Government formed EDI Holdings 9 years ago to restructure the Distribution industry into 6 RED’s. • It was shut down after almost a decade and produced nothing except cost consumers about R3 billion. • It did produce a perverse result: it stopped Dx infrastructure investment and the Munic backlog is estimated at R60 billion. Eskom approx same. • Universal Access imperative by Govt means essential investment in Dx and Tx indispensable. • With Govt plans to restructure Dx shelved, will investment be executed? • Investment squeeze across the chain Gx,Tx and Dx

  7. 4. The ESI Policy and Regulatory environment • The President’s State of Nation address 2011 included formation of Independent System & Market Operator.(ISMO supported by National Planning Commission and considered positive by IPP’s) • In Dec 2011 DoE issued 2nd Amendment to Electricity Regulation Act 2006 for comment.(ERA 2006) • Existing legislation included Willing Buyer/Seller principle – developments by Anglo/Xstrata/Exxaro. • The 2nd Amend ERA 2006 removes Willing Buyer/Seller and centralises State control over Gx projects. • No mention of ISMO or Market mechanisms. • Direction is overregulation ( in a power crisis?)

  8. 4. The ESI Policy ….continued • Eskom not in a position to build more capacity without Govt support (R350 Billion Treasury guarantee for current build) • According to IRP2010, Coal 3 and Nuclear(9600MW) now also late • Investment requirement is staggering : > R600 Billion • Govt support for total Gx will exceed R 1 trillion. • Add Dx and Txcapex requirements…. • Gx & Dx are distressed sectors facing acute O&M issues with declining performance.

  9. 6. Issues facing IPP’s in SA • A clear Policy direction by Govt – Objectives of ERA 2006 2nd Amend actually (paradox!)dismantled by Draft itself e.g. “Facilitate investment in ESI” and “ Promote competitiveness and customer end user choice” • A clear long term structure of the ESI – Dx/ISMO? • IPP projects must pass Bankability test – clear Regulatory guidelines for Wheeling and Willing Buyer/Seller options. • ISMO and Tx should be independent of Eskom. • The current Policy and Regulatory environment does not address Security of Supply and Tariff Path Certainty for the Economy.

  10. Imperatives for the South African Power Sector 2012 End and Thank You 1 Mar 2012

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