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Presentation to 21 st AMEU Technical Convention Gallagher Estate, Midrand, 17 October 2006 by

Security and adequacy of supply in South Africa – a point of view on associated challenges and some solutions. Presentation to 21 st AMEU Technical Convention Gallagher Estate, Midrand, 17 October 2006 by Vally Padayachee, Director, City Power JHB Pty Ltd &

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Presentation to 21 st AMEU Technical Convention Gallagher Estate, Midrand, 17 October 2006 by

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  1. Security and adequacy of supply in South Africa – a point of view on associated challenges and some solutions Presentation to 21st AMEU Technical Convention Gallagher Estate, Midrand, 17 October 2006 by Vally Padayachee, Director, City Power JHB Pty Ltd & Tore Horvei, CEO, SAD-ELEC (Pty) Ltd

  2. Presentation outline • Key messages • Security and adequacy of supply – what are the issues? • Demand side overview • Supply side options • Demand and supply balance • Security of supply • Some solutions 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  3. Key messages • South Africa’s electricity industry is fast eroding its current capacity • System reserve margin is already very low • There is uncertainty in the future demand growth • Current electricity demand growth 3.0 – 3.5% p.a. • Higher GDP growth rates increase pressure on electricity supply system • Reduced demand elasticity expected in medium to longer term • Decisions about new generating plant must be fast tracked • To meet incremental growth in demand • To restore system reserve margin to an acceptable level • Governance and decision making frameworks are being put to the test • Readily available generation options are limited in the near to medium term • OCGT solution being introduced to address peaking capacity shortages, • Coal-fired plant will continue to dominate the base load market • Natural gas (for CCGT and CHP applications) and nuclear have roles to play • DSM, demand side participation and distributed generation need to feature more strongly • In summary: • Security and adequacy of supply can become a real concern • Collaborative efforts by all industry players (generators, distributors and customers) are required to address the challenges – strategic partnerships are required 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  4. Security and adequacy of supply • Secure, reliable and adequate electricity supply is critical to economic and social growth and development in South Africa • Security of supply – the issues: • Sustained availability of existing generating plant and power system • Improved composition of plant mix • Broadening technology and fuel choice • Restoring a reasonable system reserve margin • Timely decisions on new generation expansion • Clarification of framework for private sector participation • Adequacy of supply – other issues: • Engagement with customer to ascertain expectations and trade-offs • Clarification of EDI reform process to unblock supply capacity constraints, particularly in metro areas • Harmonised and streamlined regulatory frameworks 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  5. Demand Side Analysis

  6. Eskom peak demand & energy sales(1994 – 2006) • Average growth rates: • 2.9% p.a. in MW since 1994 • 3.1% p.a. in MW since 2000 • 3.2% p.a. in GWh since 1994 • 3.7% p.a. in GWh since 2000 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  7. GDP growth viz. electricity demand(Q1 1993 to Q2 2006, Source: Stats SA) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  8. GDP growth viz. electricity demand (II)(Q1 1993 to Q2 2006, Source: Stats SA) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  9. GDP growth viz. electricity demand (III) • Will the historic relationship between GDP growth and electricity demand prevail? • A weakening of the ‘one-to-one’ relationship is expected towards lesser interdependency: • In the short to medium term, an increasing share of GDP growth will come from large but less energy intensive infrastructure projects • Significant growth in less energy intensive sectors of the economy such as financial services and ICT as well as tourism, representing a structural change in composition of South African GDP • Success for Demand Side Management (DSM) initiatives, primarily targeting growth in peak demand • Changes in energy market dynamics: • LPG substituting some electricity usage in domestic/commercial sectors • Natural gas increasing its share of commercial and industrial markets 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  10. Some sector observations • Expected changes in relative demand composition • Manufacturing: relative stable • Mining: gradual decrease • Commercial: increase due to importance of service sectors • Domestic: increase due to disposable income growth and electrification • Transport: increase in short to medium term, linked to infrastructure investments and commodity ‘boom’ • Others: no major change 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  11. Demand & capacity scenarios(Source: Eskom) The relationship between GDP growth and electricity demand growth is changing The economic growth rate is increasing (with Government targeting 6% p.a.) - what is the impact on new capacity requirements? 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  12. Demand growth scenarios • Official registered system peak demand reached 34,800 MW on 29 June 2006 • Annual peak demand growth from 2006 – 2010 estimated at 3.2% based on short to medium term economic growth forecasts • From 2010, two (Eskom) demand growth scenarios are considered: • Low case: 4% GDP growth p.a. • Electricity demand growth of 2.3% p.a. • High case: 6.0% GDP growth p.a. (based on ASGI-SA, Government’s Accelerated and Shared Growth Initiative) • Electricity demand growth of 4.4% p.a. 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  13. Peak demand forecasts (in MW) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  14. Demand - Supply Balance and Supply Side Options

  15. Maximum available generating capacity • Note: Non-Eskom capacity has considerably lower reliability than Eskom’s plant (average 87.4% in 2005/06) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  16. Plant availability is high, but is it sustainable?(Source: Eskom Annual Report 2005, UCF = Unit Capability Factor) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  17. Generation portfolio – a mismatch viz. system requirements 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  18. System reserve margin requirements • A power system needs a certain amount of reserve capacity to manage planned and unplanned outages • International experience indicates a 15% reserve margin as appropriate for large and complex power systems • Eskom has traditionally applied a reserve margin of 12.5% in its strategic electricity planning • With entry of IPPs, system reserve margin requirements increase as the System Operator is no longer in full control over plant outage planning and scheduling • As of winter 2006, the reserve margin on the Eskom system reached a low 6-7% • A reserve margin by 2015 and thereafter of 12.5% in Low Case growth scenario and 15.0% in High Case growth scenario respectively was assumed 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  19. Demand - supply balance: an increasing gap! 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  20. And existing plant have to be replaced...... Most power stations are at mid-life refurbishment point, with life extension of several plant expected • Retirements expected before 2030 include: • 2019: Acacia / Port Rex: • 2023: Hendrina • 2024: Arnot • 2027: Kriel 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  21. (Source: Engineering News, Vol 16 No. 18, 19-25 May 2006) Eskom’s ‘new project funnel’ creates many opportunities 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  22. Generation expansion & technology choice(Up to 2015) • Up to 2015 the following generation options are being pursued: • De-mothballing of Simunye plant (Camden, Grootvlei and Komati) • Total of 3,600 MW of capacity to be added • Arnot coal-fired expansion: 300 MW • Liquid fuel fired Open Cycle Gas Turbines (OCGT) • Eskom (1,050 MW) + DME tender (1,050 MW) • Bramhoek pumped storage plant: 1,330 MW • New base-load PF coal plant • Matimba B (2,100 to 4,200 MW) + other coal options? • Potential natural gas fired Combined Cycle Gas Turbines (CCGT) • Kudu (800 MW) + Coega (1,600 MW) + Eskom/Sasol co-gen plant? • Is the above enough? 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  23. Generation expansion & technology choice(After 2015) • Post 2015 many technology options exist: • Base load options: • PF coal-fired stations • CFB coal-fired stations • Conventional nuclear plant • Pebble-bed nuclear reactor (PBMR) • Mid-merit options: • Natural gas fired CCGT plant • Peaking plant options: • Liquid fuel fired OCGT plant • Pumped storage plant • Commercial scale renewable energy options (e.g. solar-thermal) • Import from SADC region(see next slide) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  24. Potential regional (SADC) projects 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  25. Capacity additions required (in MW)(Source: SAD-ELEC) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  26. And the financial challenge is huge!(Source: SAD-ELEC) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  27. Security of Supply – Is the South African ESI up to the challenge?

  28. Security of supply – what is required? • Sustained high plant availability • Timely decisions on generation expansion • Elaboration of government policy framework is key • Engagement of customers and new approaches • DSM and dynamic market participation (DMP) – not only by Eskom but also EDI • Co-generation options (Combined Heat and Power – CHP) • Distributed generation solutions • Appropriate regulatory frameworks • New Electricity Regulation Act provides framework, but detailed regulations are lacking • Sufficient financial resources • Eskom has a strong balance sheet-needs to be sustained? • Future tariff increases matter (to Eskom, EDI and IPPs) 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  29. Security and adequacy of supply – some potential solutions • Improved management of existing assets – by Eskom and EDI • Metro RED creation to alleviate and address current supply capacity constraints in metro areas • More active customer engagement on DSM and DMP – by Eskom and EDI • Increased use of distributed generation solutions – by Eskom and EDI • Progress policy and regulatory framework on IPPs and private sector participation in new generation developments • Reconsider management of future generation tenders due to government capacity and skills constraints • Finalise and implement regulatory framework for co-generation applications • Engage the private sector on proposals for increased use of non-Eskom plant and expansion of such 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei)

  30. Vally Padayachee, City Power Johannesburg (Pty) LtdTore Horvei, SAD-ELEC (Pty) Ltd Thank You!

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