submission to nersa: eskom mypd 3...
TRANSCRIPT
Johan van den BergChair: Steering Committee
January 2013
Submission to NERSA: Eskom
MYPD 3 application
IN SUMMARY
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• The ultimate aim of discussion about MYPD3 should be to ensure the long term well-being andsustainability of the people of SA – renewables is uniquely placed to do this
• Coal power is unaffordable in the medium and long term – we require a mix of public and privateenergy generation that migrates towards clean, green, affordable energy
• The cost of energy should be reflective of what it costs so that we build a sustainable economy anduse only what we really need, no more
THE SOUTH AFRICAN RENEWABLE ENERGY COUNCIL (“SAREC”)
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• Umbrella body for industry bodies in renewable energy
• Founders were SESSA, SASTELA, SAPVIA and SAWEA
• Committed to government to form the Council during the NEDLAC discussions on the Green Economy Accord
• See:
http://www.engineeringnews.co.za/article/sa-renewable-energy-associations-to-launch-umbrella-body-2011-12-15;
http://mg.co.za/article/2011-12-09-umbrella-body-becomes-sas-voice-on-renewable-energy;
http://www.timeslive.co.za/local/2011/12/15/renewable-energy-sector-to-get-new-umbrella-body;
http://www.esi-africa.com/Umbrella/body/SA/renewable/energy/associations
THE SOUTH AFRICAN RENEWABLE ENERGY COUNCIL (“SAREC”) (Continued)
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• Goals: To act as a collective custodian and voice for the renewable energy in South Africa
• Work collectively towards optimising the regulatory and policy framework for renewables
• Collectively remove barriers to entry for renewable energy in South Africa;
• To provide expert resources that Government can draw on re energy policy;
• Liaise between international agencies and the South African Government on RE and CC;
• Promote public and private sector coordination towards the cost optimisation of renewable energygeneration and localisation
About SAWEA
• The Collective and voice of the Wind Industry in SA - a regular contributor to various NERSA hearings in years past
• Founder member of SAREC
• Today’s presenter is the CEO of SAWEA, SAWEA has made the resource available for the broader industry
• In the interest of time SAWEA has informed the SAREC position and concurs with it
• NERSA is asked to note and minute that SAWEA is present and concurs with the SAREC position
ENERGY IN SA: WHERE DO WE WANT/NEED TO END?
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• Fossil fuels will eventually run out
• Nuclear power not seen as sustainable by many after Fukushima
• The atmosphere can absorb a limited amount of pollution while sustaining a viable climate formankind
• We need clean, long term and affordable energy sources
• Rapid transition to renewables is essential as the present decade is critical in terms of “catching theclimate change train before it leaves the station”
• We need water
ENERGY IN SA: WHERE DID WE COME FROM?
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• Eskom monopoly, no IPP’s
• Coal dominated grid
• No Eskom retained revenue - no project finance - all capital for new build have to be provided on“pay-as-you-build”
• Practically no renewable energy
ESKOM – SIZEABLE BALANCE SHEET SUPPORT BY GOVERNMENT
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• Eskom’s effort to replace ageing power stations and add new capacity is costing minimum ZAR 337billion – see MYPD3 p 9 – replacing present fleet will require ZAR 3,500 billion by 2030 (MYPD3 p 108)
• Government has supported Eskom’s new build by ZAR 350 billion in loan guarantees and shareholderloans/equity (Source: Standard Bank)
• This contingent liability for government cannot go any higher – result is we need capital from IPP’s andtariffs that are cost reflective
• For IPP’s we only pay for the power, if Eskom builds we have to pay everything upfront
• Difference same as hiring car/buying a new car cash
ESKOM – SIZE OF GOVERNMENT BAIL–OUT (Source – Standard Bank)
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COMMENT 1: NEW POWER COSTS MONEY
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• Any new electricity requires substantial capital investment
• Money can come from tax/rate payers (Eskom building) or from private sector (IPP’s) – the latter is much less stressful for consumers
• Had IPP’s not been built, Eskom would have had to build more
• Logical error to say “price has to rise because of IPP’s“
• IRP renewables portion 2011 – 2030 will cost ZAR 340 billion plus in capital expenditure – if private sector brings the capital, the consumer pays only for the energy
• If Eskom builds, consumer pays for everything upfront
• In principle costs must rise – reasons must be clear
COMMENT 2: GOVERNMENT HAS CHOSEN TO FUNDAMENTALLY INVOLVE IPP’S
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• Since 1998 (White Paper on Energy) through 2001 (Cabinet Decision on IPP’s building 30% of newcapacity) to 2003 (White paper on Renewable Energy) the ground work for IPP’s has been laid in SA
• In terms of the Ministerial determination of December 2012, IPP’s will build about 10,000 MW’s ofrenewable and baseload plus industrial waste energy plants (See Government Gazette 19 DecemberVol 570, No 36005)
• Eskom need no longer model a scenario where they provide 100% of the new power
COMMENT 3: UNBUNDLE RENEWABLES FROM THE TERM “IPP’S”
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• MYPD3 says “3% of the 16% to pay for IPP’s” – this sentence made it all the way to Davos and failscompletely to convey that it is primarily the addition of new power that costs money - not the factthat it is sourced from IPP’s. This is likely to create misperceptions with the public
• Wrong for two reasons:
a) Should only look at incremental cost (if any) over what it would have cost Eskom;
b) “IPP’s” include peaker plants generating power at very high cost – this totally distorts the pictureand fails to reflect that renewables are a cost saver. ZAR 13,3 billion will be spent on the peakersfor peaking power, the peakers will over a 5 year period generate 1,926 GWh - price ZAR 6.93/kWh
COMMENT 4: RENEWABLES ARE A COST SAVER
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• Weighted cost of REIPPP renewables round 1 approximately ZAR 1.75/kWh (calculated on wind andsolar PV)
• Weighted average cost round 2 approximately approximately ZAR 1,12/kWh (calculated on wind andsolar PV). Round 1 and 2 combined approximately ZAR 1,48/kWh
• Total projected generation Round 1 and 2 approximately 5,500 GWh’s per annum
• Cost of peaker power is approximately ZAR 6.93/kWh (Cost - see MYPD3 Table 55 p 136: 13,34 billion;Generation - See Table 17, page 63: 1,926 GWhs) - total average generation from peakersapproximately 400 GWhs per annum (Total generation of 1,926 GWhs/5 years)
• Thus, if only 7% of REIPPP power occurs in peak hours, the country will save (ZAR 6.89 –1.48)*400,000,000 =
ZAR 2.164 billion per annum
• Has Eskom MYPD3 taken this into account?
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COMMENT 5: SOME RENEWABLES CHEAPER THAN NEW COAL
• Round 2 wind power was procured at 89c/kWh
• Eskom new coal comes at 97c/kWh, pollution costs excluded (Source: Media reports and as calculatedby NERSA – see http://www.techcentral.co.za/eskom-grilled-on-power-price/34420/
• The more wind power we build, the more money we save
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COMMENT 6 – EXTERNALITIES: RENEWABLES SAVING SA MONEY
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COMMENT 6 (Continued) – REAL COST OF ENERGY
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COMMENT 6 (Continued)
• If round 1 and 2 produce approximately 5,500 GWh per annum (5,500,000,000 kWhs), SA willannually save approximately (ZAR 1.94 – ZAR 1.48) * 5,500 GWh = approximately ZAR 2,5 billion inavoided environmental degradation, health costs, climate change impacts , water costs etc
• This saving will increase dramatically as competition drives the price down even further in subsequentREIPPP procurement rounds and more MWs get built
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COMMENT 7: COST OF NO ELECTRICITY – RENEWABLE ENERGY HELPING TO GROW THE SA ECONOMY
• In 2008, NERSA found that the cost of the unmet electricity demand was ZAR 75/kWh (NIRP3)
• Renewables can create new capacity far quicker than coal
• If only 15% of all renewables purchased should be regarded as baseload (very conservativeassumption), this is still equivalent to 5,500 GWhs * 0.15 * ZAR 75/kWh = ZAR 61 billion per annum
• If this figure is discounted by another 90% because of increased reserve margin and greaterpredictability in the electricity supply THAN IN 2008, it would still be ZAR 6 billion per annum
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COMMENT 8: RENEWABLES PROJECTS INCLUDE AN INVESTMENT INTO SOCIAL UPLIFTMENT, JOB CREATION AND COMMUNITY DEVELOPMENT PLUS A UNIQUE “TAX”
• In terms of the REIPPP rules, 3-5% of ownership must lodge with local communities. This is anexcellent initiative but needs to be financed. Other generators do not do this.
• Further, 1 - 1.5% of turnover must be spent on socio economic development, preferably within theimmediate radius of the project (usually rural areas)
• 0.6% of turn over must be spent on enterprise development – most often this will target educationand skills development
• These amounts become very significant over the project lifetime and are likely to make a strongcontribution towards community upliftment, job creation and social development
• Additionally, in terms of the REIPPP rules, a 1% of Capex tax is payable to Government – ourunderstanding is that this is meant to fund the transactions costs of theprogramme. During the MYPD3 timeframe, this “tax” will total a payment ofmore than ZAR 300 million to Government
• Other energy generators are not presently asked to make the above commitments
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Distributions over Project Life for a 140 MW Wind FarmSED (1.5% revenues) & Community Trust (5% ownership) (Source: Globaleq)
COMMENT 8 (continued) – community benefits funded by renewables
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ASSISTING THE POOR AND THE NEEDY
• Whilst it is evident electricity prices must rise, care must be taken to protect the poor and needy, andsafeguard jobs
• SAREC submits that extensive submissions have been made by various parties in this regard
• We have confidence that NERSA will balance this in an optimal way and leave it in the Regulator’scapable hands
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AN EMERGING GLOBAL PLAYER: SA’S POSSIBLE PLACE IN THE 2015 GLOBAL PECKING ORDER (PV AND WIND)
