ENERGY TRADING IN THE SOUTHERN AFRICAN POWER POOL Alison Chikova Chief Engineer March 2009

SOUTHERN AFRICAN POWER POOL

ENERGY TRADING IN THE


Alison ChikovaChief Engineer

March 2009Durban, South Africa


CONTENTS

1. Introduction to SAPP

2. History of Inteconnections

3. Bilateral Energy Trading

4. Short Term Energy Market Trading

5. Day Ahead Market Trading

6. Trading Platform Functions


INTRODUCTION TO THE SAPPGeographic

DR CongoTanzania

ZambiaAngola Malawi

Zimbabwe

MozambiqueBotswanaNamibia

South AfricaLesotho

Swaziland

12 Countries 230 Million people Average Electricity

growth rate 3% p.a. For South Africa

demand growth was 4.9% in 2007 and for whole region 4.6%.


Historic

1950s: DRC – Zambia 500 kV HVDC -1700km

1960s: Zambia – Zimbabwe330 kV at Kariba Dam(Zambezi River)

1975: Mozambique – South Africa 533 kV HVDC – 1400 km

DRCDRC

TanzaniaTanzania

AngolaAngolaZambiaZambia

MalawiMalawi

MozambiqueMozambique

ZimbabweZimbabwe

BotswanaBotswana

NamibiaNamibia

South AfricaSouth AfricaSwazilandSwaziland

LesothoLesotho


Thermal Southern Network Thermal Southern Network

DRCDRC

TanzaniaTanzania


MalawiMalawi


ZimbabweZimbabwe

BotswanaBotswana

NamibiaNamibia

South AfricaSouth AfricaSwazilandSwaziland

LesothoLesotho

Hydro Northern NetworkHydro Northern Network

HISTORIC


Angola Botswana DRC Lesotho Mozambique Malawi Namibia Tanzania South Africa Swaziland Zambia Zimbabwe

Dem Rep of CongoCongoGabon

Luanda

Windhoek

Lusaka

Harare

Lilongwe

Nairobi

Dar es Salaam

GaboronePretoria

Johannesburg

Cape Town

MaputoMbabane

KinshasaBrazzaville

Angola

Tanzania

Kenya

Mozambique

South Africa

Swaziland

Lesotho

Namibia

Zambia

BotswanaZimbabwe

Malawi

RwandaBurundi

H

H

H

H

H

H

H

H

H

HH

H

H

HH

H

PH

H

T

T

T

T

TT TT

TTTTT T

T

T

HH

H

TH

P

N

HH

H

T

Hydro stationPumped storage schemeThermal Station

P

SAPP Membership


1.5.2 Generation Mix

74.3% Coal

20.1% Hydro

4.0% Nuclear

1.6% Gas/Diesel


No. Country UtilityInstalled Capacity

[MW]

Available Capacity

[MW] As at FEB

2009

Installed minus

Available [MW]

2008 Peak Demand

[MW]

Capacity Required

[MW]

Shortfall ( MW)

10.2% Reserve1 Angola ENE 1 128 870 258 6682 Botswana BPC 132 90 42 5033 DRC SNEL 2 442 1 170 1 272 1 0284 Lesotho LEC 72 70 2 1085 Malawi ESCOM 302 246 56 259.66 Mozambique EDM 233 174 59 415.64

HCB 2 250 2 075 175 7 Namibia NamPower 393 360 33 4448 South Africa Eskom 43 061 38 384 4 677 35 9599 Swaziland SEB 51 50 1 20010 Tanzania TANESCO 1186 680 506 69411 Zambia ZESCO 1 737 1 200 537 1 49512 Zimbabwe ZESA 2 045 1 080 965 1 397

55 032 46 449 8 583 43 171 47 575 (1 126)

52 416 44 653 7 763 41 550 45 788 (1 135) Total Interconnected SAPP

TOTAL SAPP

SAPP DEMAND AND SUPPLY SITUATION


1.5.3 COUNTRY CONTRIBUTION INSTALLED CAPACITY

80.4% South Africa 5.0% Mozambique4.1% Zimbabwe3.6% Zambia2.6% DRC4.4% Rest


The SAPP Vision is to:

Facilitate the development of a competitive electricity market in the Southern African region.

Give the end user a choice of electricity supply.

Ensure that the southern African region is the region of choice for investment by energy intensive users.

Ensure sustainable energy developments through sound economic, environmental & social practices.

SAPP Vision


Management Structure and Governance Structure

SADC-DIS

Executive Committee RERA

Management Committee

Planning Sub-

Committee

Operating Sub-

Committee

Coordination Centre Board

Coordination Centre

Environmental Sub-

Committee

Markets Sub-

Committee

SAPP Management & Governance Structure


SAPP Reporting Protocol

Directorate of Infrastructure and Services

Committee of Senior Government Officers

Integrated Council of Ministers

Council

SAPP


TRADING ARRANGEMENTS

Some countries in the SAPP have excess Generation Capacity, others have deficit:

The result is energy flow between member countries in form of energy trading.

Northern network is predominantly hydro and Southern network thermal:

Good generation mix that mitigates drought Members share in the resulting benefit.

Rationale for Power Trading


BILATERAL CONTRACTS Takes up 90-95% of energy trade: 15 - 20 TWh Peak and standard times.

STEM The short-term energy market (STEM) was introduced in

April 2001 Precursor to full competition Caters for 5-10% of energy trade: 0.8 – 4.3 TWh Daily and hourly contracts Off-peak periods

Competitive Market Development Development of competitive market in the form of a Day-

ahead Market (DAM) started in 2003. The SAPP is also developing an Ancillary Services Market

and a Balancing Mechanism.


BILATERAL CONTRACTS Can be firm on non-firm contracts

Non-firm contracts: Are interruptible with notice If notice given, no penalties Generally less than 75% reliable.

Firm contracts: Most have attached reliability premium Penalties for non-delivery applies.


2008 Bilateral Contracts in SAPP

96210200

120100

2501370

100150

80454040

950270

0 200 400 600 800 1000 1200 1400

Eskom-SEC

Eskom-BPC

Eskom-NamPower

Eskom-EdM

Eskom-LEC

HCB-ZESA

HCB-Eskom

SNEL-ZESA

SNEL-Eskom

ZESA-NamPower

EdM-BPC

EdM-NamPower

EdM-SEC

Eskom -MOZAL

HCB-EdM

Capacity [MW]


STEM DEMAND AND SUPPLY

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

2001 2002 2003 2004 2005 2006 2007Year

Ener

gy in

GW

h

Supply Demand


STEM TRADING: ENERGY TRADED AND COST

-

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

2001 2002 2003 2004 2005 2006 2007

Year

Ener

gy a

nd C

ost

Energy Traded ( GWh) Monetary Value (USD x 1000)


Bilateral contracts

PREVIOUSLY

Bilateral contracts Short-Term Energy Market (STEM) - 2001 Post STEM (Balancing Market) - 2002

CURRENT

Bilateral contracts Day-Ahead Market (DAM) – From 2008 Ancillary Services Market – From 2010 Balancing Mechanism – From 2010

FUTURE

POWER TRADING EVOLUTION


THE SAPP COMPETITIVE MARKET

GOALS of the SAPP DAM design: Establish an efficient and competitive marketplace Ensure that consumers benefit from the market

METHODOLOGY: Development of consistent market mechanisms. Efficient price signals for the procurement and

transmission of electricity. Assurance of fair and open access to the

transmission system. Optimization of generation & transmission capacity.

Goals and Methodology


Day Ahead Market … Market place for secure, effective and non-

discriminatory trade of electricity o Trading conducted daily for delivery next dayo Forward bidding up to ten dayso Participants submit (purchase) bids and (sale)

offers o Only market operator and participant know

their own bids Provides a neutral reference price

o Price discoveryo Over-time provides reference for bilateral

contracts o Market Clearing Price (MCP) valid for all trades


DAM Design Principles

1. Market type Auction type market Participants bid into market for all 24 hrs of

next/future day.

2. Bidding Participants submit both purchase & sale bids. Types of bids: Single hour and Block bids.

3. Bid areas Multiple bid areas with configurable transmission

capacities between areas.


4. Price calculation At defined time, market closes & Market Clearing

Price (MCP) calculated. MCP is price where supply equals demand without

taking transmission constraints into consideration.

5. Congestion Management Calculated contract flow between bid areas

computed & compared with available transmission capacity for spot trade.

In case of congestion, market splitting performed, and local area prices calculated.

6. Auction results Participants receive area prices with associated

volume. Multiple currencies.




CHALLENGES IN POWER TRADE

Limited transmission capacity leads to congestion.

Lack of monitoring system at SAPP Coordination Centre to trace transactions (contracts).

Adherence to schedules leading to inadvertent energy.


OPPORTUNITIES IN POWER TRADE

Regional market diverse.

Optimal use of regional resources.

Generation mix consists of hydro / thermal.

Correct price of electricity in the Pool determined.

Send signals for investment for power generation and transmission projects.

Enables demand side to respond to supply side signals.


Challenges experienced by SAPP at start of the pool:

Language of communication Local languages Foreign languages - English, French or Portuguese?

Dispute resolution How will disputes be resolved? Who will be the referee?

Harmonisation Issues Different legal frameworks Different technical standards

STARTUP CHALLENGES


Competitive or Co-operative pool SAPP is moving from cooperative to competitive pool. Power sector reforms taking place in member countries

at the same time as the SAPP transition – Uncertainty? SAPP governance and membership

Settlement Cost allocation of SAPP budget to members Delays in membership fee settlements

Regional and Individual Priority Projects What is a priority project and what criteria should be

used to define it? What is a regional project? Reduction in generation capacity – what next?

OPERATIONAL CHALLENGES


Transmission Projects

2010: Mozambique Malawi

2011: DRC - Zambia

2014: Zambia - Tanzania

DRCDRC

TanzaniaTanzania


MalawiMalawi


ZimbabweZimbabwe

BotswanaBotswana

NamibiaNamibia

South AfricaSouth Africa

SwazilandSwaziland

LesothoLesotho

2010 -2011: ZIZABONA

2012 -2014: WESTCOR

2015: EASTERN CORRIDOR


BURKINAFASO

INTERCONNECTING POWER POOLS IN AFRICA

SAPP

SOMAL

IA

CONG

O

ALGERIAMOROCCO TUNISIA

MAURITANIA

GUINEE

SENEGALGAMBIA

SIERRA LEONELIBERIA

LESOTHO

SWAZILANDMOZA

MBIQUE

MADA

GASC

AR

MALAW

I

TANZANIA

KENYA

OUGA

NDA

R.B.

ETHIOPIA

DJIBOUTI

ERITERA

GUINEE-BISSAU

COMORES

SAO TOME &PRINCIPE

LIBYA

NIGERMALI

COTED’IVOIRE GH

ANA

TOGO BE

NIN

GUINEE EQ.

TCHAD SUDAN

RCA

NIGERIA

ANGOLA

RSA

BOTSWANA

CAME

ROUN

GABONRD CONGO

NAMIBIAZIMBABWE

ZAMBIA

EGYPT

COMELEC

WAPP

EAPP (+ RDC, Rwanda , Burundi)

CAPP

POWER POOLS IN AFRICA

ENERGY TRADING IN THE SOUTHERN AFRICAN POWER POOL Alison Chikova Chief Engineer March 2009

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