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 & Tore Horvei, CEO, SAD-ELEC (Pty) Ltd
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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 & - PowerPoint PPT Presentation
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Security and adequacy of supply in South Africa – a point of view on
associated challenges and some solutions
Presentation to 21st AMEU Technical ConventionGallagher Estate, Midrand, 17 October 2006
byVally Padayachee, Director, City Power JHB Pty Ltd &
Tore Horvei, CEO, SAD-ELEC (Pty) Ltd
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 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
17 October 2006 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
17 October 2006 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
Demand Side Analysis
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 6
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
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 7
GDP growth viz. electricity demand(Q1 1993 to Q2 2006, Source: Stats SA)
Electricity Distributed and real GDP Growth
(quarterly moving average)
1
1.1
1.2
1.3
1.4
1.5
1.6
IndexBase Q1 '93
3.3% Growth
GWh Growth GDP Growth
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 8
GDP growth viz. electricity demand (II)(Q1 1993 to Q2 2006, Source: Stats SA)
Quarterly Energy and GDP Growth
(Based on 4-quarterly moving average)
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
El Growth GDP Growth
Quarterly Growth Rate
17 October 2006 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
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 10
These needs are poorly matched by the composition of SouthAfrican generating plant (>93% base load)
These needs are poorly matched by the composition of SouthAfrican generating plant (>93% base load)
17 October 2006 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
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 19
Demand - supply balance: an increasing gap!
South Africa System Maximum Demand Forecastand Committed Generation Expansion Plan
Available 2006 Committed De-mothballing Committed OCGTProject Alfa Pumped Storage High demand (6% GDP growth from 2010)Low demand (4% GDP growth from 2010)
Generation capacity includes HCB and is adjusted to reflect a 15% reserve margin
Includes committed international sales (Mozal, Swaziland etc)
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 20
Commercial scale renewable energy options (e.g. solar-thermal) Import from SADC region (see next slide)
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 24
Potential regional (SADC) projects
Current regional contenders Key criteria
Mmamabula, Botswana (Up to 3,600 MW coal)
Credible technical solution Cost competitiveness Credible off-taker Credible developer Acceptable local power market price Project size vis-à-vis size of local market Alternatively, proximity to regional (often SA
market) Credible transmission integration solution Environmental compliance Acceptable political risks
Morupule expansion, Botswana (Up to 1,200 MW coal)
Kudu, Namibia (800 MW natural gas)
Cahora Bassa North Bank, Mozambique (+/- 850 MW hydro)
Temane, Mozambique (750 MW natural gas)
Kafue Gorge Lower, Zambia (600 MW hydro)
Mpanda Nkwua, Mozambique (1,300 MW hydro)
Moatize, Mozambique (Up to 1,500 MW coal)
Inga III, DRC (3,500 MW hydro (or more) – Westcor project)
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 25
Capacity additions required (in MW)(Source: SAD-ELEC)
Annual MW Additions to meet demand growth and reserve margin (RM)Low Case: 12.5% RM by 2015 / High Case: 15% RM by 2015
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
14,000
2005 2010 2015 2020 2025 2030 2035 2040 2045
Low Case High Case
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 26
And the financial challenge is huge!(Source: SAD-ELEC)
Annual Generation Investments (in 2006 Rand millions)LOW CASE & HIGH CASE
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
2005 2010 2015 2020 2025 2030 2035 2040 2045
Low Case High Case
Security of Supply –Is the South African ESI up to the
challenge?
17 October 2006 21st AMEU Technical Convention: Security of Supply (Padayachee & Horvei) 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)
17 October 2006 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
Vally Padayachee, City Power Johannesburg (Pty) Ltd