Integrated Resources Plan (IRP) briefing: Department of Energy

Energy

02 August 2010
Chairperson: Ms E Thabethe (ANC)
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Meeting Summary

The Department of Energy briefed the Committee on the Integrated Resource Plan 2 (IRP2). The briefing included a summary of the public consultation process that was followed concerning IRP2. The inputs that were received from the public were diverse and addressed issues such as climate change, renewable energy, economic factors and the security of energy supply.

The Department highlighted that it would not focus on affordable electricity at the expense of the climate, and it would not sacrifice employment for commitments that developed nations were loath to make. The Department would use input parameters such as policy, facts and information and develop scenarios that would result in IRP2 outcomes that would address issues such as security of supply, multiplier effects and carbon effects.

The Committee’s questions focused on the lack of consultations with entities such as Eskom, the extent to which the timeframe for electricity supply for the country was influenced by any demographics such as population growth, the difficulty in monitoring externalities, future energy demand, energy efficiency targets and the costs of nuclear energy. Members were concerned that the Department’s Technical Advisory Panel was mostly made up of people from the coal mining industry and the energy intensive user groups. There was no scope for experts on renewable energy. Members also wanted to know if the energy that was sold to alluminium smelters by Eskom at a discounted rate was worked in to the different scenarios for the IRP2. The Committee stated that a degree of transparency was needed with regard to the IRP2 decision-making processes. They asked how far the Department was in terms of the commercialisation of renewable energy, how people that did not have access to the internet would be able to make submissions on the IRP2, how the government’s climate change policy would fit in to the IRP2, how long it would take to close the gap between the demand for and the supply of energy, and how much it would cost to close this gap.

The Committee noted that more focus had to be given to renewable energy. Members and the Department also needed more time to discuss the municipalities’ role in the energy sector. The Committee supported the notion that the IRP would have to be reviewed every year. Their only concern was that the IRP would lead to a set of decisions that would be made by the government, which would lead to a series of contractual obligations. They worried that the government would not be able to get out of these contractual obligations if changes had to be made to the IRP. Members worried that the time in which the IRP had to be promulgated was too short. There was a fine balance between completing the IRP2 process and deterring investment in the plan. The Committee hoped the Department would be able to stick to the IRP timeframe. 


Meeting report

Briefing by the Department of Eenergy: IRP2
Ms Nelisiwe Megubane, Director-General, Department of Energy (DoE), informed the Committee that Mr Ompi Aphane, Deputy Director-General: Electricity, Nuclear and Clean Energy (DoE), would be briefing the Committee on the Integrated Resource Plan (IRP). He stated that the IRP2 process was designed to allow the DoE to arrive at a plan for the country, which was based on knowledge, data, reason and consultation. The IRP2 was a National Electricity Plan and was a subset of the Integrated Energy Plan. The IRP2 would direct the expansion of the electricity supply over a twenty year period.

Mr Aphane stated that the IRP needed to answer certain questions like what the electrical energy requirements were for the country to achieve sustainable economic growth, and by when this capacity was needed. The IRP also focused on what technologies were needed to ensure adequacy of supply, what technologies would ensure commitments to climate change were met, and what technology would allow the country to maintain a competitive position in the global arena and ensure sustainable use of local and regional resources. The IRP would look at the linkages and dependencies on resources such as water, primary energy sources, skills, sorbents, transmission infrastructure and land. It would also look at the role of the government, the National Energy regulator of South Africa (NERSA), Eskom, Independent Power Producers (IPPs) and other stakeholders in meeting the country’s energy needs. The URP would provide information on what it would cost to meet these needs, how it would be funded, what the impact would be on future electricity prices, and what was required to implement the plan.

The IRP2 process was output focused. It would use a fact base to determine the most cost effective mix of generation options given the constraints imposed. Scenarios would then be produced to allow the decision makers to choose which options would be accepted. The IRP2 would need to balance economic, social and environmental concerns. The DoE would not focus on affordable electricity at the expense of the climate, and they would not sacrifice employment for commitments that developed nations were loath to make. The DoE would use input parameters such as policy, facts and information and develop scenarios that would result in IRP2 outcomes that would address issues such as security of supply, multiplier effects and carbon effects.

The DoE discussed the feedback received from the public consultations on the IRP2. The DoE had received 81 submissions and 831 inputs were captured and analysed. The inputs received were very diverse and included requests for policy changes, recommendations, concerns, comments, questions, observations, critiques, support for the IRP2 process and requests for information. These contributions were made by Non Government Organisations (NGOs), civil society, academics, consultants, and businesses. The consultation analysis revealed that there were many concerns about renewable energy generation, the IRP 2010 consultation process, the demand response, economic factors, climate change, security of energy supply, the demand forecast, price elasticity, the cost of generation options, and water. Most of the respondents were impressed by the IRP process and congratulated the DoE on its transparency. However, some respondents were concerned that there had been insufficient time to allow people to respond adequately, there was a lack of input from rural communities, there was a lack of capacity building that would hinder a response to complex technical issues, and that there was an inability to influence existing government policies or decisions that were already in place.

Most respondents called for a “low carbon economy” and for focus to be put on renewable energy. Most were opposed to nuclear energy and coal as energy solutions in the future. They said that there was a need to resolve the structure of the electricity market debate and put in place incentives such as a tax policy to encourage non-Eskom generation in to the sector. Many respondents highlighted the state’s constitutional obligation towards safe energy choices. They wanted the DoE to focus on the socio-economic effects of their decisions, externalities, the impact on the Gross Domestic Product (GDP), transmission infrastructure and the cost of inaction on climate change.

All comments were incorporated in to the analysis for each parameter of the IRP2. Several critically important aspects of technology costs and viability were very helpful and provided fantastic insight. Key parameter values that were taken from the consultations included the energy and demand forecast, the location of the generation plant, water usage, renewable energy, climate change, energy imports, demand side management, and energy availability.

Mr Aphane stated that the DoE started the modeling of the IRP2 “business as usual” base case scenario in July 2010. The other extreme was the “no carbon” or carbon constraints scenario. There were millions of other scenarios between these two. Modeling the “business as usual” base case scenario would allow the DoE to set up a set of criteria that would allow them to set out the different scenarios. The criteria would need to be evaluated in relation to those base cases within the next two weeks. The DoE also wanted to look at the economic impact of the business as usual scenario. The base case should be ready at the end of August. This would include the business as usual scenario’s impact on the economy. The DoE also wanted to engage in another set of public engagements. A plenary session was convened on 7 and 8 July 2010 so people could make submissions on any matter they wanted to. Another one would be held at the end of August or in early September 2010. The public would have a month to comment. More public hearings would then be held under the auspices of NERSA. This is what the law required. There was a process with the Executive that the DoE needed to embark upon as well. The Cabinet would need to consider the draft IRP2 and tell the DoE what direction it should take. The intention was that everything should be in place by the middle of November 2010 so that the IRP could be promulgated.

Mr Aphane noted that the DoE had not spoken to the Committee about how the IRP process impacted on other decisions in the energy sector. By law, NERSA needed to make licensing decisions. NERSA was unable to make any decisions outside of the IRP. If the IRP is not promulgated this year, it would mean that investment decisions would be deferred to the following year. The DoE was looking forward to the consultation process and having a secure energy supply.

Discussion

Mr A Mokoena (ANC) welcomed the comprehensive presentation. He stated that the DoE still had a long way to go regarding the IRP2, but at least they had something palpable as far as policy was concerned. He was glad that NERSA was going to be involved. However, he sensed a lack of consultations with other entities such as Eskom. The DoE had to move quickly in terms of the IRP2, but not at the expense of the public consultations. He asked to what extent the timeframe for electricity supply over the next twenty years was influenced by other statistics and demographics such as population growth. To what extent was Stats SA consulted?

Mr Aphane replied that Eskom as well as other government departments were an integral part of the IRP2 process. There was an inter-departmental structure that met every week to discuss the IRP2. Eskom was very involved in this process.

Mr Aphane added that the electricity supply projections were made in relation to demand growth for electricity and economic growth. This showed that there were demographic changes that influenced economic activities.

Mr L Greyling (ID) stated that the IRP process had improved significantly since it was announced in May. He commended the DoE for taking into account some of the constraints regarding public participation. He had a problem with the Technical Advisory Panel (TAP) and who the DoE chose to include in the panel. It seemed to be made up of people largely from the coal mining industry and the energy intensive user groups. There was no scope for experts on renewable energy. These were the guys that generated assumptions and inputs that went in to the IRP model. There was a concern with externalities. The DoE said that it was difficult to monitor externalities. This was not good enough. Externalities had to be monitored and quantified. If this was not done then the costs to society and the economy would be excluded from the IRP model. He wondered how this parameter would be brought in to the model. He had looked at the Council for Scientific and Industrial Research (CSIR) report and saw that they had experienced difficulties in monitoring the future energy demand because the only parameter inputs they had were from Eskom. He asked if the DoE had any parameters around future energy demand. How would the DoE ensure that they would get this figure right? He wanted to discuss parameters on energy efficiency. Initially, the DoE had energy efficiency targets of only 12%. Now the Committee was told they would only reach 8%. This was half of the government target that was set. He asked if the DoE could set a target of 12% energy efficiency by 2015. This could even be increased to 15%. He looked at the costs of nuclear energy. He stated that the DoE needed to be realistic about the costs of nuclear energy.

Mr Aphane addressed the question on TAP. He explained that all the input parameters were transparent and were put on the DoEs website. The process of developing the IRP tended to be more technical than anything else. The advisory panel that was used was largely dominated by engineers and economists. It was misleading to assume it was dominated by the energy intensive users group. There was a member that represented the IPP community and renewable energy community. The DoE wanted to ensure that they were aligned with other government priorities.

Mr Aphane acknowledged that the issue of externalities was a difficult matter to deal with. The DoE would take the Member’s concerns to heart. There had been various attempts, locally and internationally, to deal with this issue. The DoE would focus on these solutions as well. The National Treasury was working on a way to quantify carbon emissions. This was something that was still being looked at. The DoE also used the economic impact of externalities to try to determine the financial costs of externalities.

Mr Aphane corrected Mr Greyling saying that the CSIR report was not done by Eskom inputs. Eskom did its own report.

Mr Aphane addressed the energy efficiency target. This was an issue that needed to be corrected. The philosophy was that energy efficiency was quicker to deploy and was cheaper than supply side options. The DoE wanted to harness as much energy efficiency as possible. As a country, we have been grossly negligent regarding the matter. The country had never been energy efficient in the past; therefore, it was necessary to set targets.

Mr P van Dalen (DA) stated that the energy crisis was a direct result of Eskom’s poor management of the excess electricity that was sold at a discount to alluminium smelters. He had read that the alluminium smelters would be using 400 times more electricity in 2035 than they did now. He asked if these discounted rates were worked in to the IRPs different scenarios. Why were companies like the alluminium smelters not generating their own electricity? Some alluminium companies said that the electricity rates were so cheap that they did not need to build the extra capacity needed for their own energy generation.

Mr Aphane explained that the government had an Industrial Policy Action Plan. Also, one of the parameters of the IRP2 related to energy intensity. The DoE recognised that it may have done certain things in the past where it may have encouraged energy intensity in industries that may not have had a major economic impact. How the DoE treated the alluminium industry was in relation to the Industrial Policy Action Plan.

Mr D Ross (DA) noted that during the consultations, most people were opposed to the use of nuclear or coal energy in the future. He asked for a breakdown of how many people were opposed to nuclear energy and how many were opposed to coal use. He wanted more specific percentages.

Mr Aphane replied that the DoE would have to go through the submissions again to give the Committee the break down of the opposition to nuclear and coal energy. 

Mr P Dexter (COPE) stated that Members thought that a degree of transparency was needed with regard to the IRP2 decision-making processes. The DoE alluded to a decision-making tree in terms of the IRP2. He assumed that this meant that there was a way to evaluate different scenarios for electricity supply. This tree would need to reflect multiple criteria that would be used in such an evaluation. This would suggest what the different priorities are. What approach would the DoE use to balance the needs of the communities that did not have access to electricity against the interests of multinational companies? What factors would the DoE consider? The DoE needed to take different inputs from various experts and stakeholders in to consideration. This needed to be done within the next ten working days in terms of the timeline that the DoE advertised.

Mr Aphane answered that the DoE was not at the point where it was looking at evaluation criteria. It did not have a preconceived idea of what the criteria would look like. The DoE just wanted to look at the different scenarios and the impacts of those scenarios.

Ms F Hajaig (ANC) asked how far the DoE was in terms of the commercialisation of renewable energy. The DoE was looking at the production of nuclear energy for 2020. She asked if a study had been done that looked at the cost of nuclear energy and the cost of renewable energy.

Mr Aphane replied that the recent framework for renewable energy had been concluded. At the moment, the DoE was in the process of resolving issues relating to buyers. Currently, the DoE was looking at IPPs. Once a discussion paper has been concluded, renewable energy IPPs would be introduced.

Mr Aphane stated that the DoE had looked at the cost of nuclear energy in relation to renewable energy. There were many factors that had to be taken in to consideration. When the DoE received the information, it would be able to inform the Committee of the differences in costs in a lot more detail.

Mr G Koornhof (ANC) noted that the balance for the DoEs timeframes for public participation processes and not deterring investment decisions was a very delicate balance. The timeframes seemed to be extremely tight. There were 120 days left until the IRP2 had to be promulgated. Within these few days there were two public participation processes. He asked if the DoE was confident that they would be able to stick to the timeframe.

Mr Aphane answered that the DoE needed to conclude the IRP2 process by the end of the third quarter. Those were the orders. The DoE was working very hard to get to this point. The DoE believed that the consultation period that was given mapped out the minimum number of consultations that the DoE could have. They thought that more consultations could be held with the IRP3. This was a continuous process that concerned many stakeholders. The DoE was confident that the timeframes would be met and investment would not be deferred.

The Chairperson noted that the consultation process had taken place over the internet. She wondered how people that did not have access to the internet would be able to make submissions on the IRP2, especially those in rural areas.

Mr Aphane replied that the DoE was looking at ways to bring the municipalities and the public in general in to the process. The public needed to know what the issues were regarding the input parameters and the IRP2 process. 

Ms G Borman (ANC) stated that even though the DoE had assured the Committee that it would meet the IRP2 timeframes, she was concerned that they would not. She asked what the DoEs position was regarding the government’s climate change policy and how it would fit in to the IRP2.

Ms Megubane replied that her colleagues at the Department of Water and Environmental Affairs were busy working on a policy for climate change. It was the DoEs view that when the climate change policy is finalised, the IRP would be revised to respond to the new climate change imperatives.

Mr J Selau (ANC) commended the DoE for the work that it had done. The presentation showed that some of the concerns that were raised during the consultations were that there was a lack of capacity building rural areas, and that there was an inability to influence existing government policies that were already in place. He asked if the DoE intended to respond to these concerns. Did the DoE intend to capacitate rural communities to teach them about energy? He asked what the reasons were that people were so strongly opposed to nuclear energy.

Mr Aphane explained that the opposition to nuclear energy stemmed from the concern for nuclear safety and it was based on fear of the type of accidents that could occur. The DoE could do further analysis on this.  

Mr E Nchabeleng (ANC) asked how long it would take to close the gap between the demand for energy and the amount of energy available for supply. What would the cost be for closing this gap?

Mr Aphane replied that based on projections of the economy, the GDP and growth of energy demand, the DoE did not think it would be able to improve the reserve margin, which was the gap between the supply and demand for energy, adequately. The next power station would only be ready in 2014 or 2015. If the economy continued to grow at its current rate, the chances were that another power station would be needed by 2018.

In terms of costs, it cost approximately $3 million per megawatt. Therefore, if a thousand megawatts were needed then it would cost the country $3 billion. A lot of money was needed. The costs would increase substantially if renewable energy was used.

Mr van Dalen stated that as a tax payer and electricity user, he could not help but feel violated. The DoE spoke about affordability and the shortage of energy. However, it did not address these issues in the IRP2. The public wanted to know how it would solve the energy shortage crisis.

Mr Aphane replied that the DoE realised that it would be critical to cushion the poor from high energy prices. There were strategies in place to deal with these issues. Going forward there would be proper alignment with the government’s industrial policy and the growth path that was set for the country.

Mr Ross noted that there were huge expectations regarding renewable energy. It seemed to him that there should be more focus on renewable energy. He asked what the selection criteria were for the different kinds of renewable energy. The DoE mentioned that municipalities would play an active role when it came to energy supply. The Committee and the DoE needed a whole day to discuss the municipalities’ role in energy supply.

Mr Aphane replied that more focus needed to be put on renewable energy and the technology needed for the different types of energy such as wind energy, solar energy and thermal energy. This was the basis upon which the regulator pronounced different tariffs for the different technologies. He stated that it was a fair comment to say that more focus had to be given to municipalities’ role in the energy crisis.

Mr Greyling stated that he would support the notion that the IRP would have to be reviewed every year. His only concern was that the IRP would lead to a set of decisions that would be made by the government that would lead to a series of contractual obligations. If the IRP had to be reviewed every year and changes had to be made, would the government be able to get out of these contractual obligations? This was a real worry. He stated that it was not good enough for the DoE to say that it was trying to be as energy efficient as possible. This was a fundamental determinant of the energy demand going forward. The country needed to be more serious about energy efficiency.

Mr Aphane replied that it was fair to be concerned about the contractual obligations that the government would enter in to. However, certain decisions had to be made urgently. There were also decisions that had to be made about base loads going forward.

The Chairperson noted that the IRP process was still in progress. They Committees wanted to meet with the DoE again; they did not just want to see the finished product. Both the Energy Committee and the Public Enterprises Committee would have to check their schedules to find a date when both Committees would be available to meet the DoE.

The meeting was adjourned.

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