Electricity, Nuclear, Clean Energy & Integrated National Electrification 2012 Plans: Department of Energy briefing

NCOP Economic and Business Development

15 May 2012
Chairperson: Mr F Adams (Western Cape, ANC)
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Meeting Summary

The Committee was briefed on the Department of Energy’s Annual Performance Plan for Programme 3: Electricity, Nuclear and Clean Energy and for its Integrated National Electrification Programme. The six goals of Programme 3 were: universal access and transformation, security of supply, regulation and competition, infrastructure, environmental assets and climate change. Details were given of the sub-programmes: Energy Policy and Planning / Nuclear And Clean Energy. The energy sector’s climate change adaptation and mitigation strategy included analysis of risks associated with climate change response measures, measuring energy related carbon emission reduction, development and implementation of an environmental management plan as well as internal department environmental policy, plus compilation of Annual Compliance reports.

The revised strategic plan of the Integrated National Electrification Programme (INEP) was split into six programmes: Administration, Energy Policy and Planning, Petroleum Regulation, Nuclear Energy, Clean Energy and Programmes and Projects. INEP’s three year grid performance trail outlined the connections done by Eskom and municipalities. A total of 3.4 million households did not have electricity and of this, 1.2 million were in informal settlements. This meant about 12.5 million people did not to have access to modern energy. INEP’s operational budget had been cut by 50% and this was a serious challenge to delivery of connections and the monitoring of delivery during this financial year.

Members asked questions on the agreements and funding arrangements with the Development Bank of Southern Africa and on the effect of the long term tariff trajectory on development. The lack of compliance of municipalities in spending 8% of their electricity tariffs on maintenance and 40% of their capital budget on renewal of infrastructure was raised. What was the opinion of DOE about this? The monitoring and evaluation mechanism of the Department of Energy were also queried. The Committee requested details on municipalities where Department of Energy projects were being piloted and the criteria for the granting of loans to municipalities. Members also asked about studies on Thorium as an alternative for Uranium.
 

Meeting report

Programme 3: Electricity, Nuclear and Clean Energy: Annual Performance Plan 2012/13
The Committee was briefed by Mr Ompi Aphane, Acting Deputy Director General at the Department of Energy (DOE). Using a goals and outcome oriented approach, Programme 3 had six goals: universal access and transformation; security of supply; regulation and competition; infrastructure; environmental assets; and climate change. These goals were directly linked to particular outcomes of the 12 government outcomes and the Millennium Development Goals.

Mr Aphane went through each of the six goal statements (see document). Details were given of the three sub-programmes: Energy Policy and Planning / Nuclear Energy / Clean Energy. The energy sector’s climate change adaptation and mitigation strategy included analysis of risks associated with climate change response measures, measuring energy related carbon emission reduction, development and implementation of an environmental management plan as well as internal department environmental policy, plus compilation of Annual Compliance reports.
 
Energy Policy and Planning
The new Energy Policy and Planning component comprised of the designing of new electricity generation capacity. The Multi Year Price Determination (MYPD) was aligned to support the licensed Integrated Resource Plan (IRP) projects. It also monitored Eskom construction progress and the electricity distribution network which included mapping of distribution assets status, the approval of the Electronic Data Interchange (EDI) rehabilitation plan and the piloting of these projects in selected secondary municipalities.

The Energy Policy and Planning component also comprised of the establishment of the Independent System and Market Operator (ISMO). On Independent Power Producers (IPP), the programme had selected IPPs with the envisaged construction of IPP plants. The IPP Unit was established with moderate support from external experts. The Medium Term Risk Mitigation Plan was said to have 103MW connected to the grid ito the Medium Term Risk Mitigation Plan (MTRMP) and these projects were identified, implemented and verified. The programme also included the finalization of agreements for the procurement of electricity and a review of the 2010 Integrated Resource Plan. The energy policy and planning programme also had the objective of monitoring the effectiveness of the Increasing Block Tariff (IBT) in cushioning the poor from the rising costs and monitoring the effectiveness of the MYPD2 in terms of the true cost of production. The programme planned to extend the IBT to cover prepaid meters in more municipal areas. In terms of legislation the programme focused on the Electricity Regulation Amendment Bill, the National Energy Regulator Bill and the ISMO Bill. The programme also administered the promulgation and maintenance of the statutory frameworks.

Nuclear Energy
The new Nuclear Energy component dealt with the completion of the International Atomic Energy Agency (IAEA) external review of nuclear infrastructure, approval of nuclear procurement process specifications and feasibility studies for Nuclear Fuel Cycle Infrastructure for beneficiation of Uranium. This was linked to the International Review of Nuclear Fuel Infrastructure Cycle for the beneficiation of Uranium. The programme focused on implementation of transitional structure for the National Radioactive Waste Disposal Institute (NRWDI), standardization of security measures and installation of Portal Radiation Monitors at main ports of entry.
On nuclear safeguards, the programme envisaged 100 authorisations or denials for nuclear materials and related equipment. The programme also provided for four nuclear safeguard compliance inspections, audits and investigations. Under this programme, the DOE was to participate in four proceedings of the Non-proliferation Treaty, Nuclear Suppliers Group, Zannger Committee and Pelindaba Treaty. With regards to legislation, the programme was focused on amendment proposals of the Nuclear Regulator Act to be approved by Cabinet, the draft Fund Bill for NRWDI to be approved by Cabinet and a framework for the withdrawal of the safeguards function from the South African Nuclear Energy Corporation (NECSA).

Clean Energy
The new Clean Energy component had its focus on energy efficiency and demand side management policy and strategies. This included monitoring and reporting on energy savings, implementing the energy efficiency incentive scheme, facilitating the development of energy management plans by stakeholders, implementing and reviewing the Solar Water Heater (SWH) Standard Offer Policy and Plans, expanding the scope of the Standard Offer Policy to include other energy efficiency measures and standards, regulations and code of practice.

Another dimension of the clean energy programme was energy efficiency and demand side management interventions. This comprised of monitoring and reporting on project implementation and the installation of an accumulative total of 500,027 SWH units. This programme also involved evaluating and assessing the impact of the 2011/12 Energy Efficiency and Demand Side Management campaign. The programme provided for the implementation of an effective monitoring and data management system, plus analyzing savings achieved.

With regards to legislation, its target was to review and approve the Renewable Energy White Paper. The renewable energy interventions included bio ethanol blending value, bio fuel break-even price, publish bio fuel manufacturing support mechanism, developing a proper data capturing, analysis and reporting system, developing a template for the Renewable Energy Annual Report, carrying out a Wind Energy Awareness campaign and a Solar Water Heating implementation plan.

Mr Aphane outlined the energy sector’s climate change adaptation and mitigation strategy. This included analysis of the risks associated with climate change response measures, measuring energy related carbon emission reduction, development and implementation of an environmental management plan and an internal department environmental policy plus the compilation of Annual Compliance reports.

As part of the adaptation and mitigation strategy, the DOE planned to process 100% of all Clean Development Mechanism applications within the set timeframes, to carry out CDM awareness campaigns, circulate the sector booklet, publish the CDM status report and the COP17 lessons learnt report. The DOE planned to participate, and implement decisions of United Nations Framework Convention on Climate Change events.

Mr Aphane concluded that during this financial year, a few deliverables had moved from the design and development phase to the implementation phase. The DOE was also going to face the challenges of resources with particular respect to human resources and finances.

DOE Integrated National Electrification Programme (INEP) Annual Performance Plan 2012/2013
Dr Wolsey Barnard, Chief Director: INEP programme, noted the INEP revised strategic plan of the INEP with six programmes: Administration, Energy Policy and Planning, Petroleum Regulation, Nuclear Energy, Clean Energy and Programmes and Projects. He explained the mandate of each programme (see document).

Dr Barnard outlined the INEP three-year grid performance trail of connections done by Eskom and municipalities. For 2011/12, Eskom’s target was 99 377 connections and it managed 106 061 connections or 107%. For the same period, the target for municipalities was 99 505 connections and it managed 35 329 or 36%. Total number of connections for both was 141,390. The projected connections for completion by April 2014 was 196 400. All transfer payments were made for 2011/12 and no roll-overs were needed.

On non-grid solar home systems, the total installed was 48,230. The provincial breakdown had been 10,385 in the Eastern Cape, 29,705 in KwaZulu-Natal and 8,140 in Limpopo. In future, non-grid electrification programmes were not only to be implemented in concessionary areas but on a limited basis in Southern Cape, Northern Cape and Eastern Cape areas. For 2011/12, the target of 10 000 non-grid solar home systems had been achieved.

The percentages of households without electricity were: Eastern Cape 20%, the Free State 6%, Gauteng 21%, KwaZulu-Natal 24%, Limpopo 10.5%, Mpumalanga 6.5%, North West 5.5%, Northern Cape 1.5% and the Western Cape 5%. A total number of 3.4 million households did not have electricity and of this total, 1.2 million were informal settlements. This meant about 12.5 million people did not to have access to modern energy.

INEP 2012/13 Allocations were provided for municipalities, Eskom and non-grid (see document). Connection Targets for 2012/13 were Municipalities 71,646 and Eskom 111,565, totalling 183,211. Budgets for bulk allocations for 2012/13 were also noted.

The Programmes and Projects programme implemented the informal settlement strategy alongside the human settlement strategy. The draft strategy had been developed and discussions with stakeholders on final inputs were ongoing. Challenges were faced regarding the supply of services to informal settlements if the area was not pro-claimed or re-zoned. Under the Breaking New Ground initiatives, there was an agreement with the Development Bank of Southern Africa to assist with soft loans for large projects. This initiative also involved the development of a new implementation strategy which was the Electrification Indaba, attended by 210 delegates.

On the way forward, Dr Barnard stated the mandate received from the Electrification Indaba was to address these challenges by the development of a new implementation strategy. This strategy included the participation of broad stakeholder groupings in this process. It also involved the establishment of different work groups to assist the DOE in the process. There was going to be a call for participation of stakeholders during May 2012. The new implementation strategy was to be developed in collaboration with the World Bank, which was to fund the process, and consultants had been appointed to render assistance to the DOE for this. In mapping the way forward, DOE’s available options for consideration included the need to address EDI challenges and structure; increasing efficiency in managing and implementing electrification projects, the standardization of equipment and supply standards, a single purchasing office, national planning of electrification rollout, diversification of electrification technology, enhancing the role of private service providers and financial institutions in future electrification, utilizing DBSA assistance with soft loans and front loading for electrification projects, investments in non-grid technologies and the establishment of non-grid utilities.

Dr Barnard said that INEP’s operational budget had been cut by 50% and this was a serious challenge in the delivery of connections and the monitoring of delivery during this financial year. School electrification was no longer part of INEP’s mandate but part of the Department of Basic Education infrastructure capital programme.

Discussion
The Chairperson said that he had noticed that Kouga Municipality in the Eastern Cape had an addition of R4.5 million and were being assisted with additional funding.

Mr D Gamede (KwaZulu Natal) asked which municipalities were being piloted and where were the IPP plants being constructed. On the loans, he asked which municipalities were beneficiaries of these loans. On the agreement with the DBSA to buy transformers for Eskom, he asked why could the municipalities and Eskom not buy these transformers themselves or get government to buy these on behalf of the municipalities.

Dr Barnard replied that municipalities that had benefited from the loans was a very recent development but as a pilot. There were discussions with a municipality in Limpopo which had 38,000 connection backlogs in the area. For each loan application, an evaluation committee set up by the DBSA and the DOE to ensure compliance and effectiveness. About cutting out the middleman in the purchase of transformers, there were a couple of regulations or an Act which needed to be changed to effectively handle the situation. A national purchasing office was the type of agency to handle such operations.

Mr Aphane said DOE had a list of the municipalities where the pilot projects were taking place. The criteria for working with municipalities were more important. Some criteria included the fact that the projects had to be ready ones and it was in those municipalities where part of the funding had to be done by the municipalities. The challenge was a R30 billion problem and the solution was to find a national financing solution.

Ms E Van Lingen (Eastern Cape) expressed worry about the electricity tariffs and funding capital budgets because a decision was taken that that funding model was not going to be used. What was the effect of the long term tariff trajectory on future development? Was there any programme or intervention by the DOE to assist municipalities unbundle their assets? The regulation stipulated that municipalities should be spending 8% of their electricity tariffs on maintenance, but according to previous inquiries, there was no mechanism by the DOE to name and shame municipalities that were not living up to this standard. A further regulation stated that 40% of the capital budget had to be spent on renewal of infrastructure. What was the opinion of DOE on that regulation? On feasibility studies for nuclear energy, had DOE done any studies on the possibility of using Thorium?

Mr Aphane replied that on the 40% of capital budget being spent on renewal, it varied from municipality to municipality. What the DOE found was that the capitalization requirements in the big municipalities were so severe that it actually hindered social development. Even worse was that the fact that municipalities derived a lot of revenue from electricity sales. However, it was not only a municipal problem because there were instances where it was actually Eskom which was not able to provide the power to the substation where the municipality had to then supply to the communities. On the long term tariff trajectory, it did not really matter whether the infrastructure was provided by the private or public sector. The end result was that it had to be paid for once it was built. The long term tariff trajectory sets a blueprint on how much could be derived from user charges in a manner that does not adversely impact economic growth and the competitiveness of the economy. In assisting municipalities to unbundle their assets, the DOE had set up the EDI programme and the idea was to design a proper tariff structure. Mr Aphane said that there were considerations and interventions on the use of Thorium. There was a team that was charged with that duty.

Ms Van Lingen said that mention was made of the Millennium Development Goals but no mention was made of the National Development Plan. Was it not important to align with the National Development Plan? On the challenges of the INEP, she asked for a list of the other challenges faced by the programme other than finance and human resources. Did the DOE have any monitoring and evaluation mechanism to ensure that when funds were allocated to municipalities, they were used for the intended purpose.

Dr Barnard replied that there was a challenge with delivery in that every time there was the starting of an infrastructural development, the DOE was faced with claims and objections. On the checking of misappropriation of allocations by municipalities, there were a couple of processes which included contracts between the DOE and municipalities. Deliverable were included in this about the quality and number of connections. This made it easy for frequent checks to be done. There were also technical auditors who went out to check the progress in the field. Municipalities also had to submit monthly evidence of what had been purchased. In the contracts with municipalities, there were delivery timeframes and the failure to adhere to these timeframes could be noticed from the DOE systems and follow-up checks were consequently done.

The Chairperson said that he also had some questions but because of time constraints, he was going to put the questions in writing.

The meeting was adjourned.


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