Electricity Sector restructuring & draft Integrated Energy Plan: Departmental briefing

Energy

19 August 2013
Chairperson: Mr S Njikelana (ANC)
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Meeting Summary

The Department of Energy (DoE) briefed the Committee on the restructuring of the Electricity Sector and the Draft Integrated Energy Plan (IEP), in the presence of the newly appointed Minister of Energy, Mr Dikobe Ben Martin, and the Deputy Minister, Ms Barbara Thompson. The Committee highlighted that the Integrated Resource Plan (IRP) still needed attention but the DoE explained that this was still under discussion.

A brief presentation was given on the restructuring of the electricity sector. The DoE was intending to introduce legislation by way of the Electricity Regulation Amendment Bill, the National Energy Regulator Amendment Bill and the Independent System and Market Operator (ISMO) Bill. The Gas Amendment Bill would be introduced to Parliament soon. The DoE planned to incorporate an updated IRP, a Gas Infrastructure Plan, the Liquid Fuels Master Plan, the Transmission Development Plan and some major infrastructure into one national plan. The country’s energy demand was also projected for the period up to 2050. DoE’s planning and implementation had been affected by certain challenges, including the structural changes in the industry and financing of the capital programme, but restructuring was a phased process, involving full planning, legislative change, and addressing the challenges.

Another presentation on the Draft Integrated Energy Planning Report was given, noting that this Report had been approved by Cabinet for public consultation, and was currently in the public domain, but it was emphasised that it was a Report only at this stage and not a finalised policy. The IEP process also took a phased approach. Around four months was required for stakeholder consultation and six months for policy finalisation, so it should be complete by November 2014. A background was given, noting that the energy sector landscape and its key objectives were defined in the Energy White Paper of 1998, and that this had been a very forward-looking policy, which already contemplated integrated planning. It had since influenced various other policies. There was a need to facilitate optimal energy consumption and production to meet social needs. The difference in approach prior to and post-2007 was briefly outlined. Currently scenarios were used to analyse policy and the environment, and planning covered the full energy spectrum which included electricity, liquid fuel, renewable energy and demand-side interventions. The DoE described some of the case studies that it had undertaken in Norway and in the United States to learn about scenario planning and strategies around energy planning. The DoE had also looked to China and Brazil, but emphasised that there was no “one-size-fits-all” approach to energy planning, which was why high-level stakeholder consultation processes were necessary to draft and implement a uniquely South African energy planning strategy. The IEP also looked to the New Growth Path and the National Development Plan. There was currently a challenge in that the Minister of Energy had no powers under the legislation to enforce the implementation of the recommendations of the IEP, and there was discussion on how to avoid this becoming a document that was never implemented.

Members were appreciative of the presentation, but agreed that energy planning was not an easy task, and it would not be adequately addressed in one meeting. Members asked about the trends for the various energy sectors, the impact that the IEP would have on the choice of technology within the sector, whether the DoE was prepared to consider nuclear options, and what measures the DoE had or planned to adequately address the issues of externalities, and what departments it had consulted. Members asked about the delays to date, and how the IEP would differ from other policy documents such as the IRP. They asked how the DoE could hope to accurately predict demand for the next 20 years, what informed the demand, and how it would be accommodated. They asked for more feedback on the lessons learned from the study on Norway, asked what other studies were undertaken, asked if DoE had looked to the examples of China and what findings would inform the sustainability of demand and supply successfully. They asked about the status of the various bills, and asked what mechanisms were in place for efficient data management.
 

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed the Minister of Energy, Mr Dikobe Ben Martin and the Deputy Minister, Ms Barbara Thompson to the meeting, and congratulated the Minister on his appointment.

The meeting would consider in detail the restructuring of the electricity sector, and this required the Department of Energy (DoE or the Department) to give an overview of the issues. When the Committee was dealing with the Independent Systems and Market Operator (ISMO) Bill, the urgency and importance of restructuring of the electricity sector was raised as a matter of importance. However, the Department’s briefing would be only the first stage. In relation to the Integrated Energy Plan (IEP), both the DoE and the Committee had been under tremendous pressure to address the sub-set of the Integrated Resource Plan (IRP), and so it was appropriate to discuss this also.

Ministerial introduction
Mr Dikobe Ben Martin, Minister of Energy, thanked the Chairperson for the introduction and expressed his pleasure at meeting the Committee Members. He confirmed that all the agenda items were of great interest to the public, and the Ministry of Energy had therefore met with all entities in the energy sector to get a better understanding of all the challenges. Meetings were also held with various stakeholder groups, and all interactions were constructive and vibrant. He said the he would try and attend most Committee meetings, but where this was not possible the Parliamentary Liaison Officers would represent the Minister and his Deputy.

Restructuring of the Electricity Sector: Department of Energy briefing
Mr Ompi Aphane, Chief Director: Electricity, DoE, said that the DoE had embarked on a process of introducing legislation relevant to the restructuring of the energy sector. The legislation would include the Electricity Regulation Amendment Bill, the National Energy Regulator Amendment Bill and the Independent System and Market Operator (ISMO) Bill. The Gas Amendment Bill would be introduced to Parliament soon. Part of the rationale was to streamline the industry in a manner that would help the DoE in achieving certain government objectives. The main objective was to maintain energy security within all sectors. His presentation would also demonstrate the processes that the DoE would follow around the planning, which must be seen in the context of certain uncertainties faced by the DoE. The Integrated Resource Plan (IRP) had already been developed and all the primary energy options available within the country had been outlined in the Integrated Energy Plan.

The DoE planned to incorporate an updated IRP, a Gas Infrastructure Plan, the Liquid Fuels Master Plan, the Transmission Development Plan and some major infrastructure into one national plan. The country’s energy demand was also projected for the period up to 2050, and this was done to allow the DoE to meet the demand. Some of the plans were already being implemented under various pieces of legislation. The Minister had also made certain determinations under the Electricity Regulation Act, and a couple of programmes were currently under way.

However, he acknowledged that the DoE’s planning and implementation had been affected by certain problems, including the need for structural changes within the industry. These structural changes would be done in a phased approach. Financing of the capital programme was a major consideration, as the DoE had just entered the first year of the Multi-Year Price Determination (MYPD) which would run until 2015. The most appropriate institutional and structural delivery mechanisms would be put in place, in order to address all major challenges relating to the implementation of the programme. He reiterated that the restructuring would be phased, entailing planning aspects, the revamp of the legislation, and dealing with challenges such as financing.

The Chairperson thanked Mr Aphane for the overview on the restructuring of the electricity sector. He asked whether the role of municipalities in this regard had been considered by the DoE. He said the area of restructuring was one which needed increased attention now.

Mr Aphane said the next presentation by the DoE was on integrated energy planning. The final IEP would only be produced after a process of stakeholder engagements, which would begin around 19 September 2013. Once all stakeholder inputs were consolidated and summarised, an official report would be presented to the Committee. The final plan would be updated from time to time. The process of stakeholder engagements would also address the update of the IRP. One criticism in the past had been that the DoE had presented an electricity plan, but had not managed to address a global plan.

Draft Integrated Energy Planning Report
Ms Tshilidzi Ramuedzisi, Chief Director: Energy Planning, DoE, reiterated that the draft IEP report was approved by Cabinet for public consultation, and was currently in the public domain. The DoE was currently conducting intensive stakeholder engagements on the draft report, and stressed that it was a report only, and not the final IEP. She would focus on the contents of the draft, informed by questions raised by the Committee.

She gave a historical overview of energy planning, locally and globally. The new landscape for the energy sector and its key objectives were defined in the Energy White Paper of 1998. That policy was very forward-looking, and had influenced various other policies since then, such as the IEP 2003, the Electricity Supply and Maintenance Programme of 2007, the National Energy Act 2008, the 2009 Regulations on IRP and the 2013/14 IEP. Integrated Energy Planning (IEP) was not a new paradigm in South Africa, because it was already identified in the White Paper, although the energy sector landscape had changed significantly since then. The White Paper had emphasised an IEP approach which commenced with a strong focus on demand. Whatever policy was drafted thus had to facilitate optimal energy consumption and production, to meet social needs. She added that by virtue of their size and economic importance, decisions on investments for new supply capacity were primarily driven by concerns with maintaining supply (without giving full consideration to economic, environmental and social impacts of all alternatives).

Ms Ramuedzisi explained that the IEP had been an overarching long term plan for the energy sector. It defined scenarios based on an analysis of policy and the environment, and covered the full energy spectrum, which included electricity, liquid fuel, renewable energy and demand-side interventions. The last IEP was published in December 2003. At that time, electricity planning in South Africa adopted a two-tier approach, with involvement from both the DoE and the National Energy Regulator of South Africa (Nersa), into drafting the National Integrated Resource Plan (NIRP). This focused on electricity infrastructure planning and informed the detailed investment plans found in the Integrated Strategic Electricity Plan (ISEP). Eskom, on the other hand, was responsible for the ISEP; a company-specific long-term planning tool that allowed Eskom to make and execute investment plans. The planning for liquid fuel was executed by individual companies, and the focus here was primarily on individual supply and demand planning for commercial purposes. Independent studies were conducted to establish supply constraints within the industry. There had been no integrated or coordinated plan before 2007.

The key drivers for change within the sector were the energy crisis in early 2008, which showed the need for coordinated planning. Disparate plans created potential for contradictory initiatives and activities. At the time, it was realised that there was no integrated view for the energy sector and for assessing the impacts of the different plans. In addition, the DoE realised that it needed the ability to develop either a numbers-driven or fact-based energy plan.

Against this realisation, energy planning post-2007 was then restructured, with two Energy Security Master Plans being drafted, for electricity and liquid fuels. The Integrated Energy Plan was then promulgated. Subsequently, the Integrated Resource Plan was promulgated in 2011, for the electricity sector. A 20 year Liquid Fuel Roadmap was drafted and was currently still in progress, while the Gas Infrastructure Plan would be developed in the future.

Ms Ramuedzisi said there were a number of lessons which would be learned from Integrated Energy Agency (IEA) member countries. An analysis was conducted into long-term energy policy development and planning in some of the member countries of the International Energy Agency (IEA) (Austria, Belgium, Canada, the Czech Republic, Italy, Japan, Luxembourg, the Netherlands, Norway Spain and Sweden), drawing on various pieces of research and work which had been undertaken through different studies over the years. Many IEA member countries used long-term energy forecasts and scenarios, though there were some differences in their time horizons and roles. She added that, with the paradigm shift to sustainability, stronger emphasis was placed on a focus on “the three Es” of  Energy Security, Economic Growth and Environmental sustainability, when doing long-term planning. Energy forecasts were thus used primarily to predict possible risks, and avoid them by taking the right measures, and in order to ensure energy security. Today these forecasts also covered  broader and more complex energy issues.

Scenario planning was therefore used as a tool for long term planning in an uncertain environment. Dynamic changes within the energy sector, such as the growing interdependence between producing, consuming and transiting countries, made it difficult to forecast the energy future, especially in the long term. Some key challenges that increased the level of uncertainty were that:

- energy was no longer seen as only a commodity, as it was linked to some difficult political issues
- the development of energy resources largely depended on human activities and decisions and it was therefore difficult to assess the future economic, social, political and technological contexts which influenced such developments
- the longer the planning horizon, the less accurate any forecast would be. It was therefore wiser to devise various scenarios, making room for possible changes, in order to enable policy choices

In 2007, case studies in Norway and in the United States (US) were undertaken. The US had a policy of ‘oil independence’, which emphasised energy security as one of the key drivers for long term energy planning in that country. The Energy Information Administration (EIA) was rendered as “the single Federal Government authority for energy information” and was independent from the Department of Energy and the rest of government. Planning, which involved decision-making about the courses of action that should be taken, against available information, was largely performed in a decentralised manner by the private sector. There was, however, no single prescribed or best suited method or process for long-term planning or for developing long-term energy plans. Different countries used different methodologies.

In South Africa, the role of Integrated Energy Planning had changed, with the changing landscape of economies. The Energy White Paper envisaged a liquid fuel industry of ‘limited government intervention and regulation’. It was however important to note that South Africa was categorised as a “developmental state” and therefore needed to maintain the strategic role of shaping the key sectors of the economy.

Ms Ramuedzisi commented on the relationship between the IEP and other national policies, noting that DoE aligned the IEP objectives and strategies at the global, national and planning levels. Other high-impact policies were the New Growth Path and the National Development Plan.

The IEP aimed to consider several key elements of the energy value chain, such as Primary Energy and Resources (renewables, fossil fuels and nuclear fuels), conversion technologies, secondary energy carriers, end-use technologies and the demand for energy services.

The IEP was legislated for in the National Energy Act of 2008, and was a policy that should, amongst others, guide infrastructure investment and development to ensure energy security in the country. However, this Act did not grant the Minister of Energy any powers to enforce the implementation of the recommendations of the IEP. This was a key challenge, which could lead to the IEP being a document that was never implemented. A high-level stakeholder engagement process was under way, and the input from various stakeholders on the draft IEP Report would be consolidated into a final IEP Report. The final report would be presented to the Committee in due course.

Discussion
The Chairperson thanked the DoE for a good presentation on a complex situation. He was hoping to hear DoE expanding on some of the BRICS country models and the lessons learned, if any.

Mr K Moloto (ANC) asked whether any trends on future energy predictions had emerged from the DoE’s consultation with various government institutions. He asked, for example, if it was known what  would be the energy demand for the industrial and agricultural sectors. He also wanted to hear more on the trends that had been observed for the various energy carriers.  He said energy demand was a combination of many elements such as population growth, but it seemed that such demand in the industrial sector would decline over the next 40 years. He asked what significant impacts the IEP would have on the choices of technology within the energy sector, and the country as a whole.

Mr L Greyling (ID) agreed that the planning process was indeed complex. He said the IEP was passed in 2008, but the policy document had still not been fully implemented, and enquired about the causes for delay and how the IEP differed from other policy documents such as the IRP. He thought the IEP seemed to provide a broader overview of the energy sector, its challenges and variables. However, the policy seemed to simplify externalities to environmental affairs and climate change. It seemed that government had provided very little data on externalities and he recommended that better data was needed in order to better inform the IEP, which in turn needed to directly inform policy imperatives.

Mr Greyling argued that elasticity of demand was a key problem in energy planning, and wanted to know how the DoE would accurately predict demand for the next 20 years or so, and how would this demand be accommodated? He too wanted more detail on what informed this demand. He argued that this was an area which had not been fully explored, especially the impact of price increases on demand. He asked how these weaknesses would be addressed.

The Chairperson agreed with Mr Greyling that predicting demand was still a challenge, because the DoE could easily under predict or over predict.

Mr G Selau (ANC) agreed that the IEP was a complicated process but felt that this presentation did not give a sense of what the DoE wanted to achieve. He asked what exactly had the DoE learned from the case study on Norway, what other studies were undertaken and what were the findings which would inform the sustainability of demand and supply successfully. He enquired what would be the ideal situation in terms of energy planning and regulation.

Mr Selau noted that in the petroleum sector, various Charters and policies had been implemented for the transformation of the sector, but there was still very little transformation taking place in the sector.

Mr Selau raised a concern about the limited powers of the Minister, including the lack of provisions allowing the Minister to implement the IEP. This was a major challenge and he asked how it would be addressed.

Prof S Myathula (ANC) asked what the timeframes were for the high-level stakeholder consultation process. He also asked about the status of the various energy Bills being developed for the restructuring of the energy sector.

Mr S Radebe (ANC) asked whether the DoE had taken into consideration matters of regional planning and whether the South African Development Community (SADC) had been included in the IEP planning process.

The Chairperson agreed with Mr Radebe that the SADC context and regional planning were important aspects and they needed to be included in energy planning. He said the DoE needed to allocate enough time to the IEP process.

The Chairperson asked what the DoE meant by “numbers-driven” energy planning. He asked why there was a focus on the gas infrastructure programme and what impact it would it have overall. He enquired whether the Liquid Petroleum Gas (LPG) included the gas infrastructure in the sector. What was the rationale for the US’s strong focus on “oil independence” and what was the equivalent of the Energy Information Agency here in South Africa?

The Chairperson noted that access to information within the DoE was a challenge, and asked what mechanisms were in place for efficient data management. He asked, in view of the fact that South Africa was classified as a development state, how it could use this to direct energy efficiency and transformation. He argued that the DoE had not yet managed to transform the economy, and he remarked that China was good at planning and enquired if there was anything that South Africa had learned from this country. Finally, he wanted to know at what sort of priority level South Africa rated energy.

Ms Nelly Magubane, Director General, DoE replied to the question on trends and said the IEP was based on National Treasury projections. In parallel, the DoE was looking at various scenarios. The National Development Plan (NDP), for example, had projections which were highly aspirational, but the National Treasury projections were based on Gross Domestic Production (GDP). Various scenarios therefore were taken into account when assessing the kinds of policies necessary to address demand and supply projections. She agreed that demand projections were very complex, hence the reason for energy projections to predict against various scenarios and energy pathways.

Ms Magubane next addressed questions around the status of the legislation. The ISMO Bill was back at Parliament, the Electricity Amendment Bill had been certified, and the National Energy Regulation Bill was also with the Office of the Chief State Law Adviser for certification. The drafting on the Gas Amendment Act was still under way as consultations with various stakeholders were still taking place. When these had been finalised, the legislation would be referred to the National Economic Development and Labour Council (Nedlac). However, she predicted that this Bill would only be dealt with by the next Parliament, as there was still a lot of work which still needed to be done.

The Chairperson asked when exactly the Gas Amendment Bill would be certified and brought before the Committee.

Ms Magubane replied that the Bill was with the State Law Advisers, and the DoE was therefore unable to give any set timelines to the Committee.

Mr Greyling asked when the Bill was handed over to the State Law Advisers and what was the cause of the six month delay.

Mr Aphane replied that the Nedlac Act process had to be followed, and this usually took six months or more. Each piece of legislation needed to be consolidated entirely before Nedlac even considered the matters in the Bill.

The Chairperson said the Committee would contact the Office of the Chief State Law Adviser and find out how far the process was.

Ms Magubane thanked the Chairperson for this intervention.

Ms Magubane responded to the question relating to lessons learned with BRICS, and said the DoE paid a visit to Brazil and also had some engagements with China in an attempt to learn more about their planning processes. However, she argued that there was no “easy fix” or “one-size-fits-all” approach that could readily be implemented to the South African process. The DoE therefore saw fit to involve the public in the planning process, in order to formulate an energy solution which was unique to the South African context.

Ms Ramuedzisi added that some key lessons had been learned from Brazil, and the Human Development Index (HDI) would be used as a tool to measure electricity demand in the future. Brazil was a good case study because it had similar socio-economic issues as South Africa.

Ms Ramuedzisi replied to the question on externalities, and said it was a complex matter and various inputs needed to be considered, together with the impact that these would have on the environment, the ecosystem and the like. Externalities spanned over and above the DoE, so there was a need to engage with various other departments, such as Department of Health, to obtain sufficient information to make a full analysis. The DoE plans for national energy were to promote transparency within the IEP process, and this was why stakeholder engagements were vital. No final decision could be made without a full report from stakeholders.

Ms Ramuedzisi said, in regard to the question on the petroleum sector, that whilst the IEP was not intended to deal with issues of transformation, it dealt with implementation matters on a detailed level. The Liquid Fuels Implementation Charter was being reviewed and certain issues of concern would be referred to the DoE for consideration.

Ms Ramuedzisi confirmed that regional planning had been considered during the IEP planning process. The IRP looked at regional options, paying specific attention to hydro-powered electricity and these options had therefore been fed into the IEP for natural gas alternatives.

She informed Members that there was no equivalent of IEA in South Africa. An energy modelling agency had been envisioned, but it was not established. Unlike the situation in the US, the South African government was responsible for energy planning. The DoE was tasked with energy collection and energy modelling. The DoE was established in 2009, and had since undergone some restructuring so it was therefore not fully capacitated.

Ms Ramuedzisi explained that a “number-driven” approach  was one which was fact or evidence – based.

Dr Phillip Goyns, Supply Option Modelling Specialist, DoE, replied to the question on elasticity of demand and said it was a three-way approach which included fuel switching, improvements in technology and reduced demand. The DoE was only concerned with the first two. Discussions with National Treasury were however under way in order to integrate these three models.

Mr Aphane replied to the question on the impact that advances in technology would have on energy projections. He said the IRP was a policy that was constantly adjusted and updated as part of the process of energy planning. He agreed that the Energy Act did not provide the Minister with full powers to implement the IEP. Whilst energy planning operated globally it still needed to be incorporated into different sectors nationally. The Minister was therefore empowered to do certain things. On the possibility of high projections, he said distributed generation was provided for in the IEP. There were also sub-utility programmes in place to avoid over-capacity issues. However it was cheaper to project for more than to project for less demand. He said the final IEP report would indicate future projections and a specific pathway would then be recommended. Socio-economic implications would therefore guide future plans and interactions. 

Mr Aphane noted the questions on gas infrastructure, and said shale gas was readily available for future interconnections, so the gas policy thus influenced infrastructure. In relation to data collection and management, he said there was a centre within the DoE which looked at data collection. Data was valuable and there was something of a challenge around carelessly releasing it to the public. However, there were collaborative efforts to make information more accessible.

Mr Aphane noted that the US had a strict policy of oil independence in order to secure energy resources.

Mr Greyling said the DoE needed to conduct accurate studies to secure energy demand and control elasticity. He asked about the ERC study, which had indicated that decisions on Nuclear Build Programme (NBP) would be looked at in 2017 or later, and wondered if the DoE agreed with these findings.

Ms Ramuedzisi said that the DoE had certainly considered nuclear as an energy supply option, especially when it came to the reduction of emission targets. She said lessons had been learned on how to tackle socio-economic issues.

Mr Aphane confirmed that the DoE did not discriminate against any energy alternative options. He said the IRP update formed part of the stakeholder consultation process currently under way.

Mr Greyling thought that insofar as externalities were concerned, there were still major gaps in the DoE’s energy planning, and pressure needed to be put on other departments to take the matter seriously in order to ensure that the future planning process was more comprehensive.

Ms Ramuedzisi noted that the externalities were beyond the control of the DoE alone, which was why the draft IEP had not dealt with them extensively. However, more attention would be given to the matter in the final report.

Dr Goyns added that the DoE together with the Department of Environmental Affairs had a strong relationship with the National Emissions Inventory in order to monitor the quality of health.

Prof Mayathula asked what the current challenges were with the current legislative framework.

Ms Magubane said the DoE usually took four months for stakeholder consultations and six months for policy finalisation. The IEP final draft would therefore be completed in November 2014. She said the current legislative framework did not need to be changed.

The Chairperson referred to the DoE’s “3 E’s” and asked how and when the DoE would tackle economic growth, in order to address issues of social transformation.

Mr Aphane said the DoE was busy formulating strategies on how to best address the matter, but the IEP, specifically, did not outline plans for transformation. 

Mr Aphane expanded on the question around findings by the ERC model and said there was a plan to get South Africa around a table to discuss all assumptions about the different outcomes given by the ERC. In relation to tariffs, he said the long term tariff trajectory was an electricity wide issue.

The Chairperson thanked the DoE for its presentation and Members for their robust engagements. He said the nature of the IEP was finally being realised, and he acknowledged that it would not take one meeting to fully understand it. It was important to maintain investor confidence in South Africa’s energy sector, especially in relation to transformation. The IEP was an intricate process. There were still dangers with the commodisation of energy, and the EWP therefore needed to be balanced out with these. The DoE, together with relevant stakeholders such as the Committee, needed to establish an enabling environment for policy and legislation. He concluded that although the DoE had internalised data management and handling, there was still need to discuss the matter further.

Adoption of minutes
The following minutes were adopted:
30 January 2013, 1 February 2013, 19 February 2013, 26 February 2013 and 27 February 2013

The meeting was adjourned.
 

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