Minister of Energy on impact of 2016 State of Nation Address on the Energy mandate

Energy

23 February 2016
Chairperson: Mr F Majola (ANC)
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Meeting Summary

The Minister of Energy made it very clear that the R1 trillion figure being speculated in the media as the cost of the nuclear energy programme proposed by government, was not a figure derived from her office and she emphasised that the government had not signed a nuclear deal with anyone. A funding model for the programme was being worked out and only after this is completed will the government be able to state the exact cost of the nuclear programme. She also made a strong case for the nuclear energy programme by stating that in the long run it would be cheaper for the people of South Africa since the life span of a nuclear plant is about 100 years. Though the Nuclear Build Programme was the idea of ex-President Nelson Mandela, the decision to go on with the Nuclear New Build Programme was taken by Cabinet on 9 December 2015. The plan is to procure 9 600MW of nuclear energy in the next decade in addition to running the Koeberg Nuclear Power Plant. Though coal will remain a part of the energy mix, the share of nuclear energy as a cleaner energy source will grow as a result of the Nuclear New Build programme. The gas-to-power independent power producer programme aims to generate in excess of 3 000 MW, giving the private sector an opportunity to collaborate with government. The Minister noted she has introduced a new method where potential board members of entities are to be screened by the security agencies. This would save much embarrassment.

Member commented on and asked questions about why government was introducing more coal power stations rather than phasing them out; about the type of public participation by the National Energy Regulator (NERSA); about the coal independent power producer programme being ready within two months; the time lines for the bidding process for the nuclear programme and the roles of the Auditor-General and National Treasury; the current status of the solar water heater programme and the viability of long term job creation via this programme; promotion of the use of solar energy; about the recovery of the R14 billion lost by PetroSA; the link between nuclear energy and desalination; why the Integrated Energy Plan (IEP) was not subject to public participation as in 2010 and 2013; about the investigation into NERSA; why the vetting of potential appointees for board appointments; for the current status of the shale gas project; when the funding model of the nuclear programme will be concluded so one knows the actual cost and if government intended to solely fund the programme; why the nuclear procurement programme should be operated under the Independent Power Producer's (IPP) office.

Meeting report

Minister of Energy on the Impact of 2016 SONA
Ms Tina Joemat-Pettersson, Minister of Energy, said some of the key issues outlined in the 2016 SONA was the nuclear energy expansion programme, the Renewable Independent Power Producer Programme, continuous implementation of the National Development Plan, improving the management and governance of SOEs and the spending and management of public funds.

▪ On nuclear energy, the President stated:
 “The nuclear energy expansion programme remains part of the future energy mix. Our plan is to introduce 9600 megawatts of nuclear energy in the next decade, in addition to running Koeberg Nuclear power plant. We will also test the market to ascertain the true cost of building modern nuclear plants. Let me emphasise that we will only procure nuclear on a scale and pace that our country can afford”.


The Minister said the Koeberg nuclear plant is one of the most successful nuclear plants in the world and she made an offer to the Committee to come and see for themselves what is happening there. In response to the SONA announcement, the Department of Energy (DoE), in order to ensure systems and resources are in place to manage the Nuclear New Build Programme, has concluded plans to establish the Programme Management Office (PMO) and systems to manage the nuclear programme, appoint transactional advisors to advise the Department on transactions including financing and funding, procurement and legal support. DoE also plans to develop and approve a procurement strategy, issue a Request for Proposals (RFP) for the 9 600MW Nuclear Programme to test the market and ascertain the cost of the nuclear power plant, make recommendations to the procurement governance structures and Cabinet. The decision to go on with the Nuclear New Build Programme was taken by Cabinet on 9 December 2015. The Department has also decided to fully resource the PMO with nuclear experts, increase public awareness and education to demystify the nuclear energy myth, implement a training and skills development strategy for capacity building for the Programme. The French government is committed to developing a nuclear campus in South Africa, however the finalisation of the process lies with the Department of Higher Education. DoE is also finalising various strategies for the entire nuclear value chain, providing oversight and monitoring for the implementation of the programme. The Independent Power Producer (IPP) programme had delivered good results for gas and coal and hence the Ministry requested to do nuclear along the IPP base.

▪ With regards to the Renewable Independent Power Producer Programme, the President said:
 “The multiple bid windows of the Renewable Independent Power Producer Programme have attracted an investment of one hundred and ninety four billion rand. This initiative is a concrete example of how government can partner with the private sector to provide practical solutions to an immediate challenge that faces our country. In 2016, government will select the preferred bidders for the coal independent power producer. Request for Proposals will also be issued for the first windows of gas to power bids”.

The Minister referred to the gas to power bids as the game changer for nuclear energy in South Africa. The gas programme must be up and running in the next two years. In response to the President’s statement, DoE will issue the request for proposals for the 1st window of gas to power bids in the second quarter of this financial year. The interest in this programme has been phenomenal. Out of the R194 billion of investment, R53 billion was through foreign investment and financing due to an investment friendly and enabling environment. Evaluation of bids for the coal independent power producers will be done within two months. The primary aim of this is to look at the possibility of building smaller coal plants that will add energy to the grid. DoE has developed a nine point action plan with deliverable dates from January to December 2016.

▪ The Gas Utilisation Master Plan (GUMP) still needs approval for publication for public comment. The process involved in this is a very tedious one.

▪ The National Solar Water Heater Programme (NSWHP) procurement process for the pilot phase and installation of units has been completed. An audit of the previous programme showed that the previous units installed were already faulty or lacked maintenance. This has necessitated DoE to introduce a new process which involves training and maintenance. This will help create long term jobs. The NSWHP will be a combination of both the low and high pressure units but with a lot of focus on the low pressure units which will involve the repair, replace and maintenance procedure.

▪ Municipal Energy Efficiency Demand Side Management (EEDSM) is on-going.

▪ EEDSM in Public Buildings - there has been signing of service level agreements with implementing entities. This programme is quite slow because it is dependent on the Department of Public Works.

▪ The Integrated Resource Plan (IRP) update has been submitted to Cabinet for approval.

▪ The Integrated Energy Plan has also been submitted to Cabinet for approval.

▪ The Biofuels programme involves the submission of a regulatory and subsidy framework and piloting of the competitive bidding process.

▪ The Independent Power Producer Programme (IPP) is aimed at increasing generation supply through coal, gas and renewable energy technologies.

▪ On State Owned Enterprises (SOEs), the President stated:
For the state owned companies to contribute to the successful implementation of the National Development Plan, they must be financially sound. They must be properly governed and managed”.

Taking this into consideration, DoE will implement, monitor and evaluate the recommendations of the Presidential Review Commission on State Owned Enterprises (SOEs), the mandate of the SOEs will be reviewed further and streamlined to ensure that where there are overlaps in the mandates, there is immediate rationalisation. An integrated and comprehensive energy sector specific strategy on SOEs will be developed and oversight over SOEs will be strengthened to ensure that they meet the shareholder’s expectations and implement capital projects within the defined project scope and period. The target is how these SOEs can be continuously funded in private partnership.

▪ Talking about public spending, the President stated:
“We have made an undertaking to spend public funds wisely and to cut wasteful expenditure, but without compromising on the core business of government and the provision of services to our people”.

DoE in its attempt to cut spending had proposed cost containment measures that are currently implemented It will closely monitor itself to curb any wasteful and fruitless expenditure. Further restrictions on conferences, workshops and catering will be instituted. The number of meetings will be reduced and conducted via video link where possible and the size of delegations for events, conferences, parliamentary briefings and overseas trips will be reduced. DoE will fully comply with further cost containment measures as may be deemed necessary by the Minister of Finance and will ensure that SOEs in the portfolio conform.

On the wise spending of public funds, the Minister once again emphasised that no nuclear deal had been signed contrary to the information in the public domain and that transparency was paramount to the programme. Following the signing of various nuclear procurement inter-governmental agreements, a government gazette was published in December 2015 authorising DoE to proceed with its request for proposals. According to her, the costing that had been done was preliminary. She said. “The one figure is very far from R1 trillion. I cannot release preliminary figures because it will create too much confusion. We will make the procurement process available to the public and increase awareness around nuclear energy”. The nuclear energy expansion programme of 9 600MW remains a central feature in the future energy mix of South Africa, in addition to the Koeberg Nuclear Power Plant. The country’s Nuclear Energy policy is to become self-sufficient in all the aspects of the nuclear value chain. The Nuclear New Build Programme will ensure the country generates base load electricity and in this way there will be a reduction in greenhouse gas emissions. The Minister noted that the Koeberg plant uses 22 billion litres of sea water per year while the Medupi power station will use 17 billion litres of fresh water a year.

▪ On the peaking power plant programme, the Minister talked about the Avon and the Dedisa peaking power plants which are the first large scale independent power projects outside the renewable energy programme. These projects intend to sell electricity to Eskom for at least 15 years. The Avon project involved the construction of a 670MW diesel fired open cycle power plant near Durban. The Dedisa project in Coega involved the construction of a 335MW diesel fired power plant.

▪ On the Renewable Energy Independent Power Producer Programme (REIPPP), clean energy is being bought at lower and lower rates with every bid cycle. At the end of 2015, South Africa had increased its installed and operational renewable capacity to more than 2000 MW, next month, on 10 March, the largest solar farm in the Middle East and Africa will be launched in De Aar and it will generate 175 MW of electricity. South Africa has moved from coal and nuclear sources and added sources such as solar and wind. Gas is also being added. Though coal will remain a part of the energy mix, the share of nuclear energy as a cleaner energy source will grow as a result of the nuclear new build programme. The gas-to-power IPP programme aims to generate in excess of 3 000 MW, giving the private sector an opportunity to collaborate with government. South Africa currently has insufficient demand for natural gas and an insufficient indigenous natural gas supply. The gas-to-power project is designed to provide liquefied natural gas (LNG) as a base for re-industrialisation of the economy. The Central Energy Fund group will work closely with Eskom to implement this gas-to-power programme. The Minister referred the Committee to her SONA debate speech in Parliament and asked that copies be made available.

Discussion
Mr R Mavunda (ANC) thanked the Minister for the very enlightening presentation. He observed that government was talking about clean energy and at the same time re-introducing more coal power stations rather than setting a deadline for the total phasing out of the coal plants or integration into hydro and gas power plants. He asked about SOE policy, requesting an explanation on what the policy seeks to achieve, noting that the SOEs have challenges and he was not sure if there were any policies in place which guide the SOEs. Talking about the National Energy Regulator (NERSA) he stated they usually consulted middle class people who they think are important, leaving out the ordinary people who were the most affected. He recommended the need for improvement in consultation by NERSA.

Mr M Matlala (ANC), referring to the coal independent power producer programme which the Minister stated will be completed within two months, asked for a specific deadline and not the vague deadline of two months. Referring to page seven of the Minister’s presentation, he asked if there was any reliable and realisable programme.

Mr M Dlamini (EFF) asked the Minister when she realised that South Africa was facing a drought challenge since despite this problem the government has decided to move on with the planned nuclear programme. He asked what will be done if the government, after its assessment processes, discovers South Africa cannot afford the nuclear programme. He also wanted a commitment from the Minister that she will not protect the interests of certain highly placed individuals like the Gupta family in the bidding process of the nuclear programme. Talking about the solar water heater programme, he was of the opinion the plan for long term job creation via this programme, was an impossibility. He wanted the Minister to explain to the Committee how she intended to achieve that.

Mr P van Dalen (DA) agreed with the Minister that gas is the game changer in the energy plan but disagreed with her on the use of gas. He was of the opinion that South Africa has a limited quantity of gas which in his opinion was insufficient for such a programme. He stated coal could be used in place of gas. For the solar water heater programme, he agreed the programme was introduced to save energy costs but so far the programme had not worked well. He wanted an update from the Minister on the current status of that programme. Solar energy is getting more popular with South Africans and if the government reduces the price, people would buy into it. Talking about biofuels, he thinks this can be generated from garbage and wanted the Minister to encourage people to look into that direction. Once again he reiterated his call for an explanation into the R14 billion lost by PetroSA. He wanted an explanation on that and asked the Minister when and how the funds will be recovered. On desalination, he thinks the Minister has got it all wrong and asked her to explain the link between nuclear energy and desalination.

Mr G Mackay (DA) asked why the Integrated Energy Plan (IEP) document was not subjected to public participation as it was done in 2010 and 2013. He asked that the draft documents be submitted to the Committee. South Africa is currently struggling with the production of its 9.4 GW and therefore wondered how the Minister intended to generate 44 GW of energy based on what he saw in the draft IEP document. He also asked about the procurement process. He wanted an explanation on the process to be applied and the time lines including the roles the Auditor-General and National Treasury will play in the process. On South Africa becoming self sufficient in terms of nuclear energy, he disagreed and stated it was absolutely impossible for now based on current indices and asked for formal details about the research reactor. He also questioned why the findings of the investigation into NERSA were not introduced as promised by the Minister. Commenting on board appointments, Mr Mackay found it odd that the Minister would go to the length of vetting potential appointees via security agencies and he questioned how that increased efficiency and productivity.

Ms Z Faku (ANC) reminded the Minister that in previous State of the Nation Addresses, the exploration of shale gas was highlighted. She wanted an update on the current status of that project. Referring to slide nine where the oversight of SOEs was mentioned, she asked about the consequences of the SOEs not meeting the expectations of the shareholder. On money being received from the BRICS bank for the transmission lines, she wanted to know who the implementing agency is, is it the Ministry of Energy, Eskom or the municipalities?

Ms T Mahambehlala (ANC) appreciated that the vacancies in the Ministry of Energy had been filled and she was very happy with the presentation because it responded to past recommendations made by the Committee. She observed that the SONA response of the Minister looked like a presentation of her achievements. She is in total support of the nuclear build programme because she fully understands what the programme is seeking to achieve. She encouraged the Minister to begin her increased public awareness campaign with members of the Committee because there are still a lot of misconceptions about the programme amongst members. She disagreed with those who feel renewable energy alone is sufficient to cater for the energy needs of South Africa because research has proven otherwise and it has been shown that nuclear energy is the only energy source that will be sufficient for every generation in South Africa. Speaking about regulation of the energy sector, she asked the Minister if shale gas will be incorporated into the bill as recommended by the Committee. She also commented about the misgivings about the R1 trillion sum being talked about as the cost of the nuclear programme. Since the Minister had debunked that claim, she wanted to know when the funding model of the programme will be concluded so that the people can know the actual cost and also if the government intended to solely fund the programme. A request was also made for an update on the proposals submitted for the Energy Master Plan. She cautioned the Minister on the involvement of the Department of Public Works in the programme and requested an explanation on what their participation in the project would be. She also asked the Minister to be specific about the Dedisa project because within the ANC there is a project which is also named that.

The Minister pointed out that the fact that there has been no load shedding, is a simple indication of an achievement. The maintenance requirement of Eskom was very high yet energy availability had moved up to about 78%. On the draft IEP, she replied that it needed to be evaluated by experts to ensure nothing goes wrong. Experts have been recruited to tackle the maintenance schedules of Eskom to reduce the probability of power outages. Unplanned outages had been reduced drastically. On the Dedisa project, she said this had nothing to do with the internal ANC project that shares the same name.

The Minister stated she had no control over the awarding of contracts and the bidding processes at Eskom. Currently Eskom is generating 1500 MW of electricity from coal sources. The Ingula 3 project is positioned to come into full operation on 31 October 2016. On the re-introduction of small coal plants instead of going totally the way of clean energy, the Minister said that certain coal power stations needed to be decommissioned by the end of 2030 which means about 40 800 MW of electricity will also be decommissioned. It is important to find a way of reintroducing this energy back into the grid hence the building of smaller plants.

On the IRP and IEP, the Minister stated this was moving towards the end state of energy and this involves the SOEs targeting a new reserves margin by 2019. The current base load is 90% coal, while wind and solar sources constitute the rest. It is hoped that once the technology of battery is perfected, the government will be more inclined towards renewable energy. Renewable energy is constantly changing and in 20 years’ time, these technologies would have changed again. She used the opportunity to present the advantage of nuclear energy once more. She reiterated that nuclear energy has a life span of over 100 years.

The decision to go nuclear was taken by ex-President Nelson Mandela and the current government is only trying to implement the recommendations of past governments. In terms of the cost and funding model, the Independent Power Producers (IPP) office will determine the model and affordability of the nuclear programme. She once again stated the President’s commitment to ensure that the government will spend only within its means on the nuclear programme.

On shale gas, the Minister told the Committee the Ministry of Energy is not responsible for shale gas, the Department of Mineral Resources deals with that.

About the long term jobs in the solar heater water project, she stated that the jobs provided do not start and end with the installation of the panels rather the youths are taken through the energy mix where small IPPs encourage and sustain them through the entrepreneurship process. There are small IPPs which encourage a lot of young entrepreneurs.

For the coal power plants, the Ministry of Energy has received over 80 IPP submissions while gas is still being explored as a suitable alternative to coal energy. The IPP reports have been published and are available. For the first time, a sound energy plan is been developed whereby South Africa can buy and sell energy as highlighted in the trans-border plan.

With regards to the state of fuel cells, they are currently operational in some schools. With regards to skill development and training, this is being done by the host countries where the students are sent to, especially France, and plans are underway to make such training done in South Africa. In terms of security of electricity supply, significant progress has been made in the last six months.

The Minister asked the Committee for another meeting when she can make a full presentation on the state of PetroSA.

Ms Mahambehlala disagreed with the Minister on the procurement process for the nuclear programme. She wanted to know why the IPPs would be responsible for the procurement process since DoE had claimed the IPPs were not under their control. She also asked the Minister if DoE was incapacitated since the nuclear build programme is inter-governmental.

Mr van Dalen insisted his questions were not answered by the Minister and wanted to know when she would do that.

Mr Mackay reiterated that the Democratic Alliance aligns itself with any process which would be transparent.

The Chairperson responding to Mr Mackay reminded him the President had made a commitment to transparency in the nuclear programme of the nation and that he would act within the affordable means of South Africa. He pointed out the Minister would have to come back to the Committee to address certain questions, due to time constraints

Ms Mahambehlala moved a motion for the meeting to be postponed until the next Committee meeting.

Mr Mackay pointed out that the document before him from the DoE Director General ignored all previous recommendations of the Committee and, in his words, what was before the Committee was “ nonsense” one line responses. He asked the Chairperson to mandate the Director General to review his responses to the recommendations of the Committee before the next sitting.

The Chairperson obliged Mr Mackay’s request and adjourned till the next Committee sitting.

The meeting was adjourned.

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