Integrated Resource Plan (IRP) & Integrated Energy Plan (IEP) update, with Deputy Minister

Energy

14 February 2017
Chairperson: Mr F Majola (ANC)
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Meeting Summary

The Department of Energy (DoE) took the Committee through the updates on the modelling and conclusion of the Integrated Energy Plan (IEP) and Integrated Resource Plan (IRP). Both policy tools had been allocated a consultation process from November 2016 to March 2017, which has not been finalised as stakeholders’ contributions are still being taken into account. Thus the presentation today was a update on the status of the IEP and IRP and not a presentation of the final drafts. The DoE assured the Committee it has significantly improved its consultation process facilitating a space on the DoE website for making contributions, where already progress has been made and comments summarised. The more than 64 contributions sent to the DoE are to be tabulated, with all comments and how the DoE has responded to them available. The process takes time, and the DoE was expecting to finalise a final report on Milestones 1 and 2 in March 2017

As background, the DoE explained that the IEP is an instrument of the Energy Act (2006) which stipulates the mandate for the Minister of Energy to develop a plan that outlines the future general aspirations of the country, therefore having to present a broad (non-sectoral) approach in electricity, gas, energy efficiency, etc. According to the existing legislation, this has to be updated every year, in words of the DoE. Parallel to this, the IRP, an instrument in the Electricity Act (2006), focuses on dealing with the needs of South Africa’s Energy Mix. The IRP works along with the Energy Regulator capacity in licensing new generation capacity when required and according to the law.

At this stage, the next step is to carry bilateral and intergovernmental consultations and move on to the so called Milestone 2 (revision by Cabinet). Onwards, different scenarios would be put in place for potential outcomes, considering all sources of energy available according to assumptions made. The Department would also like to deal with the question of nuclear energy and the several controversies around its production. When considering the different forecasted scenarios to be presented in a publically available document, the Department would then be positioned in Milestone 3. Lastly, Cabinet would consider conclusions around policy adjustment to finalise the process previous to implementation. For the current update, it is expected that further considerations will be required and a new update could be provided in May/June this year. The intention of the Department was to finalise the process in August/September 2017.

Integrated Energy Plan (IEP)
On the status of the program, in June 2013 the Draft IEP Report was approved by Cabinet for publishing for public consultation; and from September to November 2013 wide consultation through public stakeholder workshops were held in all nine provinces. Later, from January to September 2014, inter-governmental policy working group and various multi-stakeholder sub-committees were established to deal with more thematic and substantive issues such as policy coherence, macroeconomic impact assessment, review of demand assumptions and externalities studies.

The importance of creating an Integrated Energy Plan in the Energy sector had been due to a lack of coordinated and integrated national planning, which has led to underinvestment in much needed energy infrastructure, but particularly in electricity and liquid fuel provision. The IEP follows the mandate of the DoE White Paper 1998, which includes policy management and guidelines in the Energy sector which Government tries to achieve. The IEP has five policy objectives: Increasing access to affordable energy services; improving energy governance; stimulating economic development; managing energy-related environmental impacts; securing supply through diversity. Regarding the Energy process, extraction, supply and demand were the most frequent variables accounted for during the presentation, factoring external features and constraints, in order to build up potential expectations. Additional factors were Cost of Technology, Availability of Funding and Credit Rating. The main constraints affecting the energy process are supply of water, carbon emissions and available financial resources.

The Energy Planning Framework considers all energy stages, going from primary energy resources and secondary energy carriers to demand of energy services and technology related challenges, in terms of the use of energy in different sectors (Agriculture, Commerce, Transport and Industry and Household usage). From the Demand side, the DoE bears in mind the necessities for Energy Efficiency Strategy, the Universal Energy Access Strategy, as well as the Beneficiation Strategy and Transport Plan. From the Supply of energy side, the IEP had considered the two major mainstreams that structure the Energy Mix: the diversity of resources for supply and securitisation of supply. The case of Liquid Fuels Supply (LFS) was introduced as an example of how IEP considerations are put in place.

The key issues from stakeholder’s consultations about the draft IEP presented were the lack of reference to electric vehicles penetration along with no emission limits being imposed on the transport sector, sensitivities around new crude refining capacity and concerns about the assumptions on indigenous versus imported gas that must be considered by DoE.

Integrated Resource Plan (IRP)
The first part of the process was the previous IRP (2010) which had included assumptions such as demand, existing plan performance, technology costs, new commission plants, and decommission. With these assumptions, the DoE had developed the Base Case as a new starting point before the different scenarios exposed in the IEP and IRP presentation. The results obtained from the different scenarios constitute the so called Draft Balanced IRP. Technology Overnight Costs had been also included in the modelling of the current IRP, acknowledging that this figure does not take potential interest in cost along the process. Fuel Costs were also included, with particular attention to Liquefied Natural Gas (LNG) which is not produced in the country. Continuous improvement in technological solutions for the sector would reduce production costs, particularly in the case of Renewable Energies which costs have declined quicker than expected. Other assumption to be taken into account was the CO2 emission trajectory, used in the 2010 IRP already (Moderate Declined Trajectory), but updated in terms of methodology: now using the Common Emission Budget of Carbon Dioxides, as advised by the Department of Environmental Affairs. The DoE had assumed future Eskom plant performance, according to the information provided by Eskom in three different scenarios: one that works with current Eskom performance (Low Plant Performance); one that takes into account Eskom’s development for better performance (High Plant Performance); and lastly one scenario that considers a certain degree of development (Moderate Plant Performance) without complete achievement of Eskom’s expectations. For the IRP Base Case, the Moderate Plant Performance had been selected following Eskom recommendations.

Base Case’s observations were summarised: first, the system would commission new capacity in 2022; second, initial capacity comes from a combination of PV, Wind and Gas (bearing in mind that if international Gas price changes, the predictions will not be accurate for the Base Case); third, the New Base load commissioning is highly linked to Eskom’s plant retirement schedule (Coal – 2028, Hydro – 2030, Nuclear – 2037); and fourth, with regard to South Africa’s Energy Mix, Gas and Renewables would form the biggest part of installed capacity by 2050, with a significant reduction in Coal (which proportions most of the current capacity). Despite the selection of a moderate demand trajectory as specified, the DoE reaffirmed that a low demand trajectory had been factored in on the basis of CSIR forecasts. The use of embedded generation (rooftop PV) by households and business due to instability in power generation (load shedding) was another factor to be acknowledged during the development of the model, in order to supply accordingly. Of the other factors that had been considered, the following were particularly significant: considerations around enhanced energy efficiency as per the DoE EE Strategy (draft), a possible low Eskom plant performance; the development of regional markets in Southern Africa (in terms of exports and imports) and alternative scenarios had been included which were unconstrained Renewable Energy, new technology development and potential electricity networks.

Members welcomed the inclusion of the renewable energies scenario in an unconstrained scenario. Questions and comments included why Eskom needs to pursue nuclear energy; if it was DoE or Eskom who creates energy policy; whether Eskom would adhere to the IRP and IEP; expectations of building new gas refineries from private investment; why some form of energies were excluded from the presentation; about the timing of the public consultation that impeded participation; the use of US-based EPRI for provision of sector data; PetroSA’s production forecast to end before 2030; what had been raised during public consultations; criticised policy uncertainty on gas production; deadline for presenting the final draft to the Committee; DoE needed to be clearer about assumptions compared to the 2010 IRP which had been used as a basis for current considerations; about the problem of aligning a Base Case assessment using wrong assumptions such as the false expectations provided by Eskom during the 2010 IRP around demand which led DoE to work from outdated and wrong conclusions; inconsistency between DoE and Eskom about decommissioning dates; certain decisions had been taken around needing new nuclear investment when it might not be necessary; EPRI had predicted a decline in the use of coal by 2040 while the scenarios presented show an increase in coal use; and the potential reopening of Project Mthombo.

DoE affirmed that all technologies had been included in the model and none had been excluded. On the question of who decides on energy policy matters, DoE said it is clear that government and the legislature have the only say in this matter and Eskom is only the implementation agent. On timing, Milestone 2 conclusion is expected to be in July/August 2017.

The Deputy Minister concluded that in future the Committee needs to ensure DoE is present when Eskom has a meeting with the Committee. She reminded the Committee that the IRP and IEP are tools for decision making and that they are simply fulfilling a gap in terms of knowledge and capacity of prediction. Lastly, the Committee and DoE need to take into account that the date of finalisation would be delayed as new discussions and robust arguments would follow inter-cabinet objections.

Meeting report

The Chairperson welcomed the Committee in the first meeting of the year. Apologies of non-attendance were noted for Mr M Plouamma (AGANG) and the Minister of Energy due to their attendance at other meetings. He said Mr M Dlamini (EFF), who was absent, had not apologised. The Chairperson noted that the Democratic Alliance (DA) had appointed a new member for the Committee, substituting Ms Gqada for Mr Van Dalen.

The Deputy Minister, Ms Thembisile Majola, expressed her happiness at seeing that the DA has appointed a woman for such a very critical committee, as a result of the ANC efforts for inclusivity. The presentations of the day covered two of the most important current issues in Parliament. She urged members to participate in the processes of consultation activated by the DoE.

The Chairperson noted her comment on the need for greater participation of MPs in consultation processes.

DoE Director General, Mr Thabane Zulu, thanked members for their contribution to the process of public consultation regarding the Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP) revision. The process of consultation had not finalised as other stakeholders’ contributions were being taken into account, thus the presentation today was an update on the status of the IEP and IRP rather than a briefing on the final draft. He handed over to Mr Aphane.

Mr Ompi Aphane, Deputy Director General (DDG): Policy, Planning and Clean Energy, presented the rest of speakers, who would contribute during the session: Mr Jacob Mbele (Chief Director: Electricity Policy), Mr Robin Naidoo (Director: Supply Modelling Specialist). Mr Molatsi Seotsanyana (Director) with Mr Mbele in charge of the IRP and the rest covering updates in the IEP.

Mr Aphane said despite the extensive presentations, the presenters would try to simplify as much as possible due to time constraints. To provide some background, the IEP is an instrument of the Energy Act (2006) that stipulates the mandate for the Minister of Energy to develop a plan that outlines the future general aspirations of the country, therefore having to present a broad (non-sectoral) approach in electricity, gas, energy efficiency, etc. According to the existing legislation, this has to be updated every year, in words of the DoE. Parallel to this, the IRP, an instrument in the Electricity Act (2006), focuses on dealing with the needs of South Africa’s Energy Mix. The IRP works along with the Energy Regulator capacity in licensing new generation capacity when required and according to the law.

As both the IRP and the IEP are forward looking plans, there is a need for continuous updating because the DoE works with assumptions made out of current performance. The Department had also carried out “road shows” throughout the major cities in the country in order to solicit public input from various interest groups in the process. However, DoE had not yet consulted NEDLAC. DoE had significantly improved its consultation process facilitating a space on the DoE website to make contributions, and already comments are summarised there. And for people without access to the internet, DoE had created public private partnerships (PPP) to obtain these. The process of consultation and updating had been last revised on the 3 February 2017 thus the DoE was in the position to provide members with an up to date understanding of the status of the IEP and IRP. He reiterated that this is not the end of the process.
 

The next step was to carry bilateral and intergovernmental consultations and move on to the so called Milestone 2 (revision by Cabinet). At this stage, the next step is to carry bilateral and intergovernmental consultations and move on to the so called Milestone 2 (revision by Cabinet). Onwards, different scenarios would be put in place for potential outcomes, considering all sources of energy available according to assumptions made. The Department would also like to deal with the question of nuclear energy and the several controversies around its production. When considering the different forecasted scenarios to be presented in a publically available document, the Department would then be positioned in Milestone 3. Lastly, Cabinet would consider conclusions around policy adjustment to finalise the process previous to implementation. The previous Cabinet consideration had led the DoE to solicit more consultation. Regarding the current update, he said it is expected that further considerations will be required and a new update could be provided in May – June this year. The intention of the Department was to finalise the process in August - September 2017. The technical aspects would be presented by his colleagues.

The Chairperson suggested staring with the Integrated Energy Plan (IEP), but first he demanded more clarity on the timelines provided for the completion of the consultation and considerations processes.

The DDG responded that given the number of contributions sent to DoE on the IRP and IEP (more than 64 files), and the need to tabulate all the comments and how DoE had processed them, this process takes time. DoE was expecting to finalise a final report on Milestones 1 and 2 in March 2017. He added that crucial contributions were expected from the Portfolio Committee which would have to be factored in as well.

Integrated Energy Plan (IEP)
Mr Molatsi Seotsanyana (DoE Director) said Energy is the life blood of the economy which impacts on all sectors as well as individual livelihoods. Integrated energy planning is required to ensure that current and future energy needs can be met in the most cost effective, efficient and socially beneficial manner while also taking into account environmental impacts (slide 4, IEP). The lack of coordinated and integrated national planning for the energy sector led to underinvestment in much needed energy infrastructure, but particularly in electricity and liquid fuel provision. The IEP follows the mandate of DoE White Paper 1998, which includes policy management and guideline in the Energy sector which Government tries to achieve. The IEP had five policy objectives: Increasing access to affordable energy services; improving energy governance; stimulating economic development; managing energy-related environmental impacts; securing supply through diversity. He stated that the IEP is aligned with several plans within the National Policy Framework, particularly with the National Development Plan, New Growth Path and 9-Point Plan, taking input from them. The IEP is also linked with other environmental related plans, more specifically working with assumptions from the national Transport Plan, Environmental Policies, Integrated Energy Plan, Carbon Tax Policy, Water Policies and Industrialisation Policies. (slide 5 IEP). Regarding the Energy process, extraction, supply and demand were the most frequent variables accounted for during the presentation, factoring external features and constraints, in order to build up potential expectations. Additional factors were Cost of Technology, Availability of Funding and Credit Rating. The main constraints affecting the energy process are supply of water, carbon emissions and available financial resources. Regarding the aspirations of DoE he said the Department focuses on economic growth, green economy, socio-economic development, reindustrialisation and achieving social equity (slide 7 IEP).

The Energy Planning Framework considers all energy stages, going from primary energy resources and secondary energy carriers to demand of energy services and technology related challenges, in terms of the use of energy in different sectors (Agriculture, Commerce, Transport and Industry and Household usage). From the Demand side, the DoE bears in mind the necessities for Energy Efficiency Strategy, the Universal Energy Access Strategy, as well as the Beneficiation Strategy and Transport Plan. From the Supply of energy side, the IEP had considered the two major mainstreams that structure the Energy Mix: the diversity of resources for supply and securitisation of supply. The former is concerned with liquid fuels and electricity provisions. The IEP works for the fulfillment of 8 key objectives: ensure security of supply, minimise cost of energy, promote job creation and localisation, minimise environmental impacts, minimise water consumption, diversify supply sources, promote energy efficiency and promote energy access.

On the progress made in the development of the IEP, he said that in June 2013 the Draft IEP Report was approved by Cabinet for publishing for public consultation; and in September to November 2013 wide consultation through public stakeholder workshops was carried out in all nine provinces. From January to September 2014, an inter-governmental policy working group and various multi-stakeholder sub-committees were established to deal with more thematic and substantive issues such as policy coherence, macroeconomic impact assessment, review of demand assumptions and externalities studies. From the different inputs provided, new factors were applied to the modelling of the IEP: internalisation of energy systems externalities (estimation of the externality costs of different energy carriers); determination of job creation potential for different technology types; inclusion of the “Peak-Plateau-Decline” emissions limits within the IEP modelled Base Case; inclusion of additional scenarios modelled; conduction of  macroeconomic impact assessments on all scenarios; incorporation of latest assumptions from the data (factorisation of technology costs and macroeconomic assumptions). From August 2015 to February 2016 new input was obtained from the Ministerial Advisory Committee on Energy (MACE) and further circulated to other government departments for comment before going back to DoE for revision.

Mr Seotsanyawa said he would focus on the IEP Liquid Fuel Supply (LFS) Scenarios (slide 22) as an example of how IEP considerations are put in place, given that the IRP presentation would cover common aspects regarding electricity supply. On the externalities included into the modelling process so far, some were negative (water pollution) and others were considered positive (localisation of employment) (slide 14 IEP). For the Technology switch up of the IEP, new jobs were considered, listing: direct, supplier, indirect, induced, permanent and temporary jobs. In terms of emissions constraints, the addition of limits imposed per sector were summed up to constitute DoE total emission control figures until 2050 (slide 17). Since 2016, DoE has applied a development framework to critically analyse the three major subsectors in terms of energy production: electricity supply, liquid fuel supply and gas (slide 20 IEP).

Mr Seotsanyawa moved to introduce a model case for Transport Demand, clarifying that it was just one of all the cases modelled by DoE, but which can serve as a clear example of methodology and factorisation of externalities. A general overview was provided (slide 25 IEP). In regards to the IEP Transport Demand Model, it would be most productive to focus on the outcomes: the current and projected vehicle sales, taking into account that transport technology itself consumes electricity. This leads to having to analyse the longevity of the cars that are being kept in all economic sectors , and evidencing that energy efficiency is being affected in this regard. Today, most cars bought in South Africa were petrol cars, increasing petrol consumption yearly because they are kept longer, added to the fact that new energy efficient cars were not bought fast enough within industries, negatively affecting the Supply side. The historical trends and projections (slide 25 IEP) were presented since the early 90s forecasting until 2050. The next variable to take into account, were the kilometer usage of different vehicle types because this helps analysing overall energy consumption (slide 30 IEP). Motor cars were generally busier than transport and commercial vehicles, however this needs to factor in passenger per kilometer consumption as presented (slide 31 IEP), as well as technology development per typology of vehicle (slide 27 IEP) with the intention of finding the most cost-efficient solutions. Lastly, and of great importance, DoE studies the projected fuel economy after considering the three exposed variables: 1) the population of cars (annual growth); 2) vehicle usage per typology; and 3) car efficiency. He finalised providing a general overview of what the current state and expectations of industrial demand is across all sectors combining the selected variables, concluding that petrol usage outnumbered other sources with Transport vehicles leading consumption (slide 35 IEP). He handed over to his colleague to cover the Liquid Fuel Supply Scenarios’ presentation.

Mr Robin Naidoo (DoE Director: Supply Modelling Specialist) introduced the variables of analysis for LFS (Total Capacity, Production, Emissions, Water Consumption, Feedstock Consumption, Costs and Jobs, (slide 38 IEP). In terms of existing refining capacity, production was 7 000 000 barrels per day and that PetroSA will run out of resources eventually, as it has been already reported. Sasol (which produces 640 000 per day) would also experience the same path as PetroSA in terms of petrol, gas and coal by 2030. These expectations led DoE to consider what the needs are for future refining capacity in South Africa. For the 5 scenarios to be presented, that Gas-to-Liquid (GTL) is being included for 2027 – 2040 – 2045 (70 000 barrels/day to 140 000 barrels/day), Coal-to-Liquid (CTL) is being factored for 2031 (80 000 barrels/day).

A key scenario that had been looked into is the Security of Supply scenario, where the building of a crude refinery was factored in (2026). Over time Refining Capacity was expected to increase (slides 41 and 45 IEP), exceeding 100 000 barrels/day, and 1 000 000 barrels/day by 2050 (slide 41 IEP). The decline of domestic existing refineries was presented in slide 44 (IEP), complemented with the positive total production, factoring in new refineries in slide 43 (IEP). Slide 45 presented the production from three different new refineries, highlighting the introduction of GTL in 2027 and CTL in 2040. In the analysed case of Security of Supply, when bringing in the new crude refinery in 2026, South Africa will have increasing capacity, expecting 20 000 000 barrels/day before 2047.

Mr Naidoo explained that in order to analyse imports and future imports, DoE had to analyse the existing needs and capacity in South African ports (slide 46 IEP). Port capacity was capable of covering the projected needs in 4 out of 5 scenarios, with an unbalanced in a potential context of Green Shoots (slide 46 IEP). Total Imports would remain fairly constant for all scenarios (slide 47 IEP), this being the one outstanding position in terms of crude when considering the new refineries previously mentioned. He emphasised that South Africa is importing significant amount of Diesel resources. Regarding Total Domestic Production from crude oil refineries, the country would produce great amounts of Diesel, followed by production of Crude and the presented date (slide 48 IEP) applied to the prospects up to 2050. Looking into possible scenarios of Discount Costs (slide 49 IEP), the Cleaner Pastures scenario would be the cheapest option, and the Green Shoots scenario would be the most expensive alternative. The Discount Costs predictions had included potential CO2 modifications in national refineries. One of the central issues of the analysis had been Carbon Dioxide Emissions within the 5 scenarios, which ultimately would impact the type of refineries South Africa would be able to build within a sure context of cutting CO2 emissions (slide 51 IEP). In terms of Water consumption by refinery type, the use of fresh water would decrease given the application of new technologies, particularly in GTL production, that do not require fresh water. The possible sensitive scenarios built in assumption from the base case include the implementation of the Clean Fuels 2 (CF2) programme and low crude prices (LCP) (slide 55 IEP).

The conclusions from stakeholder’s consultations (slide 64 IEP) showed that the key issues were the lack of references to electric vehicles penetration within the draft presented along with no emission limits being imposed on the transport sector, sensitivities around new crude refining capacity and concerns about the assumptions on indigenous versus imported gas that must be considered by DoE.

Integrated Resource Plan (IRP)
Mr Jacob Mbele (DoE Chief Director: Electricity Policy) said his briefing aimed to apprise the public on the process and progress regarding the update of the IRP; to share the key assumptions used in the IRP update and solicit input on these assumptions; to share the preliminary Base Case observations from the IRP update; and to share a list of Scenarios to be analysed and solicit input on what additional scenarios to consider. He gave an overview of the update process. The first part of the process, was the previously approved IRP (2010), including assumptions from the previous plan such as demand, existing plan performance, technology costs, new commission plants, decommission plants, determination in latest Cod Dates. With these assumptions, DoE had developed the Base Case as a new starting point before the different scenarios shown in the IEP presentation. The scenarios developed from the Base (credible) Case might vary especially in an environment where different experts forecast completely different contexts. However the different views were included in the five scenarios developed. The results obtained from the different scenarios constitute the so called Draft Balanced IRP, which also takes into account additional factors (Government policies) to later end up as what DoE names the Policy Adjusted IRP. What the IRP tries when building a “credible best case”, is to reach a certain level of consensus from all factored in assumptions from different stakeholders.

The modelling process of the draft IRP started in 2015 with the process of considerations of key assumptions started in March 2015 and finalised in December 2015, which helps in understanding the referencing to March 2015 throughout the report. The sources for these assumptions were the Demand Forecast (CSIR and Eskom), Economic Parameters, Discount Rate, and Exchange Rates (National Treasury and SARB), Technology and Fuel Costs (EPRI, a US electricity research organisation), Eskom (mainly in terms of imports) 2010 IRP and Eskom (Independent Power Producers Window 4, 2015: public available numbers at the time of the IRP drafting).

The IRP Demand Forecast was provided by the CSIR who developed the annual consumption in terms of GWh for each of the scenarios catalogued as High, High Less Intense, Moderate and Low. DoE had selected the High Less Intense scenario as the Base Case which could contrasted with the previous IRP (2010) forecast (slide 7 IEP), however the Low scenario would also be tested during the development of the IRP. In terms of the economic assumptions for forecasting, most of them were gathered in 2015 as previously mentioned, with a dollar to rand exchange rate of $/R11.55, a 8.2% Real pre Tax social discount, and a cost of Unserved Energy up to R77.30/kWh - according to the National Energy Regulator (NERSA). In the case of the dollar to rand exchange, for modelling purposes it remains equal throughout the process (since 2015), because trying to factor in a rate that changes daily would not allow one to finalise the plan. Referring to the rate of Unserved Energy, he gave the example of Gas production in South Africa, for which new infrastructure is required and the usage of gas energy to develop it would have to be included in the modelling forecast for testing robustness. Technology Overnight Costs had been included in the modelling of the current IRP, acknowledging that this figure does not take potential interest in cost along the process, (slide 10). Fuel Costs were also included, with particular attention in Liquefied Natural Gas (LNG) which is not produced in the country and which the expected market cost in the model had not taken into account potential costs of required infrastructure.

Technology Learning Rates (slide 12 IRP) had been included in the current IRP, with the understanding that the continuous improvement in technological solutions for the sector will reduce production costs, particularly in the case of Renewable Energies which costs have declined quicker than expected. Another assumption to be taken into account was the CO2 emission trajectory, used in the 2010 IRP already (Moderate Declined Trajectory), but updated in terms of methodology was now using the Common Emission Budget of Carbon Dioxide which establishes annual ceilings of production. In 2010, because DoE was not fully aware of Renewable Energies’ potential, DoE established what was called Annual Development Limits, assuming that it would not be possible to generate more than 25 000 MW.

Limits of Technology (slide 14 IRP): As the diversity of technological applications within different sources is vast, Mr Mbele explained that in 2010 DoE established what they called Annual Development Limit (Technology) which came to establish a realistic limitation to expected production. He commented that perhaps in the case of PV, the annual limit of production would be 1 000MW and for Wind 1 800MW. For Coal specifically, it is known by DoE that its first production (in units) takes a lead period of 4 years, and thus timing is crucial to include in the modelling process to generate real expectations. One criticism of the IRP was that it did not include considerations on Gas in this regard, which Mr Mbele assured would be corrected.

In the modelling of the IRP, one of the concerns was plant performance. DoE had assumed the future Eskom plant performance, according to the information provided by Eskom in three different scenarios (slide 15 IRP): one that works with current Eskom performance (Low Plant Performance); one that takes into account Eskom’s development for better performance (High Plant Performance); and lastly one scenario that considers certain degree of development (Moderate Plant Performance). For the IRP Base Case, the Moderate Plant Performance had been selected following Eskom recommendations. However, the Low Plant Performance had been also included in the development of the IRP in order to forecast in the context of worst case scenario. On that note, for modelling purposes, DoE had taken into account Eskom’s plants switch off until 2050 including (in blue – slide 16 IRP) date of decommissioning. The life of non-Eskom plants had been also factored in (slide 17 IRP). Mr Mbele argued that DoE overviews Demand as one variable, and the performance and life of existing plants should be considered for realistic planning. New and ongoing Eskom builds were included in the IRP although some of the dates were not completely accurate. For example, the Ingula Plant has already been built, but the official date given by Eskom is July 2017.

Ministerial Determinations with regards to building of new plants had to be considered in order to develop the Base Case. With this final inclusion, he clarified that so far all prospective projects, and planned infrastructural and production volumes (when procured), were taken as a given during the modelling process.

Finally, the Demand-Side Management was modelled to be higher than in the current context (slide 20 IRP), and this is further explained per scenario reporting along the IRP. With all considerations taken into account, DoE had run the modelling software obtaining results for the Base Case per year (slide 21 IRP).

In slide 23, the Base Case observations were summarised: first, the system commissions new capacity earliest 2022; second, initial capacity comes from a combination of PV, Wind and Gas (bearing in mind that if international Gas price changes, the predictions will not be accurate for the Base Case but for alternative scenarios); third, New Base load commissioning is highly linked to Eskom’s plant retirement schedule (Coal – 2028, Hydro – 2030, Nuclear – 2037); and fourth, South Africa’s Energy Mix has Gas and Renewables form the biggest part of installed capacity by 2050, with a significant reduction in installed capacity from Coal (which proportions most of the current capacity). With the new inputs from the different public contributors and stakeholders (63 submissions) and those to be received before the 31 March closing date, this preliminary Base Case would look significantly different.

The Base Case scenario included the use of the Carbon budget as an instrument to reduce Green House Gas (GHG) emissions, as advised by Department of Environmental Affairs; it also takes into account primary fuel price sensitivity to future market changes for Coal, Gas and nuclear resources. Despite the selection of a moderate demand trajectory, Mr Mbele reaffirmed that a low demand trajectory had been factored in on the basis of CSIR forecasts. The use of embedded generation (rooftop PV) by households and business due to instability in power generation (load shedding) was another factor to acknowledge during the development of the model. Other factors that had been considered were enhanced energy efficiency as per DoE EE Strategy (draft), a possible low Eskom plant performance; the development of regional markets in Southern Africa (in terms of exports and imports) and alternative scenarios included were unconstrained Renewable Energy, new technology development and potential electricity networks.

Discussion
The Chairperson asked DoE for clarity about the presentation of electricity scenarios, which he had understood were to be presented within the IEP presentation.

The DDG clarified that the presentation of one particular scenario, Gas within the IEP, it was under development and DoE should have clarified it, thus for the Electricity Scenarios the previous assumptions from the IRP 2010 were being considered.

The Chairperson thanked DoE, and suggested that in future presentations it would be productive to contrast the planning and modelling with current affairs and ongoing constraints as this was also part of the development of public policy. He lamented the lack of time to do so.

Mr G Mackay (DA) asked for clarification about the legislature process that would take place regarding the acceptance of the IEP and IRP plans. Despite the mentioning of milestones, it was not clear when the draft would come back to the Committee, and when it would be adopted in the House. He stated the current timing, given that the reports were written in November 2016 and the Committee is only seeing it in February 2017, it seems the Parliamentary overview is being somehow bypassed.

Mr Mackay acknowledged that the presented reports were much better than the presentations offered at the beginning of the process, and he welcomed the development regarding the inclusion of the renewable energies scenario in an unconstrained scenario.

He expressed concern about the lack of mention to the Demand-Side of Electricity. He referred to the announced 20-year reduction prospect by ESKOM in Sodwana, and referred to the need for transparency and clarity regarding the decision-making in this regard. Mr Mackay stated that Eskom 20-year production brought up several issues about adjustments in Demand and Supply, as well as confusion about why it needs to pursue nuclear energy. He asked if it was DoE or Eskom who creates energy policy, further asking whether Eskom would adhere to the IRP and IEP.

Mr Mackay stated that looking into the assumptions from the Base Case, some of them were unrealistic according to market realities in terms of expectations around building new refineries from private investment.

Mr Mackay said it seemed that some form of energies had been excluded from the plan, specifically Concentrating Solar Power (CSP) and Cogeneration, and nothing during the session explained why this exclusion had taken place. The most important aspect, in his opinion, was the growing importance of renewables in the energy mix and the need for further regulation.

Mr M Matlala (ANC) asked about the public consultation process happening in December 2016. Most people were on holiday during the process. Unless the process was considering only metros within the country, the output would not be well considered by all. He added that the use of EPRI, an American institution, to provide sector data brought up additional questions: does DoE pay for the data? And if so, how much has been budgeted for this?

Mr Matlala asked if there was any plan to save PetroSA, in response to the affirmation from DoE that the corporation’s production was forecasted to end.

Mr Matlala requested clarification regarding the fuel consumption of old and new cars.

Ms T Mahambehlala (ANC) asked if there were any initiatives or plans to ensure that PetroSA does not stop production, referring to the mention of an expected shut down during the IEP presentation. She emphasised that DoE is responsible for the entity. The sources presented during the IRP are not enough, particularly when citing Biomass. She referred to the importance of Biomass for Cogeneration and provision of electricity, and asked why this was being overlooked.

Ms Mahambehlala said the presentation had power generation forecast higher than expected and she asked for more information. She asked about what had been raised during consultations. Also she asked for further explanations about the connections and similarities between the IEP and the IRP because certain incongruencies appeared such as redistribution and transmission for which certain recommendations were covered in the IEP and seemed not to have been included in the development of the IRP.

Mr J Esterhuizen (IFP) criticised policy uncertainty in South Africa, which in the case of Gas production was a big problem when connecting exploration and production (E&P) companies and the system. He agreed with Mr Matlala about the timing for public consultation that impeded participation.

The Chairperson asked DoE to set a deadline to present the final draft to the Committee for it to provide meaningful contribution. He requested that DoE be clearer about assumptions compared to the 2010 IRP which had been taken as a base for current considerations.

The Director General, Mr Zulu, responded about the concerns of policy uncertainty applicable to the Energy Mix, saying the policy mandate will belong to the IRP and IEP and Government would be sticking to it once implemented.

Mr Mbele agreed with Ms Mahambehlala on the need to include clearer information about the different sources and technologies, particularly in the case of Biomass. He said that if the entire plan had been covered in the presentation, there is specific information about Biomass. He affirmed that all technologies had been included in the model, considering that some will put in place and some will not (depending on cost and availability), but none had been excluded. Working on the basis of the eight key objectives from the plan, and the different scenarios with dissimilar stages, the use of different technologies changes, also based on current prices for products and sources. The model includes only existing and available technology that can be made available to the public. Working around these eight key objectives means that once the results for the Base Case are run in the software, if the established objectives have not been achieved, new considerations must be taken, perhaps in the use of technology and sources.

The DDG, Mr Aphane, assured the Committee that DoE is already running models looking at Concentrating Solar Power (CSP), but even when the result does satisfy all stakeholders in terms of volume of production, these results are no definite as only Milestones 1 and 2 have been processed.

Deputy Minister Majola said that it is necessary to include variables of efficiency and reliability. Even if DoE has focused today on technologies and the distribution of sources, the considerations of cost per unit had been central. In the case of efficiency and reliability, such as wind farms, the available information here relies on how much is produced from each source, but does not talk about how efficient it is. In the case of CSP there is capacity for storage, yet increasing costs exponentially to make it reliable in terms of capacity. When talking about water use, DoE needs to explain further in a correlative manner, perhaps how coal processing affects water use efficiency. That is part of the problem with the current presentation as the lack of time had not allowed them to go into the critical details.

The DDG stated that DoE had taken into account the criticism about the consultation process, and clarified that DoE had extended the time limits of the consultation until 31 March, acknowledging these concerns. DoE was also pressured to finalise the process more quickly, which makes timing complicated.

The DDG mentioned that DoE performed road shows in different municipalities per province, and despite the criticism regarding DoE’s focus in main cities, certain technologies are more available.

He addressed the concerns about policy inconsistencies, particularly about the interchangeable aspects between the IEP and the IRP, stating that aspects like variable exchange rates and what rate should be applied, according to EPRI, can be fixed later on.

Answering Mr Matlala concerns about obtaining data from EPRI, an American institution, and related costs, the DDG pointed out that one of South Africa’s greatest problems is the lack of information in the Energy Sector. Previously, DoE was accused of relying too much on Eskom to gather information, thus DoE decided to diversify its sources of information. For instance, its Renewable Energies information was now obtained from the independent power producers (IPPs). Thus to obtained valuable information, DoE had to rely on a worldwide known institution (EPRI) to collect data.

On closing the PetroSA refineries, the DDG said that what the process aimed to do was to expose realities, and during the modelling different scenarios were taken into account, including the building of new refineries, in order to create a set of potential solutions for decision-making. Likewise, the questions that come up now relate to what steps does DoE have to take to achieve such investment to fulfill the need for construction of refineries. In fact, the finalisation of PetroSA’s production will occur much sooner than 2030. The good point about the development of the first modelled and tested Base Case is to get to the debate of whether to build new refineries or increase imports.

He clarified that given nature of EPRI, an institution that Eskom hired for data purposes, DoE does not pay for access. Despite the American origin, EPRI is an independent institution. He assured the Committee that the selection of the institution was not ideological, but based on the availability of this power research.

The DDG, Mr Aphane, stated that the current process is a policy one and not legislative. Implementation of a plan will take place but no Bill will modify current legislation. The policy works under the framework of the Electricity Regulation Act and Energy Act. On the question of who decides on energy policy matters, it is clear that government and the legislature have the only say in this matter and Eskom is only the implementation agent.

Mr Mbele, answering the Chairperson’s concerns, clarified that in order not to interrupt the current IRP, the study being carried will only take place after it is been passed by the legislature. The use of the Base Case for decision making would be inappropriate because changes are expected to apply during further modelling.

The Chairperson said that despite the explanations given by DoE, the inconsistency between DoE and Eskom about decommissioning dates require further clarification.

Mr Mackay asked about the problem of aligning a Base Case assessment using wrong assumptions such as the false expectations provided by Eskom during the 2010 IRP, particularly around Demand which led DoE to work from outdated and wrong conclusions.

The Chairperson supported Mr Mackay’s view and noted that certain decisions and considerations had been taken, for instance around needing new nuclear investment, when it might not be necessary.

Ms Mahambehlala said her question had not been answered. She inquired then about contradictions within the IEP: EPRI had predicted a decline in the use of coal by 2040, while the scenarios presented show an increase. She also expressed disagreement with the DDG about a potential reopening of Project Mthombo.

The DDG replied that DoE stated on the case of Mthombo was analysis and considerations of costs and benefits had been carried out to allow Government to make informed decisions; the short answer would be that Project Mthombo is not completely dead. Given the amount of existing coal resources in the country, South Africa could not exclude it from its Energy Mix; what was expected was to include new technologies for making coal usage cleaner.

The DDG replied to concerns about working with wrong assumptions, saying DoE had compared both IRPs and contrasted data before running the different scenarios. The DDG referred to DoE approval of a geographical layout of potential new projects in conjunction with the independent power producers (IPPs). About timing, he said in Milestone 2, only data collection is left, thus its conclusion is expected to be in July/August 2017.

The Deputy Minister concluded that in future the Committee needs to ensure DoE is present when Eskom has a meeting with the Committee. She reminded the Committee that the IRP and IEP are tools for decision making and that they are simply fulfilling a gap in terms of knowledge and capacity of prediction. Lastly, the Committee and DoE need to take into account that the date of finalisation would be delayed as new discussions and robust arguments would follow inter-cabinet objections.

The meeting was adjourned.

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