The Integrated Resource Plan 2

1. Building on the Findings of the Electricity Governance Initiative South Africa The Integrated Resource Plan 2 Durban 10 May 2010 Energy Research Centre

2. IRP 2 is Critical Determines whether South Africa: • has adequate electricity to meet demand • extends access to electricity for the poor • reduces its GHG emissions • continues on an energy intensive economic path, or charts a new path to green growth

3. Coordination • Renewable Energy White Paper • Integrated Energy Plan • Climate Change Policy • Industrial Policy Action Plan • National Planning Commission

4. IRP 2 process • IRP 1 released by cabinet in December 2009 • interim 5 year plan • MYPD 2 decision made, but without clarity on long term plans • Now proposing a 2 part consultation • First on the assumptions that go into energy models (May) • And second on the scenarios developed (late June) • Working group on IRP 2 reports to the IMC on energy • Maximize opportunities to have input

5. MAY - JUNE 2010 • JUNE – JULY 2010 Proposed IRP 2 process • MARCH – MAY 2010

6. Integrated Resource Planning and Scheduling Andrew Marquard, Brett Cohen, Mavo Solomon, Bruno Merven Energy Systems Analysis and Planning Energy Research Centre

7. Contents • Global history of IRP • South African history of IRP • NIRP I • NIRP II • NIRP III • *IRP 1 • Dispatching/scheduling of units • Integrated Energy Planning

8. History of Electricity Planning • US Electricity planning in the 1960’s • Strong and consistent electricity growth • Easily matched by bulk supply • Simple trending techniques addressed concerns on future requirements • Changes in the 1970’s • Arab oil embargo with price volatilities • Nuclear Plant 3 Mile Island • Less growth, rampant inflation, implied less predictability in planning

9. US Electricity Planning in the 1970s

10. History cont. • Energy conservation prominence in the 1980’s • Balancing the need build plants with using less energy • Evolved into demand side management • Complexity of planning analysis •  LEAST COST PLANNING • Integrated Resource Planning

11. Traditional Planning Focus on utility-owned central power plants Planning within utility system planning department All resources owned by the utility Resources selected to minimise electricity prices and maintain system reliability Integrated Resource Planning Diversity of resources - utility plants, power purchases, DSM, T&D improvements Planning spread among several departments, involving customers (and government?) IPPs and small producers could also be included Diverse resource selection criteria - prices, revenue requirements, utility financial health, risk, fuel diversity, environmental quality IRP versus Traditional Planning Source: Spalding-Fetcher

12. IRP, a balancing act • Reliable service, • Economic efficiency, • Balancing customer and investor interests • Environmental protection, and • Equity/energy access - balancing interests of the various consumers against interests of present and future generations. • Local, regional, national

13. Energy Supply in South Africa • Aggressive industrial growth (1970’s – 1980’s) • Investment in bulk supply • Overshooting in the1990’s • Post 1994 economic aspirations • Asian economic crisis impact (1998) • Surplus capacity (mothballing and slowing of Majuba Power Plant). • Stalled proposed market reform (2000’s) • Early signs of declining surplus capacity (reserve margin) • Documented work predicting power shortages by 2006-8 • Eskom still monopoly

14. South Africa’s history of IRP • NIRP 1 (2002) • NIRP II (2003/4) • Post 1994 economic aspirations • NIRP III • Not published • IRP 1 • Published and gazetted 31 Dec 2009 • Controversial • IRP 2 • Currently underway

15. NIRP I • Uses the basic planning assumptions of Eskom’s ISEP8 with a few changes: • National electricity forecast (not just Eskom’s share thereof) • Costs and performance parameters of non-Eskom generation • Fuel cost changes to some of Eskom’s existing generation • Cost and performance parameters of new simple cycle gas turbines • Uses revised cost and performance parameters for: • PBMR • Pumped Storage Plants • Simunye (mothballed) plant

16. NIRP I conclusions and comments • Strategies to diversify away from coal as primary fuel source produce best relative environmental performance but more expensive than the base plan. Not very diversified. • Access to water will become more difficult in future. • Legislative changes on emission limits, water allocation and an effluent levy will impact on costs of future options, cause delays and influence site preferences • Lead times for EIAs impact on the IRP planning process • Environmental costs, as input into the preferred strategy, need to be justified for localised conditions

17. NIRP I recommendations • Whereas the base plan is the least cost option, it is important to incorporate strategies for fuel and geographic diversity and multiple investment opportunities in the energy market. These strategies will produce better relative environmental performance and have greater potential for regional development.

18. NIRP I base plan

19. NIRP II • Two-stage process • Stage 1: like NIRP 1, developed base/reference plan • Stage 2: explicit risk modelling to develop reserve margin • Reserve margin: • RM =

20. NIRP II preferred plan + renewables

21. NIRP II - capacity

22. Conventional approach to IRP • Process • Stakeholder involvement • Scenario development • Choosing supply options • Resource availability • Costs (capex, operational and fuel) • Environmental concerns • Demand analysis • Appliance costs and cost of efficiency improvements • Cost of no-supply (cost of unserved energy) • Integrated Resource Plan

23. Scheduling of units • Dispatching/scheduling of units • To meet load requirements with the cheapest energy sources • Chronological hourly consumption • Random events impacting available units • Scheduling • Baseload plants – inflexible thermal plants: • Coal plants (as function of coal contract) • Nuclear plant • Mid-merit plants – minimal flexibility • Pumped storage • Combined cycle gas turbine plants

24. Scheduling of units ... cont. • Scheduling ... cont. • Peaking units – maximum flexibility • open cycle gas turbines (fully variable costs) • Spinning reserve (thermal units) • standby reserve in the event of • load increases or • unit failures

25. Integrated Resource vs Energy Planning • IRP is relatively mature, with standardized analytical tools • Integrated Energy Planning (IEP) in infancy • Interlinking of all energy carries • Analytical tools becoming more widely available

26. The IRP 2 processThis is what we know so far Proposed process for developing IRP 2

27. What was in the original IRP 1?Originally

28. A Multi – Criteria Decision Framework • Ran several scenarios: • 1. Reference Case • 2a. Domestic emissions • 2b. Regional emissions • 2c. Delayed Regional Emissions • 2d. Carbon Tax • 3a. IPP alternates 1 • 3b. IPP alternates 2 • 2. Lowest CO2 • 3. Policy Portfolio • 4. Risk-adjusted emission portfolio • 5. Policy-adjusted IRP Criteria for Assessment: Risk factors Diversity Costs Technology

29. What was in IRP 1?

30. What made it into IRP 1 Gazetted

31. IRP 2 assumptions

32. IRP 2 assumptions

34. Electricity planning, policy, politics and democracy Traditional - technical and cost barriers – also a necessity! Detailed technical studies / tenders / market mechanisms etc. Scenarios - Detailed technical elaborations of possible aspirations Stakeholders Problems Preferences Goals Implementation: - Infrastructure development (plants, transmission, etc) Policymaking The main goal of SNAPP and similar tools is to empower a wider group of stakeholders to elaborate policy goals for the electricity sector through scenario development

35. Why SNAPP is different from traditional planning tools • For scenario development and exploration – although rigorous, it does not have many of the sophisticated features of professional planning frameworks (e.g. optimisation, accurate dispatch simulation) • Simple and easy to use, even for people with few technical skills • Because SNAPP is a spreadsheet, it provides instantaneous feedback on changes to parameters in the system, is transparent, easily and infinitely adaptable – results are replicable, and assumptions are visible • Free – you can start today

36. Electricity Supply (generation) Planning Process • Analyze current/past demand (energy and power/load shape) • Project demand (energy and power) over the study horizon • Analyze existing supply system, costs, and technical parameters (e.g. availability, efficiency, FOR) and retirement schedule • Analyze future technology options, costs (incl. learning curves) and technical parameters • Analyze fuel costs, current and projected over study horizon • Design supply system over study horizon – looking at costs, within constraints (reliability standards, resource potential) • Study and cost demand-side options, for comparison to new generation • Study alternative scenarios: e.g. policy targets and compare to ref • Do sensitivity studies on uncertain parameters • Compile findings • Present to Stakeholders and iterate steps 4,5, 7-9

37. 2. Project demand (energy and power) over the study horizon: Elec Demand sheet

38. 4. Analyze future technology options, costs (incl. learning curves) and technical parameters: Tech Parameters sheet

39. 7. Study alternative scenarios: e.g. policy targets and compare to ref: Cost graphs and Environmental Impacts sheets

40. Moving Forward • DoE to brief the Energy Caucus on the IRP 2 process • Online resources to share information http://irp2.wordpress.com • Second round of workshops when DoE releases its scenarios • Independent research and information on the proposed assumptions • Note: Leaked Sep 09 DRAFT IRP 1 available at http://www.mg.co.za/article/2010-01-08-eskoms-secret-tariff-plan-revealed