Conversations with the Media on the Electricity Industry and its - - PowerPoint PPT Presentation
Conversations with the Media on the Electricity Industry and its Regulatory Approaches Nhlanhla Gumede 1 Full Time Member of the Regulator 1 Who is NERSA NERSA was established in terms of the National Energy Regulator Act, Act No 40 of
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Nhlanhla Gumede Full Time Member of the Regulator
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Who is NERSA
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Energy Regulator Act, Act No 40 of 2004
– Independent Regulator
– Responsible for the regulation of three energy industries:
– Rest of the NERSA staff support the Regulator – Decisions based on reasons, facts and evidence
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Legislative Mandate
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– 4 Primary Acts:
– 3 Levies Acts:
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Facilitation legislation
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Acts:
– Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA) – Promotion of Access to Information Act, 2000 (Act No. 2 of 2000) (PAIA) – Promotion of Administrative Justice Act, 2000 (Act No. 3 of 2000) (PAJA)
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Electricity Regulation Mandate
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(‘ERA’)
– New Act under consideration
– Electricity Pricing Policy (EPP) GN1398
– Electricity Regulations on New Generation Capacity GN 399
– Licensing Exemption and Registration Notice GN 43151
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NERSA is a creature of stature and accordingly governed
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2004);
– New Act under consideration
(‘ERA’)
– New Act under consideration
– Electricity Pricing Policy (EPP) GN1398 19 December 2008 – Electricity Regulations on New Generation Capacity GN 399 4 May 2011 – New “New Gen” regulations under consideration
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ERA is not only about supply but about all aspects that make the ESI
Are we doing in enough? Objects of the Act Supply side Demand side Off grid Achieve efficient, effective, sustainable & orderly development & operation of electricity supply infrastructure
Ensure interests & needs of present & future electricity customers & end users are safeguarded & met - governance, efficiency, effectiveness & long-term sustainability of ESI Facilitate investment in the electricity supply industry Facilitate universal access to electricity
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Promote use of diverse energy sources and energy efficiency Promote competitiveness & customer and end- user choice Facilitate a fair balance between the interests of customers and end users, licensees, investors in the electricity supply industry and the public
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8 The Prices in Red actually applied The prices in Black were decisions which were superseded by another application or an RCA decision
MYPD 1 Decision
Revision 1: 2008 price in Dec 2007 Revision 2: 2008 price in Mar 2008
I n t e r i m
MYPD 2 Decision Revision: 2012 price Mar 2012 MYPD 3 Decision MYPD 2 RCA MYPD 3 RCA 2006 2007 2008 2008 2008 2009 2010 2011 2012 2012 2013 2014 2015 2015 2016 2017 Average Price Increase (%) 5.10 5.90 6.20 14.20 27.50 31.30 24.80 25.8 25.90 16.00 8 8 8 12.69 9.4 2.2 Average Price (c/kWh) 17.91 18.09 18.27 22.61 25.24 33.14 41.57 52.3 65.85 60.66 65.51 70.75 76.41 79.73 87.23 89.13
Current electricity price increases are not sustainable
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In 2007/08, 2008/09 and 2012/13 Eskom submitted more than 1 application because significant environmental changes that following load shedding incidences - mostly driven by Primary Energy costs and the construction program
History of ESKOM tariff application vs NERSA’s Decisions (excl. RCAs)
MYPD 1 INTERI M MYPD2 MYPD3 1 YEAR MYPD4 STC Application 2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 Application % 5.9/18.7 6.2 / 60 34 35 35 35 / 16 16 16 16 16 16 19.9 15 15 15 Decision % 5.1 5.9 14.2 6.2 27.5 31.3 24.8 25.8 25.9 16 8 8 8 8 8 5.23 9.41 8.10 5.22
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Translation of MYPD Revenue to FY19/20 Individual Tariffs
Revenue Requirement
Rm190 939 (excl. RCA) Rm198 715 (incl. RCA)
Average Price
102.62c/kWh (excl. RCA) 106.80c/kWh (incl. RCA)
Municipal Tariff Schedules
Different for each Municipality
Municipal Retail Tariff
from Eskom 109.65c/kWh
ERTSA Process
Eskom Customer Categories & Adjust for FY difference to Municipalities
NERSA Municipal Tariff
Guidelines & Benchmarks Municipality apply for approval of tariffs based upon based upon Municipal Tariff Guidelines & Benchmarks
NERSA Determines NERSA Approves
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As costs have been increasing, sales have been declining
Source: D Form Data
0,00 10,00 20,00 30,00 40,00 50,00 60,00 70,00 80,00 90,00 100,00 185 000 000 190 000 000 195 000 000 200 000 000 205 000 000 210 000 000 215 000 000 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
Prices (c/kWh) Sales (MWh per annum)
Eskom Sales MWh vs Price c/kWh
Sales MWh Price c/kWh
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Negative downward spiral
Not only do we need to arrest the electricity prices increases but we need to reverse them
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Electricity is important for all sectors but in different ways
0,00 10,00 20,00 30,00 40,00 50,00 60,00 70,00 Agriculture Metal Ores Other Mining Glass Non Metal minerals Basic Iron & Steel Precious metals Trade Hotels and restaurants Financial intermediation Household
Sectoral cost drivers
% Electricity % Labour % Metal ores % Transport % Basic iron & Steel % Chemicals % Telecommunication % Coke oven products
Source: Statssa, Input – output tables 2014
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Source: Statssa, Input – output tables 2014
2,06 6,14 2,14 6,00 2,04 4,45 5,09 0,65 1,14 0,29 2,56 9,44 7,97 11,24 3,49 6,26 4,30 1,82 4,35 4,17 0,50 6,34 9,63 3,25 2,88 0,36 1,46 0,48 0,13 0,48 0,74 0,08 2,52
0,00 5,00 10,00 15,00 20,00 25,00 Agriculture Metal Ores Other Mining Glass Non Metal minerals Basic Iron & Steel Precious metals Trade Hotels and restaurants Financial intermediation Household
Select sectoral cost drivers
% Electricity % Transport % Chemicals
Source: Statssa, Input – output tables 2014
Affecting some sectors more than
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Electricity cost now a key driver in sectors that were traditionally driven by labour
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Resulting in SA exporting its endowment and jobs
Many minerals processing companies are intending to close shop soon primarily because of high electricity costs.
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Unfortunately one cannot nit-pick parts of minerals processing value chain one likes
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Source: https://www.angloamericanplatinum.com/~/media/Files/A/Anglo-American-Platinum/investor- presentation/standardbankconference-anglo-american-platinum-processing-111114.pdf
Some people think that one can simply have Platinum Group Metals refining and fabrication without smelting
Value realisation in the PGM sector
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Source: https://www.angloamericanplatinum.com/~/media/Files/A/Anglo-American-Platinum/investor- presentation/standardbankconference-anglo-american-platinum-processing-111114.pdf
As a country, we need to make a choice, create or destroy value & jobs here in South Africa. It’s a simple choice!
Value drivers in the PGM industry
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Source: https://www.angloamericanplatinum.com/~/media/Files/A/Anglo-American-Platinum/investor- presentation/standardbankconference-anglo-american-platinum-processing-111114.pdf
Although smelting & refining costs are only 15% of total costs, 85% of value is generated here
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South Africa is de-industrialising
4 6 8 10 12 14
40 60 80 100 120
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Thousands GWh Thousands GWh
Sectoral demand trend
Municipalities Industrial Mining International Residential Commercial Agriculture Traction
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Focusing electricity strategies on consumption sectors at the expense of growth sectors makes little sense
Thick trend lines Left vertical axis Thin trend lines Right vertical axis
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Been fighting about the output of the tariff models & discretion instead of the construct of
“We have a dynamic mandate but static structures”- Minister Gwede Mantashe
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Coal supply contracts as an example of a key source of conflict
Names blanked out to protect confidentialities
It is clear, by using actual contracts in the determination of primary energy costs, the current MYPD exposes consumers and does not provide an incentive for better contracting
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Contribution of Renewable Energies to grid stability
Daily contribution Annual contribution
Morning peak actual load MW 27 896 * Evening peak actual load MW 30 201 * Daily energy sent-out MWh 599773 Daily IPP energy sent-out MWh 1011 *# Daily maximum SMP R/MWh 828 Daily MAPE % 2.0721 Daily PAPE % 1.1322 Annual Morning Peak YTD MW 30579 Annual Evening Peak YTD MW 33490 Peak Daily Energy YTD MWh 652025 * Indicates Unverified Meter Readings # Indicates Centrally Dispatched IPPs only
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In 2019 Renewable energy contributed 4.9% of the “Energy” in the calendar year
Contribution of Renewable Energies to grid stability
Wind and Solar contribute differently to the grid
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Renewable Energy is self dispatch and is not aligned with peak demand or the load profile
Cal Year Indicator CSP PV Wind (Eskom+IPP) Total (Incl other REs) Maximum 502.1 1 556.0 1 904.3 3 530.6 Max Date 24-Sep-2019 11:00 07-Apr-2020 12:00 25-May-2020 13:00 27-Oct-2019 13:00 Maximum
502.1 1 375.6 1 872.0 3 530.6
Max Date
24-Sep-2019 11:00 19-Jan-2019 12:00 14-Dec-2019 15:00 27-Oct-2019 13:00
Maximum
500.2 1 556.0 1 904.3 3 406.1
Max Date
27-Jan-2020 14:00 07-Apr-2020 12:00 25-May-2020 13:00 06-Apr-2020 13:00
Maximum Contribution (MW) - based on System Operator data (subject to metering verification) All Time 2019 2020
Contribution of Renewable Energies to grid stability
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Contribution of Renewable Energies to grid stability
submitted to the System Operator
– Reasonably accurate
– Can exceed 2 coal unit capacity – Requiring the call up of two units at short notice – Coal units require 24 hours to come fully
– Once on need to stay on leading to excess capacity and curtailment requests – Problem most pronounced in the winter period
Cal Year Indicator Total (Incl other REs) Maximum 1 464 Max Date 05-Jul-2019 to 06-Jul-2019 Maximum
1 464
Max Date
05-Jul-2019 to 06-Jul-2019
Maximum
1 459
Max Date
24-May-2020 to 25-May-2020
Maximum Difference between Consecutive Evening Peaks (MW) - based on System Operator data (subject to metering verification) All Time 2019 2020
Self dispatching of RE raises questions about their contribution to Eskom plant EAF & efficiency
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Renewable Energy makes a significant contribution to the electricity price
Contribution of Renewable Energies to electricity price
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The tariff structures may have been appropriate for a single player environment
Generation Customer
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Demand
Load Losses
Network Capacity
Auxiliary Services Admin & Subsidy
Energy
Energy Capacity
Network Capacity
2 2 2 2 1 3 3
Fixed cost (R/kW/A) Variable cost (R/kWh) Network Capacity Auxiliary Services Admin & Subsidy Energy
Energy Capacity Both fix and variable cost lumped into a single, volumetric energy charge
~ 80%
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Source: Eskom
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1.03 80%
R/kWh
20% 0.26
R/kWh
R/kWh R/kWh 1.29 Capacity Energy
50% 50%
1.29
Ancillary Network Capacity Admin & Subsidies
Fixed Cost Variable Cost Energy
Non- discretionary sunk / fixed / contractually committed / unavoidable cost > 50% Partly discretionary cost < 50%
Source: Eskom
The current tariff structures are clearly way out of date
Tariff Structures
The key objective is to achieve cost reflective tariffs
Fuel type Average fuel used Unit Unit price (Rand/unit) Fuel cost (Rand) Deviation from LPG as % Paraffin 0.037 kg 11.05 0.41 229% LPG 0.023 kg 7.83 0.18 100% Electricity 0.438 kWh 1.2 0.526 292% Electricity* 0.438 kWh 3.5 1.533 851% * based on real cost of electricity generated for thermal purposes Fuel cost to heat 2 litres of water in an open aluminium pan
Thermal demand should not be met by grid-based solutions
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This load will shift from grid anyway when the price of electricity is high enough, having done untold damage! Why not shift now?
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Estimation of medium to high income household electricity demand
Appliance
in household Rating per unit (W) kWh per month consumed Monthly % Cost per month @ R1.20 per kWh Lighting 6 60 54 6% R 65 Cooking 1 5000 300 36% R 360 Space heating 2 3000 120 14% R 144 Water heating 1 1500 135 16% R 162 Washing machine 1 512 10.24 1% R 12 Washing dryer 1 2700 54 6% R 65 Air conditioning 1900 0% R 0 Fridge 1 150 22.5 3% R 27 Ironing 1 1000 16 2% R 19 Computers 2 65 19.5 2% R 23 TV 2 150 27 3% R 32 Pool 1 1300 78 9% R 94 Electric fence 1 10 7.2 1% R 9 Total electricity consumption 843.44 100% R 1 012
Estimation of medium to high income household electricity demand
Appliance
in household Rating per unit (W) kWh per month consumed Monthly % Cost per month @ R1.20 per kWh Lighting 6 60 54 6% R 65 Cooking 5000 0% R 0 Space heating 3000 0% R 0 Water heating 1500 0% R 0 Washing machine 1 512 10.24 1% R 12 Washing dryer 1 2700 54 6% R 65 Air conditioning 1900 0% R 0 Fridge 1 150 22.5 3% R 27 Ironing 1 1000 16 2% R 19 Computers 2 65 19.5 2% R 23 TV 2 150 27 3% R 32 Pool 1 1300 78 9% R 94 Electric fence 1 10 7.2 1% R 9 Total electricity consumption 288.44 34% R 346
The potential savings in electricity cost for a typical middle income household for migrating all thermal applications to gas is 66%
SA does not have an electricity challenge, we have an energy challenge
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Base load issues & possible solutions (Load pattern A) – 24 x 7 Steady state demand – Cost to serve R0.30 to R0.50 per kWh Day load issues & solutions (Load pattern B – Cost to serve R1.25 - R4.00 per kWh Peak power issues & solutions (Load pattern C) – Flexibility & quick start up fundamental – Cost to serve R4 per kWh
Peak Mid-Merit Base-Load
Load B Load C Load A
06h00 12h00 18h00 24h00
Appropriate solutions for appropriate energy services
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Use of alternative and renewable energy sources (8 000MW load shifted) Alternative and innovative funding options for new electricity generation capacity Shifting the thermal load to gas (6 000MW load shifted)
New generation capacity “Consumer own power” “Thermal load”
2 3 1
Appropriate energy solutions for appropriate energy challenges
Peak Mid-Merit Base-Load
06h00 12h00 18h00 24h00
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Energy demand sectors Energy supply & resources Infrastructure Resources Planning Macro economy
Choice
& Integration
Price Availability Volume Households Industry Commerce Transport Coal Gas Uranium Water Solar Energy crops Other REs Refineries Power stations Appliances Machinery Alternative uses of energy resources
Tradables
Price impacts on supply Price impacts on demand Goods & Services Price Availability Volume
Unfortunately energy conversation has been reduced to a “supply infrastructure” conversation
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Inefficiencies are hidden in averages
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We need to determine the appropriate fleet for our energy needs and utilise our existing fleet optimally
baseload type power plants
through appropriate mid merit plants
be met by associated energy technologies
provided by a particular inappropriate technology does not mean that it should
invariably result in very high equipment failure
maintenance will be a cure for incorrect use equipment
Low and deteriorating EAF of our fleet is because of how its treated
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Recent low Eskom fleet performance is linked to demand profile & plant treatment
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Website: www.nersa.org.za Tel: 012 401 4600 Fax: 012 401 4700 Email: info@nersa.org.za @NERSAZA @NERSA_ZA
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