How Repurposed Capital, Innovative Technology and Energy Security - - PowerPoint PPT Presentation

How Repurposed Capital, Innovative Technology and Energy Security can stimulate Economic Transformation

A High Level Corporate’s perspective

ENERGY INDABA THEME

The Energy sector’s contribution to stimulate economic growth, development and job creation…

THE PRIVATE SECTOR HAS TO BE ENGAGED TO LEVERAGE FINANCING AND INVESTMENT TO MEET ENERGY INFRASTRUCTURE INVESTMENT NEEDS THROUGH SECURITISABLE PPA’s, REIPPPP AND OTHER PROGRAMS. SUCH PROGRAMS WILL ALLEVIATE PRESSURE ON THE FISCUS AND STIMULATE ECONOMIC GROWTH AND DEVELOPMENT WHILST IMPROVING THE WELFARE OF SOCIETY AS A WHOLE.

WE AT INOVASURE ARE OF THE OPINION THAT THE REAL PROBLEM BEGINS WITH THE INCAPABILITY OF MUNICIPALITIES NOT BEING ABLE TO COST EFFICACIOUSLY MEASURE AND RECOVER THE USE OF THE POWER THEY DISTRIBUTE TO THEIR USERS. THE PRESENT METERING SYSTEMS ARE DYSFUNCTIONAL AND NEED TO BE ADAPTIVELY REPLACED WITH PROPER MEASUREMENT DEVICES AND SYSTEMS . THIS ACTION HAS TO TAKE PLACE ACROSS THE BOARD IN ALL MUNICIPALITIES. IT IS ESTIMATED THAT AN INCREASE OF AN ADDITIONAL 25% OF EXISTING MUNICIPAL DISTRIBUTION CAPACITY CAN BE EFFECTED SHOULD A RENEWABLE SO-CALLED “ENERGY VAULT” (BATTERY STORAGE ) SOLUTION BE DEPLOYED, WITHOUT IT RESULTING IN ESKOM ADDING MORE GENERATION CAPACITY. THERE ARE AN ESTIMATED 5.6 MILLION USERS THAT HAVE TO RECEIVE OR REPLACE NON FUNCTIONAL SMART METERS WITH INTELLIGENT DISTRIBUTION DEVICES MEASURING TIME OF USE ENERGY.

SOME DEFINITIONS OF ENERGY SECURITY

The IEA defines “Energy Security” as the uninterrupted availability of energy sources at an affordable price.

• Energy Security has many aspects: Long-term Energy Security mainly deals with timely investments to supply energy in line with

economic developments and environmental needs. This not a PUSH or PULL EFFECT, it is a neutral balancing matrix.

• On the other hand, short-term Energy Security focuses on the ability of the energy system to react promptly to sudden changes in the

supply-demand balance. The implication of this is that EXCESS energy should be in store to off-set unnecessary surprises.

• According to the Department of Energy, Energy Security ensures availability of energy resources and access to energy services, in an

affordable and sustainable manner, while minimising the associated adverse environmental impacts.

• Potential threats to Energy Security include scarce and depleting energy resources, minimising environmental impact, geopolitical

instability and inadequate energy infrastructure. To ensure a continued security of energy supply, it is essential that a coordinated and integrated approach to energy planning, preferably on a PULL EFFECT basis, which takes into account these complex issues, is undertaken regularly - hence the reason why we are here today. InovaSure’s definition of Energy Security To provide Energy Security:

• Through excess energy availability, provided through an adaptive and optimally balanced mix of technologically advanced-,

environmentally compliant- and sustainable energy supply sources;

• With the lowest possible Weighted Average Cost of Capital (WACC) through the use of securitisation structures which are ultimately

underwritten by PPA’s, Eskom & Municipal balance sheets, as well as effectively secured by 5.6 million users of intelligent distribution devices (smart meters).

QUOTE: Technologies that should be further developed and implemented in South Africa in

the short- term to meet the proposed target of renewable energy generation include the following: solar water heating, biomass (including bio-fuels), landfill gas, small-scale hydro, wind and solar electric technologies. In the long term, Renewable Energy technologies should be used to harness substantial wave, tidal and ocean current resources. Fuel cells using hydrogen e.g. generated from renewable energy resources, will also become commercially viable at some stage. Research and Development into cost effective energy storage systems utilising Renewable Energy will be encouraged. Local manufacture of Renewable Energy technologies will be promoted in order to limit the cost of imported equipment and to benefit from economies of scale, as well as creating employment opportunities. UNQUOTE Very little has changed since 2003.

EXTRACT OF WHITE PAPER ON RENEWABLE ENERGY November 2003

• POWER INFRASTRUCTURE

 ESKOM’S BALANCE SHEET IS IN TROUBLE. NATIONAL TREASURY AND DBSA AND OTHERS ARE UNWILLING TO EXTEND GUARANTEES OR ROLL OVER DEBT AND THE COUNTRY’s CREDIT RATING HAS DROPPED BELOW INVESTMENT GRADE.  A MAJOR NATIONAL EFFORT IS NEEDED TO GET THE COUNTRY ON A GROWTH PATH AGAIN AND, AMONGST OTHER THINGS, PROVIDE ENERGY SECURITY AS A TOP NATIONAL PRIORITY.  NEW CAPITALISATION / SECURITISATION MODELS NEED TO BE DESIGNED AND IMPLEMENTED , POST HASTE..

• POLICY TERMS

 OUR NATIONAL UTILITY EFFECTIVELY HAS A MONOPOLY AND MAKES THE RULES FOR TRANSMISSION, GENERATION AND DISTRIBUTION.. THIS IS NOT HEALTHY GIVEN THE CURRENT STATE OF AFFAIRS.  IN PRICING TERMS, OUR POWER IS REGULATORALY RESTRICTIVE BECAUSE OF NERSA’S ROLE – ENERGY PRICES SHOULD BE MARKET DRIVEN AS IS THE CASE WITH FUEL - BUT NOT WITHOUT CHECKS AND BALANCES IN PLACE TO PREVENT SUDDEN SPIKES, ETC.  ESCALATION IN ENERGY PRICES ARE ABOVE INFLATION RATE.

• SKILLS

 THERE ARE NOT ENOUGH YOUNG INNOVATIVE ENGINEERS TO GROW WITH ENERGY PROVIDERS IN ITS NEW PROPOSED ROLE.

• ENVIRONMENTAL ISSUES

 DESPITE GREEN TECHNOLOGIES BECOMING CLEANER, COAL AND FOSSIL FUELS ARE STILL DETRIMENTAL TO THE ENVIRONMENT.

• TECHNOLOGICAL ESSENTIALS

 IF RENEWABLE OR ALTERNATIVE ENERGIES CAN ONLY CONTRIBUTE TIMEOUSLY, AT THE RIGHT TIME OR IN- TIME ENERGY, IT WILL PROVE TO BE VIABLE. RENEWABLES WITHOUT STORAGE DO NOT HELP SA’s PEAK–DEMAND DILEMMA AT THIS TIME THROUGH THE USE OF SO-CALLED “ENERGY VAULTS”, ENERGY SECURITY CAN BE ACHIEVED WITH MUCH QUICKER TURNAROUND THAN NUCLEAR OR COAL SOLUTIONS AND PROVIDE FOR THE FUTURE. SUSTAINABLE AND COST EFFICACIOUS RENEWABLE ENERGY WITHOUT STORAGE SHOULD BE DISCOURAGED.

SATISFY THE SUSTAINABLE NEEDS OF ENERGY DERIVATIVES SUCH AS WATER / EDUCATION / ICT / AGRICULTURE / MINING ETC. * CAUSE THE DEVELOPMENT OF OUR NATURAL RESOURCES THROUGH COLLABORATION MODELS * CAUSE THE AGRICULTURE AND FOOD PROCESSING SECTOR TO BE SUSTAINABLY ENHANCED * CAUSE THE MANUFACTURING INDUSTRY TO BENEFIT FROM NEW OEM PROVIDERS ENTERING THE MARKET(*) * CAUSE SMME FORMATION AND OPPORTUNITIES TO BE ENHANCED * THE INFORMATION COMMUNICATION TECHNOLOGY SECTOR TO FUEL THE NEW KNOWLEDGE ECONOMY * PROVIDE VIABLE NON-INTERMITTENT TELECOMMUNICATION INFRASTRUCTURE * CAUSE TOURISM INDUSTRY TO CREATE MORE SUSTAINABLE AND JOB OPPORTUNITIES AND CAPITALISE ON EXPANSION POSSIBILITIES * CAUSE THE HEALTH AND HOUSING SECTORS TO GAIN IMMENSELY FROM A REALIGNED ENERGY

PROGRAM

LAND VALUE CAPTURING MODALITIES ARE DIRECTLY LINKED INTO ENERGY & WATER INFRASTRUCTURE. AN ENERGY TRADING AND TREASURY MODEL TO UNLOCK THE SECURITISATION CAPABILITY OF THE UNLOCKING OF A WATERFALL OF UNDERWRITING HAS NOT DONE BEFORE. THROUGH ENERGY SECURITY, EXISTING USERS WILL BE ENSURED AND INSURED OF A STABLE SUPPLY AND NEW USERS, WHO, AT THIS TIME, CANNOT ENTER THE MARKET BECAUSE OF A LACK OF ENERGY SECURITY. IF THE BUILDING BLOCKS OF SMART CITIES, VILLAGES AND COMMUNITIES ACROSS THE WORLD ARE UTILISED AS A BENCHMARK FOR SMART LIVING SECURITY, WHICH IS WHAT A COUNTRY ULTIMATELY WANTS TO ACHIEVE, THEN WE NEED TO MAKE SURE IT CAN SURVIVE THE TEST OF: * EFFICIENT AND PROPERLY CONSTITUTED GOVERNANCE * GREEN TRANSPORTATION (MOBILITY) * BROAD-BASED FINANCIAL INCLUSION * A MACRO ECONOMIC BALANCE * A SUSTAINABLE ENVIRONMENT AND EQUILIBRIUM OF NEEDS FULFILLMENT BEING MET RATHER THAN THE PRESENT * INEQUALITY OF ABUNDANCE TO SOME AND SCARCITY TO OTHERS.

PUBLIC SECTOR SPENDING

ESKOM’S SHARE OF THE INFRASTRUCTURE PIE

There is no single approach that will have sufficient impetus to turn the economy around and provide socio economic development imperatives, employment, enterprise, development, skills development, ownership and control but we have to start somewhere and it has to be a collaborative effort. South Africa is part of the BRICS initiative with development partners such as China, Russia, Brazil and India, but we also can learn important lessons from the likes of Germany, Australia and others. The purpose of BRICS, through its funding structures such as the New Development Bank (NDB), is to fund infrastructure and sustainable development projects in emerging markets and developing countries. The BRICS countries are heavily industrialised countries with huge investments in their infrastructure but effectively work on the premise that an oversupply of energy or PUSH effect is needed rather than a PULL EFFECT to sustain growth in their economies. This is a National budget matter and at this time we do not have the luxury in SA to go the PUSH EFFECT route. In respect of the integration of Renewable Energies, primarily as part of the international CO2 reduction initiatives, countries such as Germany and Australia (South Australia being a case in point) made very costly mistakes by expediting Renewable Energy without checking baseload supply as a balancing act for injection of Renewable Energy into the grid. This action was not managed properly and in addition, a free trading platform was created for the trading of energy. The net result - last year, during storm conditions, the wind turbines were shut down due to overspeed, due to clouds there was virtually no solar generation, the result that the link to other states tripped and South Australia experience more than one statewide total blackout. By supporting the InovaSure Energy Vault initiative, under the BRICS accord, the further result will be job creation due to the manufacturing requirements for components such as batteries and switchgear and smart meters, which will create 3800 installation jobs over 4 years and employ 2800 workers in the Energy Vault manufacturing plant/s The Manufacturing initiative, supported by our BRICS partners, also has huge export potential and provides the opportunity for industry specific skills development. Ownership and control of the manufacturing processes will remain local - thereby supporting socio economic development imperatives.

BRICS

BRICS PRIVATE PARTNER TECHNOLOGY SOLUTION

OUR ENERGY VAULT HIGH-LEVEL REALITIES

• 120 Municipalities as the first target market
• 20MW at 53MWh storage devices
• Total cost +/- R140 billion
• Managed through Energy Security Management Agreements (ESMA’s) on behalf of Municipalities
• 5.6 million pre-paid Intelligent distribution devices to be installed in households at an estimated cost of R20

billion

• Peak demand will be flat lined for Eskom and the utility can focus on its core responsibilities of

transmission, generation and distribution but in partnership with Municipalities

• Eskom and Municipal debt are to be managed through a new funding mechanism including the possibility

to provide a new energy trading platform with a sustainability reserve fund to underwrite and prevent the

• ccurrence of a the West Australian experience.

THE NATURE OF SOLAR POWER

0.0 5.0 10.0 15.0 20.0 25.0 2 4 6 8 10 12 14 16 18 20 22 24

Load / generation (MW) Time of day

Typical load and solar PV generation profiles

Winter demand Summer demand Equinox demand Winter solar PV Summer solar PV Equinox solar PV Equinox Net demand (+solar +battery)

THE NATURE OF WIND

THE NATURE OF WIND POWER

AN ENERGY SECURITISATION MODEL COLLATERALISING POWER PURCHASE AGREEMENTS, THROUGH A WATERFALL OF UNDERWRITING

 EXAMPLE: A 25-YEAR POWER PURCHASE AGREEMENT FROM ESKOM, OR ALTERNATIVELY AN INTERNATIONAL GENERATION SOURCE, WILL BE UNDERWRITTEN BY A WATERFALL OF THE ASSETS / COLLATERAL, THE MUNICIPALITY (WITH EFFECTIVE CONSTITUTIONAL UNDERWRITING OF NATIONAL TREASURY) OR THE POWER USER’S BALANCE SHEETS (INDUSTRY, COMMERCE) AND THIRDLY, MOST IMPORTANTLY SO, APPROXIMATELY 5.6 MILLION HOUSEHOLD USERS THROUGH THEIR PRE-PAID INTELLIGENT DISTRIBUTION DEVICE PURCHASES.

PRESENTLY ALL OF THE FUNDING AND RISK EXPOSURE APPEARS ON ESKOM’S BALANCE SHEET AND THAT OF MUNICIPALITIES (R9 bil. IN ARREARS)

 THE PROPOSED RESTRUCTURING WILL PROVIDE A FUNDING FACILITY OF UP TO R1.5 TRILLION IN SECURITISABLE INSTRUMENTS AND MARKET RELATED ENERGY TRADING PROFITS TO REPAY ESKOM’S DEBT, RESTRUCTURE MUNICIPAL DEBT (ONE PAYOR PROGRAMS) AND FUND NEW EXPANSION IN THE FORM OF GENERATION, TRANSMISSION, TRADING AND DISTRIBUTION.

THE PROPOSED ENERGY SECURITY TRUSTED CENTRE (ESTC) FUNDING METHODOLOGY

CLOSING REMARKS

• Between all the industry participants, there is enough empirical and statistical data and research documentation as

well as common sense available to link the present base load capacity through investment in renewable technology by installing imbedded large scale utility storage capacity on the generation and distribution level which will off-set peak demand shortages and prevent load shedding, black-outs and a possible transmission failure.

• Many studies suggest Renewable Energy to be 40 % of total power produced by 2030, which will put huge financial,

technical and technological strain on ESKOM and Municipalities in its present form.

• Through PPP’s with private infrastructure providers and the signing of long term PPA’s, funding can become available

through BRICS initiatives and Energy Security can be achieved, whilst economic transformation can take place at the same time. The investments will support transformation through enterprise development, ownership, control and management and also aim to achieve employment equity.

• Once this priority has been achieved, the future balancing act to create transmission capacity, generation and

distribution networks and structure in equilibrium with demand will be much easier.

• Time of supply for intelligently dispatched Renewable Energy will release a 20% capacity injection. If renewable

energy is injected without storage, it does not assist with our peak demand. With the use of InovaSure Energy Vaults, it is possible to store one peak cycle and dispatch within milliseconds.

• Under these circumstances there are 3 winners: Eskom does not have to generate or pay for expensive power, the

Renewable Energy vendor has a business and the Municipality can sustainably deliver power to its users.

• The incidental value to Municipalities are approximately R6 billion.

THANK YOU