Transcript Background

The good, the bad and the ugly
truth about electricity supply
by Chris Yelland CEng
Outline
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Background
The capacity crisis
The (knee-jerk) response
The global financial crisis
What are we doing, and what could we be doing?
The proposed funding plan
The electricity price trajectory
The way forward
Background
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Since inception Eskom has been self-funding
Initially a public utility, not for profit
Generate electricity at least cost for the public good
High growth trajectory in the 1960s and 1970s
Massive expansion, high price increases
Then the apartheid crunch, leading to a generation
capacity surplus
Background (continued)
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The De Villiers Commission
The Capital Development Fund done away with
“Electricity for all” and the “social dividend”
Funded by Eskom operations
Eskom’s pact with government
Electrification and real price reductions over many
years
Background (continued)
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The energy intensive destination
Mothballing of old power stations
The corporatisation of Eskom
Company tax, dividends and VAT
But no provision for expansion
And no provision for replacement of aging assets
The capacity crisis
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Underfunding of maintenance and refurbishment
While demand grows unabated
Aging assets pushed to the limits
Government policy inhibits Eskom new build
A policy flip-flop – Eskom unshackled (too late)
Coal prices rise (off contract coal, high transport costs)
Coal quality gets worse
Unplanned plant failures
Coal stockpiles run down
Wet coal
Pre-emptive load-shedding
The (knee-jerk) response
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Urgent need for new capacity
Return to service of mothballed power stations
New open cycle gas turbines in the Western Cape
(2 x 1000 MW)
Strengthen transmission to the Cape
Madupi and Kusile coal-fired power stations
(2 x 4800 MW)
Ingula and Tubatse pumped water storage schemes
Wind
Concentrating solar plant (CSP)
Coal 3
Nuclear 1 and 2
The global financial crisis
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Demand and sales are down
Aluminum prices drop, and revenue drops too
Coal and staff costs spiral upward
Income statement shows big losses
Massive liabilities on embedded derivatives
The balance sheet not looking good
Tariffs are too low, and credit ratings drop
The international credit crunch
The global financial crisis (cont.)
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The international credit crunch
Eskom cannot borrow the amounts needed
Cap in hand to government
The cupboard is bare
No provision for capacity expansion
No provision for replacement of aging assets
Government has its own problems
The funding plan awaited
Projects on hold or deferred
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Some deferred expenditure on Madupi power station
Kusile power station delayed by at least one year
Tubatse pumped water storage scheme on hold
Eskom 100 MW wind farm on hold
Eskom 200 MW concentrating solar plant on hold
Nuclear build programme on hold
Pebble bed modular reactor development on hold
All independent power production on hold
Industrial co-generation on hold
What are we doing, and what could we
be doing? Supply side scorecard…
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Return to service
Coal
Hydro-electric
Pumped water storage
Nuclear
Open cycle gas turbines
Combined cycle gas turbines
Underground gasification
Wind
PV solar
Concentrating solar
Industrial co-generation
Independent power producers
Regional power initiatives
8/10
8/10
4/10
5/10
2/10
8/10
2/10
5/10
0/10
0/10
2/10
2/10
2/10
3/10
What are we doing, and what could we
be doing? Demand side scorecard…
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Price increases
Energy efficiency
Energy rationing (ECS)
Demand growth management
DSM
Energy management
Load control and load shifting
Ripple control
Power factor correction
Domestic time-of-use tariffs
Smart meters
Solar water heating
Reduction of theft and non-payment
9/10
4/10
5/10
5/10
3/10
2/10
3/10
0/10
2/10
2/10
2/10
1/10
1/10
Madupi and Kusile power stations
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Two 4800 MW mega projects
R85-billion each (US $2,27-milion / MW ) escalating
to R142-billion each (US $3,8-million / MW)
Procured pre-global financial crisis
Long lead-times
Skills and experience issues
Built in series
Are these the least cost options?
Generation plant pricing estimates
2008 $, Million $/MW net
Generation Plant – Total Plant Cost
U.S.
India Romania
Gas turbine combined cycle plant, 140 MW
Gas turbine simple cycle plant, 580 MW
Coal-fired steam plant (sub), 300 MW net
Coal-fired steam plant (sub), 500 MW net
Coal-fired steam plant (super), 800 MW net
Wind farm, 1 MW x 100 = 100 MW
PV solar array, ground mounted, $/kW (AC)
$1,41
$0,86
$2,73
$2,29
$1,96
$1,63
$8,93
$1,17
$0,72
$1,69
$1,44
$1,29
$1,76
$7,84
$1,14
$0,71
$2,92
$2,53
$2,25
$1,66
$8,20
Source: World Bank, Energy Sector Management Assistance Program
(ESMAP) report, August 2008
Independent power producers
The South African Independent Power Producers
Association (SAIPPA) says:
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IPPs can deliver base-load coal-fired power at:
US$2-million per MW all in
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with a 3-year lead-time (after PPA and regulatory
hurdles)
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compared to Eskom Medupi at US$3,2-million / MW
with a 7-year lead time
Advantages brought by IPPs
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New capital
New skills
Short lead times
Lower capital costs
Lower operating and maintenance costs
Good cost controls
Good risk management
Benchmarking and competition
Inhibiting factors for IPPs
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Politics and ideology
Bureaucratic hurdles
Uncertain policy environment
Uncertain regulatory environment
Unlevel playing fields
No independent power purchasing agency
No independent system operator
No energy market
Funding of new build
R385-billion expenditure over next 5 years, funded by:
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Tariff increases: 4x or 5x increase over 5 years
Government loan: R60-billion (quasi equity)
Government guarantees: R187-billion
Shortfall: R30-billion (project finance?)
Equity: NIL
Finance minister Pravin Gordhan indicated recently:
“There is no new money [from government for Eskom]”
Price trajectory going forward
2008/9 2009/10 2010/11 2011/12 2012/13
1,27 x 1,31 x
1,27 x 1,31 x
1,27 x 1,31 x
1,45 x
1,35 x
1,25 x
1,45 x
1,35 x
1,25 x
i.e. price increase of 5 x over 5 years
Or price increase of 4 x over 5 years
Or price increase of 3 x over 5 years
1,45
1,35
1,25
=
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=
5,08
4,09
3,25
National average price trajectory
2008:
2009:
2010:
2011:
2012:
45% p.a.
35% p.a.
25% p.a.
R0,25/kWh
R0,33/kWh
R0,48/kWh
R0,69/kWh
R1,00/kWh
R0,25/kWh
R0,33/kWh
R0,45/kWh
R0,60/kWh
R0,81/kWh
R0,25/kWh
R0,33/kWh
R0,41/kWh
R0,52/kWh
R0,65/kWh
Typical middle class domestic user
Based on consumption of 1500 kWh per month
2008:
2009:
2010:
2011:
2012:
45% p.a
R800
R1048
R1520
R2203
R3185
35% p.a.
R800
R1048
R1415
R1910
R2578
25% p.a
R800
R1048
R1423
R1790
R2254
Impact of price increases
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Effect on inflation
Effect on aluminum producers
Effect on other energy intensive industry
Effect on general industry
Effect on commerce
Effect on agriculture
Effect on residential users
Effect on the poor
Effect on the economy
Price trajectory after 2012
Eskom says
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The five years to 2012 are “catch-up” to the right levels
Thereafter it expects normal inflationary increases
But there are significant EXTRA costs ahead...
not just normal growth and cost patterns:
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Carbon taxes
Nuclear energy
Renewable energy
Replacement of aging plant
The way forward
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Need for visionary leadership
A national energy Integrated Resource Plan (IRP)
Unbundle Eskom generation
Public offering(s) to raise capital
Introduce IPPs and industrial co-generation
Create an independent system operator
Create an independent power procurement agency
Rationalise the electricity distribution sector
Introduce an energy trading market
Expand the regional power grid
Encourage regional power initiatives
Address the supply and demand side score-card
Conclusion
Will electricity be the oxygen of the economy?
or
Will electricity supply inhibit the economy?