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Power generation Opportunities in South Africa until 2030

Power generation Opportunities in South Africa until 2030



A commentary on the IRP 2010

A commentary on the IRP 2010



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    Power generation Opportunities in South Africa until 2030 Power generation Opportunities in South Africa until 2030 Presentation Transcript

    • Power Generation Opportunities in SA until 2030. A commentary on the IRP2010 Ross Bruton, Research Analyst Energy and Power Systems Africa
    • Discussion Guideline Structure of the IRP 2010 Effects of the IRP on the tariff path Impact and Importance of IPPs What has changed? The REFIT & COFIT Programs What does this mean for the power generation industry? 2
    • Structure of the IRP 2010 3
    • The IRP2010 only addresses new build after Medupi and Kusile up to 2030 100 pacity m Ca l Syste 90 Tota Supply Crisis Supply Crisis 80 Low Planning Low Planning •Non-Eskom Generation •Non-Eskom Generation 70GW Price Path? Price Path? Affordability? Affordability? 60 Renewables? Renewables? Carbon? Carbon? Coal? Coal? 50 Nuclear? Nuclear? 40 30 “Catch-up” IRP 2010 Current Fleet Replacement 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 Source: Frost & Sullivan 4
    • Rating of Scenarios Av. Annual Price path Localisation Regional Plans CO2 Water Uncertainty TOTAL Ranking peak potential development emissions Base Case 0.0 - 21.74 - 2.73 - 6.08 30.54 9 Emission 1.0 12.41 18.03 5.24 16.14 6.47 6.08 64.36 2 Emission 2.0 9.43 21.17 2.53 16.14 6.47 6.08 61.81 4 Emission 3.0 21.74 - 10.87 19.57 6.47 - 58.65 5 Carbon Tax 0.0 11.5 13.86 3.5 19.26 6.47 2.77 57.36 6 Region Dev. 0.0 0.67 21.36 0.37 - - 10.87 33.27 7 Enhanced DSM 1.54 20.31 0.94 3.04 - 6.08 31.91 8 Balanced 10.46 19.88 2.74 16.71 11.02 1.85 62.65 3 Revised Balance 11.01 20.9 2.92 14.73 15.22 8.85 73.63 1 Swing Weighting 21.74 21.74 10.87 19.57 15.22 10.87 100 (/100) The Revised Balanced Scenario was heavily influenced by government objectives in terms of localisation, carbon mitigation, job creation and regional development. The impact of these choices needs to be analysed in terms of the price path they create. If it is believed that these requirements are crucial to the future of South Africa and cannot be adjusted, one must test other variables influencing the price curve in order to find efficiencies. In the past , electricity tariffs were determined solely on price (i.e. 100%) – the shift to 21.74% represents a major change in expansion planning criteria with significant long term implications. 5
    • The South African Electricity Market 2010 to 2030 Decommissio Total New Total System Peak Demand (net Demand Side Reserve PeakingYear RM (Real) ning Build Capacity sent-out) Forecast Management Margin and OCGT MW MW MW MW MW % % %2010 0 640 44535 38885 252 15.28 8.7 6.62011 0 1112 45647 39956 494 15.67 8.5 7.22012 0 703 46350 40995 809 15.34 8.3 7.02013 0 2625 48975 42416 1310 19.14 10.7 8.52014 0 2447 51422 43436 1966 24 12.1 11.92015 -180 2364 53786 44865 2594 27.24 11.6 15.72016 -90 1532 55318 45786 3007 29.31 11.2 18.12017 0 3068 58386 47870 3420 31.35 10.7 20.72018 0 1623 60009 49516 3420 30.18 10.4 19.82019 0 2820 62829 51233 3420 31.41 9.9 21.52020 0 2594 65423 52719 3420 32.71 9.5 23.22021 -75 2186 67609 54326 3420 32.81 9.2 23.62022 -1870 845 68454 55734 3420 30.85 10.3 20.62023 -2280 2054 70508 57097 3420 31.36 11.1 20.32024 -909 2066 72574 58340 3420 32.14 11.6 20.62025 -1520 2285 74859 60150 3420 31.96 12.3 19.72026 0 2200 77059 61770 3420 32.06 12.0 20.12027 0 2755 79814 63404 3420 33.06 12.5 20.52028 -2850 1555 81369 64867 3420 32.42 13.3 19.12029 -1128 2027 83396 66460 3420 32.29 13.9 18.42030 0 1845 85241 67809 3420 32.39 14.0 18.3Total -10902 41346 6
    • Planned Generation Capacity Additions33% of the new build plan is committed to RE technologies andalmost all to carbon neutral technologies The light blue series represent the IRP’s planned nuclear technology contribution. The majority of new build technologies are carbon neutral. The green series represent the IRP’s planned renewables technology contribution. Source: Frost & Sullivan, IRP2010 The amount of renewable or “clean” energy being added to the grid will significantly reduce South Africa’s carbon emissions. From 2022 there is also a significant amount of OCGT capacity being added, potentially as a means of balancing out the uncertainty regarding the renewable feedstocks. OCGT plants will use petroleum based feedstocks, which could expose South Africa to the volatility of international oil prices. The combination of high capital costs for renewables and high operating costs for OCGT plants inflates tariffs and increases uncertainty regarding security of supply. The inclusion of additional baseload coal plants would mitigate the supply risks and allow us to reduce the number of OCGT plants. A slower transition to renewables? 7
    • New Allocations for the Development of South Africa’s Energy Mix, 2010to 2030 Significant focus on renewable energy development 33% of additional capacity attributed to renewables Coal still to represent 48% of total generation mix With current funding constraints, Eskom is unlikely to be able to implement the entire build program IPPs and private sector investment is expected to play a major role in the security of electricity supply, particularly over the next ten years Since the publishing of the IRP 2010 there has been a new interest in the development of large scale, grid connected PV and CSP driven by the Upington Project 8
    • Changes in South Africa’s Energy Mix 2000 – 2030 9
    • Effects of the IRP on the Tariff Price Path 10
    • Future and Historic Electricity Tariffs (IRP 2010 – RBS) The planned increases in renewable energy build programs will result in significantly increases in capital expenditure on power generation projects. As a large contributor to end-user tariff calculation, this is expected to have a significant inflationary effects on an already rapidly increasing price path 11
    • Treasury has suggested the implementation of carbon taxationwith an effective rate of 1c/kWh for every R10/ton of CO₂ Various scenarios incorporating carbon tax, revealed that the original IRP model was particularly insensitive to CO ₂ taxation. This has been addressed in the IRP2010 v2, as can be seen in the new price curve represented by the dotted line above Source: Frost & Sullivan Given that there is such a controversy surrounding global emissions targets at the moment, the commitment towards such a biased renewable energy dominated new build programme could be criticised as overly expensive. The implementation of carbon taxation atR100/ton over the period to 2020 and R250/ton to 2040, will add an additional 18c/kWh to the original RBS price curve. Whilst there is no doubt that South Africa needs to address carbon mitigation strategies, these need to be balanced with maintaining a competitive economy and ultimately an affordable price path. 12
    • Effect of Tariff Price IncreasesOnce the non-ferrous metals outlier has been removed, it is easier to gauge which sectors will be most easily impacted by price increases.Many of these sectors are targeted by the IPAP and are also export focused. In order to compete on the global market, it is assumed thatthese sectors have little ability to pass on increased costs to consumers i.e. they are price “takers”. Given the declining skills base and thelack of productivity as measured against the labour force, it is possible that these sectors will not be able to easily finds other competitive advantages once electricity prices start to rise. Therefore any increase in the electricity price will directly impact on their profitability 13
    • Impact and Importance of IPPs 14
    • Executive SummaryThe allocation of new build to either Eskom or IPPs can alter the price pathtrajectory Frost & Sullivan believe that one likely future scenario for the allocation of new build, is one in which Eskom manages the nuclear programme and IPPs are responsible for all other new build projects – this is reflected in the EN1 scenario in the chart above. Frost & Sullivan have compared this scenario with two others. In the IPP scenario (red line), IPPs are responsible for all new build. In the EN1scenario, Eskom is responsible for Medupi and Kusile as well as the nuclear program . In all the scenarios it is clear that allowing IPPs to enter the market substantially lowers and flattens the price path. 15
    • Current IPP Contracts Held in the Private SectorCompany Total Generating Capacity (MW) Facilities Sappi currently holds 2 Power Purchase Agreements (PPAs) with Eskom amounting to a total of 48MW. Power is to be generated through renewable cogenerationSappi 45MW facilities utilizing waste wood chips and saw dust as feedstock The PPA is valid until 2013 The return to service of the Bloemfontein coal fired power station by Tangent Mining is expected to contribute 103MWTangent Mining PTY Ltd 103MW to the national grid Power is generated by two open cycle gas turbines at the companies Secunda complex Furthermore, the company is in the process of constructingSasol 200MW a 80MW heat recovery steam turbine along with their OCGT which has the potential to increase electricity sales through the establishment of an additional PPA with Eskom The companies current PPA is valid until 2014- 2015 Independent Power South Africa was the first private company to sign a PPA with Eskom for the supply of electricity to the national gird. Its combined cycle gas turbine (CCGT) power plant in Newcastle, Kwazulu Natal, has a total installed capacity of 18MW. Combined cycle powerIpsa 18MW plants utilize excess heat from electricity generated from gas power to fire boilers and generate further power from additional steam turbines. Resulting high efficiencies allow these thermal plants to have 40% less emissions than coal fired power plants. The companies PPA expires in 2013. Total Added Capacity: 366 MW 16
    • What has changed? 17
    • New Allocations for the IRP New allocations for generation capacity may have significant effects on the price path Previous allocations indicated that 4,500MW of wind power and 600MW of solar power were allocated for development before 2020. For the period 2020 to 2030, 7,400MW of additional renewable energy development was allocated with no technology segmentation provided New allocations dramatically alter renewable energy allocation within the IRP document Despite events in Japan, no change has been made to the allocation for nuclear power However, impacts of power supply shortages to the manufacturing sector of the country as well as a new inward focuse on the redevelopment of Japan is expected to significantly effect the countries export market As one the leading international exporters of nuclear components, this could seriously effect lead times and final cost of production of facilities in the near to medium term Current allocations for renewables include the following: Technology MW Allocation, 2010 to 2030 Allocated REFITSolar PV 8,400 3.94 R/kWhCSP 1,000 3.14 R/kWh, 2.10 R/kWh (with storage)Wind Power 8,400 1.25 R/kWhNuclear 9,600MW -Coal 2027 allocations brought forward to 2016, - 18
    • The REFIT and COFIT Programs – Comparison of Electricity Generation Technologies 19
    • Feed-In Tariffs COFIT (2011) REFIT I (2009) REFIT II (2010) Type 1: Recovery of Type 2: Combined Type 3: Renewable Waste Heats or Heat and Power Cogeneration Energy from Wastes PARAMETERS UNITS CSP, CSP Large Scale Parabolic CSP (Tower) Waste Landfill Grid Bagasse Cane Small Trough Trough Biomass with Discard Heat Natural Wood Wind Gas Connected Biogas Coal (Cane Fibre 2 Hydro Storage (6 Without Solid Storage of coal (FBC) Furnace Gas/LNG chips Methane PV ( > 1 Fibre 1) upgrade hrs per Storage 6 Hours off gas MW) new day) per DayTechnology * RNW RNW RNW RNW RNW,FS RNW RNW RNW RNW ST ST ST GT ST ST STCapital cost: EPC $/kW 2255 3020 2631 5545 5152 4200 3289 3015 6180 2 862 2 946 3 402 1 033 4 354 3 153 1 317Economic life years 20 20 20 20 20 20 20 20 20 15 15 15 15 15 15 15Assumed load % 27% 50% 80% 40% 25% 16% 80% 80% 40% 80% 80% 80% 80% 80% 49% 55%factorLCOP R/kWh 1.25 0.94 0.9 2.09 3.14 3.94 1.18 0.96 2.31 0.665 0.975 0.672 1.178 0.761 1.835 1.875New Tariffs R/kWh 0.938 0.671 0.539 1.938 1.836 2.311 1.06 0.837 1.399 - - - - - - - 20
    • What Does this Mean for the Power Generation Industry? 21
    • What does this mean for the power generation in the country The new focus on renewable energy is expected to drive increases in electricity tariffs beyond that of initial price curves 5,300 MW of renewable energy is to be added to initial IRP allocations Of the planned 17,800MW of allocated renewable energy, 9,400MW (52.8%) is to allocated to solar power The majority of planned solar power will most likely be attributed to the 5,000MW Upington project, with the first PV unit planned to be commissioned by the end of 2012 High capital costs of solar power and very attractive REFIT tariffs are expected to further drive tariff increases, placing large strain on energy intensive industries In order to maintain a price path that is not damaging to the countries economic growth and its ability to achieve job creation targets as specified in the IPAP2, it is imperative that the private sector be allowed to contribute the majority of renewable energy development over the next ten years 22
    • About Frost & Sullivan 23
    • Frost & Sullivan Background Growth Consulting Company & Market Intelligence Firm Founded in 1961 Over 1,800 Consultants / Analysts across 40 global locations 10,000+ clients worldwide including: The global 1000 Emerging companies The investment community Public Sector and NGOs Close relationships with: Industry Suppliers, End User Groups, Local Associations and Regulatory Bodies Offer the exclusive Growth System including: Growth Partnership Services Growth Consulting Growth Team Membership 24
    • Frost & Sullivan’s Global Footprint: Providing Local Insight with Global Perspective Oxford Oxford London Warsaw Warsaw London Frankfurt Frankfurt Toronto Toronto Paris Paris New York Tel Aviv Palo Alto New York Milan Tel Aviv Beijing Tokyo Palo Alto Milan Beijing Seoul Tokyo San Antonio Delhi Seoul San Antonio Dubai Delhi Dubai Kolkata Shanghai Kolkata Shanghai Mumbai Mumbai Mexico City Mexico City Bangalore Bangalore Chennai Bangkok Bangkok Chennai Kuala Lumpur Kuala Lumpur Sao Paulo Sao Paulo Singapore Singapore Cape Town Cape Town Sydney Sydney Buenos Aires Buenos AiresGrowth Consulting Company & Market Intelligence Firm Founded in 1961 Over 1,800 Consultants / Analysts across 40 global locations 10,000+ clients worldwide including: The global 1000 Emerging companies The investment community Public Sector and NGOs Offer the exclusive Growth System including: Growth Partnership Services; Growth Consulting; Growth Team Membership 25
    • Company Background Centralized Power Equipment Centralized Power Services Onsite Power Water & Wastewater Energy & Distributed Generation Environ- Environmental Management Renewables Waste Management Power Energy Management Services mental Environmental Safety Transmission, Distribution and Metering Oil & Gas Equipment and Services HVAC&R Country mining profiles Fire & Life Safety Country resource profiles Building Building Automation Systems (BAS) • Current reserves Management Lighting Controls & Products Mining & • Production levels Performance Contracting Technologies Facility Management (I-FM) Services Manufacturing Mining company profiles Security Controls • Competitor profiles Home Automation MES Sensors Industrial DCS Transmitters Medical Devices SCADA Valves Pharmaceuticals Automation HMI Actuators Healthcare IT & Process PLCs Pumps Healthcare Biotechnology PC Controls Heat Exchangers Drug Discovery Control Asset Management Coolers Supply Chain Robotics Mixers IP Communications Plastics & Polymers Enterprise Communications Packaging Telecom Services Conferencing & Collaboration Chemicals, Paints & Coatings Inks & Media ICT Mobile & Wireless Materials & Personal Protection Equipment Communication Contact Centres & CRM Food Specialty & Fine Chemicals IT Services Powertrain Civil Aviation Military Equipment Green Vehicles Air Traffic Management C4ISR Driver Assistance Systems Aerospace & In Flight Entertainment Soldier Modernisation Automotive & Navigation Systems Software and Systems Displays and Sights Defence Avionics Missiles Transport Telematics Logistics & Supply Chain Supply Chain & Navigation Rail Transportation Logistics Battlefield Comms Marine A wide industry and technology breadth uncovering new and creative A wide industry and technology breadth uncovering new and creative markets and ideas markets and ideas 26
    • Frost & Sullivan’s Growth Consulting Services Demand/Supply Analysis Geographic Expansion Geographic Expansion & Forecasting triic c ome tr me Econ olysiis E co n s s Competitive Strategy Competitive Strategy Ana ly Ana Strategy Impact Monitoring ally ett Customer & Branding Strategy Customer & Branding Strategy An arrk e ss siis An a k Commercial Due Diligence ay M M Distribution Channel Analysis Distribution Channel Analysis Industry Dashboard Merger & Acquisitions Merger & Acquisitions Competitor Analysis Competitor Analysis Product Development Product Development GROWTH Product Launch Product Launch s 360° Opportunity Identification siis a lly s y na An yA Strategic Partnering Strategic Partnering oggy ollo o Distribition Channel Optimisation hn hn T ec ec Technology Strategy Technology Strategy T Cust Custo om Anal mer Analy er Growth Sourcing (outsourcing) Growth Sourcing (outsourcing) ysiis ss Customer Segmentation & Profiling Industry Development Strategy Industry Development Strategy Frost & Sullivan offers a comprehensive set of Growth Process services Frost & Sullivan offers a comprehensive set of Growth Process services 27
    • For Additional Information Ross Bruton Cornelis van der Waal EPS Research Analyst Business Unit Leader - EPS Frost & Sullivan Africa Frost & Sullivan Africa Tel: +27 21 680 3217 Tel: +27 21 680 3266 Fax: +27 21 680 3296 Cornelis.VanDerWaal@frost.com Ross.Bruton@frost.com Phil Howarth Christie Cronje Director of Operations Marketing & Communications Manager Frost & Sullivan Africa Frost & Sullivan Africa Tel: +27 21 680 3269 Tel: +27 21 680 3566 Phil.howarth@frost.com Christie.cronje@frost.com 28