INTEGRATED ENERGY PLAN PRESENTATION PORTFOLIO COMMITTEE ON ENERGY 20 NOVEMBER 2012 1 HIGH-LEVEL APPROACH Identify key objectives • Guided by National Objectives • Informed by Energy White Paper and other energy policies • Described in National Energy Act • Influenced by various government policies for IEP Define Status Quo and implications for future trends Define Problem Statement • Local and global challenges • Informed by implemented policies with high impact on energy sector • Macroeconomic factors, existing and implemented policies • Informs assumptions about future energy demand • Informs assumptions about technology trends • Key Policy Questions that IEP should deal with • Define key criteria and relative importance (weightings) 2 HIGH-LEVEL APPROACH Identify policy alternatives Analyse and Evaluate Policy Alternatives • Test Cases/Scenarios: Impact of existing high-impact policies • Test Cases/Scenarios: New and proposed high-impact policies and policy options • Desktop studies: New policy considerations • Supply optimisation based on projected future demand (for Base Case and Test Cases) • Evaluation of output from Supply Optimisation using Multi-Criteria Decision-Making Approach (MCDA) • Will be informed by outcomes from previous step (MCDA) Make recommendati ons 3 KEY PLANNING PARAMETERS AND ASSUMPTIONS 4 BASE CASE The Base Case (also referred to as Baseline or Reference Case) encapsulates the state of energy demand and supply over the planning horizon, which is most closely informed by current energy market trends; the national macroeconomic outlook; assumed energy prices; existing energy infrastructure and the existing suite of policies and government programmes The Base Case is not a representation of the most likely future or most likely scenario, but is rather a simplistic representation of a future outcome that could materialise in light of current policies and macroeconomic trends. It represents a Business-As-Usual or Status Quo scenario where current trends continue into the future. 5 TEST CASE A deviation from the status quo where current trends do not continue into the future and deviations are as a result of specific policy interventions. A Test Case therefore defines a set of circumstances and resultant outcomes or impacts which is informed by the possible impacts of policies and policy interventions. A Test Case does not indicate what will happen but rather tests what could happen if a particular course of action takes place. While Test Cases are sometimes also referred to as scenarios, for the purposes of common interpretation, a Test Case is specifically differentiated from a scenario in that a scenario is largely influenced by exogenous forces which the policy maker has no control over. 6 KEY GLOBAL PLANNING PARAMETERS HIGH-IMPACT POLICIES • Energy White Paper • Integrated Resource Plan (IRP 2010) • National Development Plan • New Growth Path • National Climate Change Response White Paper • National Transport Master Plan • Beneficiation Strategy • Proposed Carbon Tax Policy POLICY-DRIVEN PLANNING PARAMETERS • Minimum Renewable Energy Production Target • Reserve Margin • Annual Emissions Limits • Emission Penalties MACROECONOMIC PARAMETERS • Discount Rate • Economic Growth • Global Oil Prices 7 KEY BASE CASE ASSUMPTIONS 8 HIGH-IMPACT POLICY: COMMITTED IRP 2010 The IRP committed build plan is included in the Base Case New build options Non IRP Committed Coal Import Gas – Peak – 1 imports Nuclear hydro CCGT OCGT Wind MW MW MW MW MW MW CSP Solar PV Coal MW MW MW CoDoE Other generatio 2 Peaker Wind Renew. n TOTAL MW MW MW MW MW Other MW 2010 - - - - - - - - 380 260 - - - - 2011 - - - - - - - - 679 130 - - - - 809 2012 - - - - - - - 300 303 - - 400 100 - 1,103 2013 - - - - - - - 300 823 333 1,020 400 2014 500 - - - - 400 - 300 722 999 2015 500 - - - - 400 - 300 1,444 2016 - - - - - 400 100 300 2017 - - - - - 400 100 2018 - - - - - 400 2019 250 - - 237 - 2020 250 - - 237 - 2021 250 - 237 - 487 2022 250 1,143 805 2,198 2023 250 1,183 805 2,238 2024 250 283 - 533 805 805 2025 640 25 - 2,901 100 - 3,021 100 200 2,944 722 200 1,722 300 2,168 200 3,168 100 300 723 200 1,723 400 100 300 1,446 2,733 400 100 300 723 2,010 2026 - 2027 - 2028 - 2029 - 2030 Total 2,500 - 2,609 711 2,415 2,800 500 2,700 10,133 1,722 1,020 800 325 800 29,035 Eskom Commitments (Pre IRP) 2011 determinations 2012 determinations 9 POLICY-DRIVEN PARAMETERS • • • • Annual Emissions Limits Emissions Penalties Minimum Renewable Energy Production Reserve Margin 10 POLICY-DRIVEN PARAMETERS: MINIMUM RENEWABLE ENERGY PRODUCTION • • Electricity: Will be based on total renewable energy in IRP2010 Liquid Fuels/Petroleum: Regulations on Blending of Biofuels not yet promulgated New build options Wind MW CSP MW Committed Other Renew. MW Wind2 MW Solar PV MW TOTAL MW 2010 - - - - - 2011 - - - - - - 2012 - - 300 400 100 800 2013 - - 300 400 25 725 2014 400 - 300 - 100 800 2015 400 - 300 - 100 800 2016 400 100 300 - - 800 2017 400 100 300 - - 800 2018 400 100 300 - - 800 2019 400 100 300 - - 800 2020 400 100 300 - - 800 2021 400 100 300 - - 800 2022 400 100 300 - - 800 2023 400 100 300 - - 800 2024 800 100 300 - - 1,200 2025 1,600 100 1,000 - - 2,700 2026 400 - 500 - - 900 2027 1,600 - 500 - - 2,100 2028 - - 500 - - 500 2029 - - 1,000 - - 1,000 2030 - - 1,000 - - 1,000 Total 8,400 1,000 8,400 800 325 18,925 - RE IPP Window 1 RE IPP Window 2 Future Windows 11 RESERVE MARGIN • The Energy Security Master Plan for Electricity, ESMPElectricity, of 2007 recommended a reserve margin of 19% for electricity generation capacity in South Africa • A reserve margin of 19% indicates the point where the tradeoff between costs and reliability is minimum. (Based on costs as calculated during the drafting of the ESMP 2007) 12 MACROECONOMIC INDICATORS • Discount Rate: – 11.3% as provided by National Treasury • Economic Growth: – Based on National Treasury 2012 Budget Forecast (Provided prior to the 2012 Medium-Term Budget Policy Statements - MTBPS) • Global Oil Price: – Based on the Energy Information Administration (EIA) Annual Energy Outlook 2012 (AEO2010) Projections 13 GDP GROWTH RATE GDP growth scenarios are based on National Treasury 2012 Budget Forecast Base Case: GDP growth forecasts will be based on “Moderate Growth Scenario” Low growth scenario Short Term Medium Term Long Term 2012 2013 2014 2015-2020 2021-2031 2.7% 3.0% 3.3% 3.2% 3.0% Moderate growth scenario Short Term Medium Term Long Term 2012 2013 2014 2015-2020 2021-2031 2.7% 3.6% 4.2% 4.0% 4.0% Medium Term Long Term High growth scenario Short Term 2012 2013 2014 2015-2020 2021-2031 2.7% 3.6% 4.2% 4.6% 5.0% 14 GDP GROWTH RATE Low growth assumption: National Treasury 2012 Forecast then growth of 2.9% over the forecast period Assumptions Upside Risks Continued skills constraints Strong commodity price growth Infrastructure bottlenecks Reduced skills constraints Low global growth Reduced infrastructure bottlenecks Improved global growth outlook Moderate growth assumption: National Treasury 2012 Forecast, followed by Assumptions Risks Continued skills constraints Risks to the moderate forecast can be either up- or downside risks Infrastructure bottlenecks Upside risks to gorwth forecasts are the same as the risks faced in the low growth assumption Downside risks to growth forecasts are the same as the risks faced in the high growth assumption High growth assumption: National Treasury 2012 Forecast, Assumptions Downside Risks Strong commodity price growth Continued skills constraints Reduced infrastructure bottlenecks Infrastructure bottlenecks Improved global growth outlook Low global growth Skills shortage alleviates 15 GDP GROWTH RATE Historical 2011 Projections 16 GLOBAL OIL PRICE PROJECTIONS • • • • • • • The Global Oil Price projections made by the Energy Information Administration (EIA) on an annual basis within the Annual Energy Outlook, 2012 (AEO2012) have been used as a basis for the projection of future global oil prices for the purposes of the IEP The AEO2012 makes projections for High, Moderate and Low price scenarios which are informed by various assumptions about the global geopolitical and macroeconomic environment. The AEO2012 global oil price projections are defined as the average price of crude oil similar to the price for West Texas Intermediate (WTI) crude oil, which is traded on the New York Mercantile Exchange Although daily spot prices of crude oil from different sources vary, trends for annual averages are similar and therefore the AEO2010 projections deemed independent and reliable source of future projected prices Projections up to 2035: The key assumptions which inform the global oil price projections and the actual projections have been taken directly from the Annual Energy Outlook 2012, which has projections up to 2035. Projections from 2036 to 2050: The oil prices from 2036 and 2050 have been extrapolated using a straight line based on the average price increases of each of the three scenarios from 2012 to 2035. (More information available in the Annual Energy Outlook 2012 which is available at www.eia.doe.gov) 17 GLOBAL OIL PRICE PROJECTIONS Global Oil Price (real US dollars per barrel) 250 Historical Prices 2010 Projections from AEO2012 Extrapolation to 2050 200 150 HIGH OIL PRICE MODERATE (AEO2012 Reference) 100 LOW OIL PRICE 50 0 1980 1990 2000 2010 2020 2030 2040 18 ASSUMPTIONS FOR VARIOUS TEST CASES 19 TEST CASES BACKGROUND The IRP 2010 determined that nuclear power should form a large part, about 20 percent by 2030, of the country’s energy mix from 5 percent in 2010. The Fukushima nuclear crisis of 2011 has made some governments around the world to rethink the role of nuclear energy. One of the recommendations from the National Development Plan was for other alternatives, such as liquefied natural gas for electricity generation, to be compared against the construction of a new nuclear fleet. The burning of coal is responsible for a significant amount of GHGs emissions. While new technologies such as CCS are being developed to curb the GHG emissions, the use of natural gas in power generation has gained steam. POLICY QUESTION TEST CASE What will be the impact of removing nuclear as an option on our targets to significantly reduce emissions by 42 percent by 2025 as outlined in the National Climate Change Response Policy (NCCRP)? Test Case 1: In this case, the new nuclear build in the Policy-Adjusted IRP 2010 is excluded as a supply option. This implies that all the committed capacity from Policy-Adjusted IRP are included with the exception of new nuclear. Nuclear is replaced by the next best supply options as chosen by the model. What is the impact of removing nuclear Test Case 2: The new nuclear build in and introducing more natural gas as an the Policy-Adjusted IRP 2010 is excluded option on the total cost of energy and as a supply option. This implies that all emissions target? the committed capacity from PolicyAdjusted IRP are included with the exception of new nuclear. The nuclear is replaced by natural gas supply options. 20 TEST CASES BACKGROUND As a net importer of crude oil, South Africa is a price taker in the oil market and its market is highly sensitive to fluctuating global oil prices. The Department of Energy is in the process of introducing new fuel specifications (CF2) which will ensure refined product with reduced sulphur content and thereby reducing the quantity of pollutants and greenhouse gas emissions from the liquid fuel and transportation sectors. South Africa is currently also considering the construction of new refining capacity which would be aligned with these specifications. While mobility is a key contributor to energy demand, developments in technology could see the move away from traditional modes of transport to more efficient and less costly means of transportation. However for South Africa, it is assumed that traditional modes of transport (i.e. fuel-powered vehicles, with minimal penetration of electric and hybrid vehicles) will continue into the foreseeable future (NAAMSA presentation “Energy Planning Colloquium, March 2012”). The National Development Plan has presented five different options that South Africa should consider: 1) Build new oil-to-liquid refinery 2) Build new coal-to-liquid refinery 3) Upgrade existing refineries or allow significant expansions of one or more of the existing refineries or both 4) Import refined product 5) Build a new refinery in Angola or Nigeria (and buy a share of the product of that refinery) 21 TEST CASES POLICY QUESTION Assuming more people will continue to drive fuel-powered vehicles as their primary means of transport well into the future, what is the best way of ensuring security of fuel supply in the country? (Note: Fuels pertain to final product and includes synfuels from CTL and GTL production processes). TEST CASE The National Development Plan provides a high-level analysis of the advantages and disadvantages associated with each of the options presented therein. As South Africa is a price taker, when all other investment costs have been taken into consideration (capital costs, upgrade costs), the main differentiating factor is the input costs (in this case the price of crude oil). Equally important is the price of coal and shale gas. Therefore sensitivity analyses (of different crude oil price ranges) will also be conducted on all the alternatives considered. For given sets of crude oil price ranges and for each price range: Test Case 3: The cost of increasing refining capacity (green field refinery which could be crude oil, CTL or GTL as optimized by model) is determined together with total emissions. Test Case 4: The cost of upgrading/expanding existing refineries. In this option any production shortfall would be met by imports. (This test case takes into account possible upgrade of port infrastructure that may be necessary as well as the associated costs). 22 ANNUAL EMISSIONS LIMITS • • The South African Government has made a commitment to reduce emissions by 34% by 2020 and 42% by 2025 which was informed by the outcomes from a study on the Long-Term Mitigation Scenarios (LTMS) Two scenarios: – – • • • “Business As Usual” which led to a range of trajectories - BAU lower and upper bounds “Required by Science” which led to the “Peak Plateau Decline” emissions trajectory The findings of the LTMS study also determined that South Africa’s energy use emissions constituted just under 80% of total emissions, of which the majority arose from electricity generation (40% of total emissions) in 2000. Emissions from oil refining and production of synthetic fuels (CTL and GTL) were estimated to contribute 9% towards total emissions. Therefore, total emissions from the energy transformation and conversion processes contributes approximately 49% towards total emissions. The “Peak Plateau Decline” trajectory will inform the emissions constraints for electricity generation and petroleum refining in one of the IEP Test Cases 23 TEST CASES BACKGROUND According to the National Climate Change Response Policy (NCCRP), the energy sector contributes about 80 percent towards total carbon emissions for the country. South Africa has also committed to reducing emissions by 34 percent by 2020 and 42 percent by 2025 ‘below a business as usual baseline’. These targeted reductions in total emissions have been defined by the Department of Environmental Affairs (DEA) as the “Peak, Plateau, Decline emissions trajectory” and have further been translated into absolute reductions required for the entire country and by each sector based on contribution to the total. POLICY QUESTION What are the impacts of meeting the emission reduction targets as set by the Department of Environmental Affairs for the energy sector? TEST CASE Test Case 5: Refurbish the existing fleet of plants so as to meet the targets set by DEA. Retrofit on the existing infrastructure. (Note: It is acknowledged a retrofit programme would still leave demand outstripping the supply of electricity). Test Case 6: The energy sector should meet the 34 percent and 42 percent emissions reduction target no matter what. This includes mothballing the power plants that are responsible for emissions and investing in new technologies. 24 EMISSIONS PENALTIES • In 2010, the National Treasury published a discussion document on a proposed carbon tax policy • The policy document is near finalisation and could potentially be promulgated in the short-to-medium term • The introduction of a Carbon Tax has significant implications for the energy sector and will be considered as a Test Case in the IEP 25 TEST CASES BACKGROUND POLICY QUESTION In efforts to support the country’s What are the possible impacts of the commitments of reducing emissions, proposed Carbon Tax by National the National Treasury has published a Treasury on the energy sector? Discussion Documents which seeks to introduce a Carbon Tax across all sectors. TEST CASE Test Case 7: Impact of the Carbon Tax on the choice of energy technologies throughout the entire value chain. The current proposal is a tax of R75 per ton of CO2 and with an increase to around R200 per ton CO2 (at 2005 prices) introduced as from 2015. 26 PROGRESS TO DATE 27 HIGH-LEVEL WORKPLAN COMPLETED TO DATE Key Planning Assumptions - Global Planning Parameters and Policy Assumptions informed by High-Impact Policies - Key Macroeconomic Parameters/Indicators - Assumptions underpinning Demand Projections - Base Case versus Test Cases Demand Projections - Approach to modelling demand for energy services within all demand sectors - Demand Projections Key Policy Questions and Alternative Options for each - Test Cases to be considered in the model - Other Policy Options to be considered Key Criteria and approach for evaluating model output (Outcome of Base Case and Test Cases) 28 HIGH-LEVEL WORKPLAN STILL TO BE COMPLETED Quality-checking and finalisation of technology data collected Address any data gaps that may arise Configuring of Model for Base Case and model runs Configuring of Test Cases in model and Model runs Analysis and Evaluation of model output Report Writing Table Draft IEP Report in Cabinet Stakeholder Consultations on Draft IEP Report 29 THANK YOU 30