PRESENTATION TO THE PARLIAMENTARY
PORTFOLIO COMMITTEE ON ENERGY
Mrs Cecilia Khuzwayo
Chairperson
1
NERSA BUSINESS PLAN AND BUDGET
(2011/12)
Mrs Cecilia Khuzwayo
Chairperson
2
CONTENT
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Introduction
Regulated Industries
Vision, Mission, Values and Regulatory Principles
Mandate
Strategic Objectives for 2011/12
Budget and Funding for 2011/12
Challenges
Plans for future
3
INTRODUCTION
• The National Energy Regulator (NERSA) was established on 1 October
2005 in terms of the National Energy Regulator Act, 2004 (Act No. 40 of
2004) to regulate:
– Electricity industry (Electricity Regulation Act, 2006 (Act No. 4 of 2006))
– Piped-Gas industry (Gas Act, 2001 (Act No. 48 of 2001))
– Petroleum Pipelines industry (Petroleum Pipelines Act, 2003 (Act No. 60
of 2003))
• NERSA’s predecessor, the National Electricity Regulator (NER)
regulated the electricity industry between 1995 until 16 July 2006
• NERSA is expected to implement its mandate and to proactively take
necessary regulatory actions in anticipation of and in response to the
changing circumstances in the energy industry
4
REGULATED INDUSTRIES
ELECTRICITY
• Eskom dominance
– 95% of electricity generated
• Municipal Fragmentation
– Over 174 Distribution and 9 Generation licensees
• In 2009/10 – 217 TWh of electricity sold
• The Structure of the electricity supply industry of
South Africa is presented below:
5
REGULATED INDUSTRIES
ELECTRICITY (Cont.)
IPPs
Eskom Generation
Imports /
Exports
Eskom Transmission
Municipal
Generators
Eskom Distribution
D1
Large Power
Users
Customers
a
D2
D3
Customers
b
Dn
Local
Authority
Distributors
Customers
n
6
REGULATED INDUSTRIES
PIPED-GAS
• Accounts for less than 2% of energy needs of
South Africa
– Approximately 120 MGJ/annum natural gas imported
from Mozambique
– Approx 188 MGJ/annum of methane rich gas produced
by Sasol Gas in Secunda
• Sasol Gas dominates regulated areas
• Transmission Operators – Sasol Gas, Transnet
Pipelines, Republic of Mozambique Pipeline
Company (ROMPCO)
• Distribution Operator – Sasol Gas
7
REGULATED INDUSTRIES
PIPED-GAS (Cont.)
• Traders – Sasol Gas, Spring Lights Gas, NOVO
Energy*, Virtual Gas Network*, NGV Gas*
• Storage Operator – Virtual Gas Network
• Reticulation (<2 bar(g)) not regulated by NERSA
but in municipal executive authority
– Egoli in Johannesburg
– EasiGas in Port Elizabeth
• NERSA has registered 11 entities in the production
of gas in various areas in the country
8
* New entrants into the market
REGULATED INDUSTRIES
PETROLEUM PIPELINES
• Transnet dominates pipeline infrastructure
– Owns the Durban-Gauteng refined products pipelines and
distribution lines in Gauteng
– Transport crude oil for the NATREF refinery
– Has a single storage facility in Tarlton
• The Oil Majors dominate storage facilities
– BP, Shell, Chevron, Engen, Total and Sasol Oil
– Approximately 26 storage facilities connected to the Transnet
network
• Approximately 4.5 billion litres per annum transported by
pipeline to Gauteng areas
– Road and Rail a further ~2 billion litres per annum
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VISION
“To be a world-class leader in energy regulation”
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MISSION
“To regulate the energy industry in accordance with
government laws and policies, standards and
international best practices in support of sustainable
development”
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VALUES
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Passion
Spirit of Partnership
Excellence
Innovation
Integrity
Responsibility
Professionalism
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REGULATORY PRINCIPLES
• Underpinned by NERSA’s legal mandate
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Transparency
Neutrality
Consistency and Predictability
Independence
Accountability
Integrity
Efficiency
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MANDATE
• NERSA’s Mandate is anchored in
– 4 Primary Acts:
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National Energy Regulator Act, 2004 (Act No. 40 of 2004)
Electricity Regulation Act, 2006 (Act No. 4 of 2006)
Gas Act, 2001 (Act No. 48 of 2001)
Petroleum Pipelines Act, 2003 (Act No. 60 of 2003)
– 3 Levies Acts:
• Gas Regulator Levies Act, 2002 (Act No. 75 of 2002)
• Petroleum Pipelines Levies Act, 2004 (Act No. 28 of 2004)
• Section 5B of the Electricity Act, 1987 (Act No. 41 of 1987)
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MANDATE (Cont)
– 3 Facilitating 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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STRATEGIC OBJECTIVES (2011/12)
• To create regulatory certainty in the energy sector;
• To protect the interests of the public and the customers;
• To create a dispensation for fair competition for industry
players;
• To create energy supply certainty; and
• To create an effective organisation that delivers on its
mandate and purpose
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BUDGET AND FUNDING FOR 2011/12
Expenditure
Levy Income
Levies
Electricity
R124 667 690
R73 408 045
0.0286 c/kWh
Piped-Gas
R50 486 314
R40 496 714
0.2872 c/GJ
Petroleum
Pipelines
R47 867 696
R33 503 616
0.1905 c/l
R223 021 701
R147 408 375
Total
Difference between expenditure and income budgets amounts to R75.6
million which is attributable to a refund of surplus funds to the different
industries being regulated and interest receivable from short term
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investments
CHALLENGES FACING NERSA
(Electricity Industry Regulation)
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Security of Supply
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Noncompliance issues especially with
municipal distributors – maintenance
backlog and not meeting reporting
requirements
•
Implementation of Inclining Block Tariffs
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CHALLENGES FACING NERSA
(Piped-Gas Industry Regulation)
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Regulation of certain piped gas activities not specifically
catered for in the Gas Act
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CNG
Monitoring and enforcing Sasol’s compliance with the
regulatory agreement
–
Enforcement of the market value pricing
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Approve maximum prices in absence of clear market
value of gas
•
Private sector investment and markets for gas
–
Private sector investment in infrastructure faces many hurdles
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i.t.o. supply and offtake agreements
CHALLENGES FACING NERSA
(Petroleum Pipelines Industry Regulation)
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Security of supply of petroleum to the
inland areas
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State Owned Entity (Transnet) funding
challenges and the setting of its tariffs
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Promoting access to petroleum storage
facilities by Historically Disadvantaged
South African wholesalers
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PLANS FOR FUTURE
(Electricity Industry Regulation)
• To monitor and enforce compliance by all licencees
• Introduction of more Independent Power Producers
• Promotion of Renewable Energies in the generation mix –
hence Renewable Energy Feed-In Tariffs (REFIT)
• To monitor the implementation of the second Multi-Year
Price Determination (MYPD2) by Eskom and to revise the
rules for the MYPD2 if necessary
• To start preparing for the third Multi-Year Price
Determination for Eskom for the period 2013/14 – 2015/16,
to continue giving certainty and predictability in terms of
electricity prices
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PLANS FOR FUTURE
(Electricity Industry Regulation) (Cont.)
• To streamline regulatory processes in the areas of
licensing, tariff reviews and appraisals
• To rationalize tariff structures, taking into account regional
pricing and geographical differentiation
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PLANS FOR FUTURE
(Piped-Gas Industry Regulation)
• To educate customers in order to assist in the
enforcement of Market Value Pricing
• To implement a compliance framework for licence
conditions
• To conduct a study on the integrity of the gas
pipeline network
• To benchmark licence conditions
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PLANS FOR FUTURE
(Piped-Gas Industry Regulation) (Cont.)
• To highlight to the policy maker the need for a review of the
Gas Act to address:
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Definitions and provisions that hamper effective regulation of the
gas industry
Infrastructure Planning and Construction Licences;
NERSA’s Tariff Mandate (Distribution and Transmission); and
Licensing deadlines
• Transition to regulating maximum prices
• Monitoring compliance to licence conditions
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PLANS FOR FUTURE
(Petroleum Pipelines Industry Regulation)
• To monitor the escalations in costs as well as the delays in
construction of new infrastructure
• To monitor and manage as far as possible a tariff spike
through tariff structures
• To monitor licensees in the petroleum pipelines industry’s
behaviour and act if and when necessary
• To facilitate market entry by historically disadvantaged
players
• To facilitate third party access
• Monitoring compliance to licence conditions
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UPDATE ON TRANSNET’S NEW MULTI
PRODUCTS PIPELINE PROJECT
Dr Rod Crompton
Regulator Member
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CONTENT
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New Multi Products Pipeline Concept
Map of New Multi Products Pipeline
Background
Completion Date Forecasts
Costs
Risks
– Risk 1: Coastal End (Durban)
– Risk 2: Line Fill (NMPP)
– Risk 3: Security of Inland Supply
• Road and Rail Requirement – Data Challenges
• Road and Rail Requirement Estimate
• Pipeline Tariff: Durban to Johannesburg (Rounded)
• Tariff forecast for Durban to Alrode
• Pipeline Tariff Impact on Gauteng Petrol Price
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NEW MULTI PRODUCTS PIPELINE
CONCEPT
Terminal
Terminal
“Bullet train”
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Source: Transnet, NERSA
BACKGROUND
• Licence granted -12 September 2007
• Conditions :
– Ready in 4 years; and
– Deadlines for parts.
COMPLETION DATE FORECASTS
Licensed activity
License
condition
(original)
Latest forecast
Pipeline Waltloo to Kendal
Dec 2009
April 2011 #
Pipeline Jameson Park to Alrode
Sept 2011
May 2011 #
Pipeline Alrode to Langlaagte
Sept 2011
May 2011 #
Pipeline Durban to Jameson Park
March 2011
Jan 2012 (partial)
Coastal Terminal
Sept 2011
Dec 2013
Inland Terminal
Sept 2011
Dec 2013
(# in operation)
COSTS
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2007:
2009:
2010:
2010:
2011:
Next:
R 11 bn
R 12.6 bn
R 15.4 bn
R 23.4 bn (+ interest)
R 22 bn (+ interest)
????
RISKS
1. Coastal end (Durban)
2. Line fill (NMPP)
3. Security of inland supply
RISK 1: COASTAL END (DURBAN)
• Construction delays in coastal terminal
and feeder lines from oil companies
• Solution: “tight lining” until accumulator
facility is ready
RISK 2: LINE FILL (NMPP)
• Costs:
3 Branch lines
Trunk line
Total
R 108 mil
Sasol “loan”
R 1 bn
????
R1.1 bn
????
• Who pays? Not resolved
• Resulted in commencement delays on 3
branch lines
• Worst case: NMPP finished but no line fill
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Number of road tankers required per hour
m = l /24
4
5
2
3
6
3
4
How many minutes between trucks?
n
15
13
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Note: Pariffin is excluded from the model as the inland market supply suffice in meeting inland demand
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10
21
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1. Fuel demand growth forecast as per BER 5 October 2010
2. Overland exports to Botswana, Zimbabwe, Zambia and Malawi
3. As per Transnet presentation dated 17/18 Feb 2011 at DoE Liquid Fuels Bosberaad
4. Dedicated jet fuel train that runs from Durban to OR Tambo Airport dialy
RISK 3: SECURITY OF INLAND SUPPLY
5. j = c - (d + e + f + g)
Road and rail requirement is indicated by the area between the demand lines and the bars
20 000
NMPP pipeline capacity
18 000
million liter / annum
16 000
DJP pipeline capacity
14 000
Inland Jet Fuel supply
12 000
10 000
Inland IP supply
8 000
Inland Diesel supply
6 000
4 000
Inland Petrol supply
2 000
Inland Fuel demand
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
0
Inland Fuel demand incl. exports
NMPP commences operation 1 January 2012. The whole project will be completed by 1 April 2014 i.e. NMPP reaches full
capacity at 1 April 2014. This is as per Transnet's presentation to NERSA on 7 December 2010.
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RISK 3: SECURITY OF INLAND SUPPLY
(Cont.)
- Riskiest period to en 2011
- Transnet’s Mitigation strategy until NMPP
finished:
a) use both old and new pipelines in parallel
b) road and rail
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ROAD AND RAIL REQUIREMENT – DATA
CHALLENGES
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ROAD AND RAIL REQUIREMENT ESTIMATE
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PIPELINE TARIFF: DURBAN TO JOHANNESBURG
(ROUNDED)
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
% increase /
(decrease) in
tariffs
2008/09
Durban to
Gauteng
tariff
(cents / litre)
Estimate
2007/08
Actual
12
12
11
12
18
23
25
33
36
37
3%
(11%)
6%
55%
27%
9%
32%
9%
3%
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2030/31
2029/30
2028/29
2027/28
2026/27
2025/26
2024/25
2023/24
2022/23
2021/22
2020/21
2019/20
2018/19
2017/18
2016/17
2015/16
2014/15
20
2013/14
2012/13
2011/12
2010/11
Cents per litre
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TARIFF FORECAST FOR DURBAN TO ALRODE
60
50
40
30
New Northern Network
Full NMPP project
completed
10
0
Year
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PIPELINE TARIFF IMPACT ON GAUTENG PETROL PRICE
40
35
30
20
Full NMPP project
completed
15
24" trunkline in
operation
10
5
2016/17
2015/16
2014/15
2013/14
2012/13
2011/12
0
2010/11
Cents per litre
25
Year
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RENEWABLE ENERGY FEED-IN
TARIFFS (REFIT) REVIEW
Mr Thembani Bukula
Regulator Member
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CONTENT
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Background
NERSA’s Mandate
REFIT Guidelines 2009
Latest Developments
Outstanding Matters
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BACKGROUND
• White Paper on Renewable Energy 2003
– 10 000GWh by 2013 (i.e. 1141MW @ 100% Load Factor)
• Consultations between 2004 and 2008
– Regulatory framework (funding, implementation rules/methods, technologies)
• REFIT guidelines published in March & October 2009
• New generation regulations promulgated in August 2009
– REFIT Programme & IPP Programme for conventional power
– NERSA to develop selection criteria & standardised PPA
– Eskom (System Operator) to purchase power according to the selection criteria
• MYPD2 approval in February 2010 with REFIT allocation
– R12.3bn for 1025MW over the 3 year period
– Implementation date 1 April 2010
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NERSA’s MANDATE
• National Energy Regulator Act, 2004
– The custodian & enforcer of the national electricity regulatory framework
– To provide licenses and provide for matters connected therewith
• Electricity Regulation Act, 2006
– Issue rules designed to implement national government’s electricity policy
framework
– Regulate prices & tariffs
– Furnish potential licensees with all the information necessary for licensing
– Make guidelines, rules, codes of conduct after consultation with interested
parties
– Facilitate the conclusion of Power Purchase Agreements
– Make license conditions relating to:
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Setting of prices, tariffs & charges
The methodology to be used in determining tariffs
The format & contents of agreements entered into by licensees
Period of validity of licenses
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REFIT GUIDELINES 2009
• REFIT’s based on levelised cost of electricity (LCOE)
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Stimulate the Renewable Energy industry
Over a 20 year period (20 year Power Purchase Agreement (PPA))
Wind, Landfill gas, Small scale hydro, biogas, biomass and solar
Annual review for the next 5 years & every 3 years thereafter applicable to new
projects
– No reduction rate (as in other countries such as Spain, Germany, Denmark)
– Reasonable/attractive Returns of 17% (ZAR)
• Consultation papers on the selection criteria & PPA Feb 2010
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Plant location and technology that contributes to local economic development
Compliance with legislation in respect of advancement of HDI’s
Projects demonstrating the ability to raise finance
Small distributed generators over centralised generators
Shortest commissioning times
Network integration & stabilisation, transmission losses, environmental approvals
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LATEST DEVELOPMENTS
• Consultation paper on REFIT review issued in March 2011
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Reduction in capital costs (solar PV reduction around 40%, Wind 5%)
Significant changes in the foreign exchange rate (from ZAR10/$ to ZAR8/$)
Creation of space for additional renewable energy technologies
Maintaining the reasonable/attractive returns of 17%(ZAR)
• New generation regulations promulgated on 4 May 2011
– REFIT programme replaced by IPP procurement programme
– DoE the procurer & PPA negotiator,
– Eskom the buyer/off-taker
• Minister’s press release 26 May 2011
– Current REFIT procurement programme will use 2009 REFIT
– 2nd phase procurement will use the revised REFIT (March 2011 Consultation paper)
– Completed the procurement of 1000MW by December 2011
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OUTSTANDING MATTERS
• Section 34(1) Determination by the Minister
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Generation capacity for security of supply
Types of energy sources
Manner of purchase and selling the electricity produced
Tendering procedure (fair, transparent, equitable, competitive & cost effective)
Provide for private sector participation
• Concurrence by NERSA on the above Section 34(1) determination
– Finalisation by 30 June 2011
• Issuing of the Request for Proposal (RFP) documents
– Stating the tendering process (June 2011)
• Licensing of successful IPP’s by NERSA
– Maximum of 120 after application is lodged
– Shorter period can be facilitated
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CONCLUSION
Mrs Cecilia Khuzwayo
Chairperson
58
CONCLUSION
•
NERSA would like to thank the Portfolio Committee for the
opportunity to present its Business Plan for 2011/12 as well as to
update the Committee on construction of the New Multi-Product
Pipeline and the REFIT review
•
Electricity regulation has matured whilst piped-gas and petroleum
pipelines regulation is at its infancy - up to date the majority of the
effort was located in the licensing of existing facilities but now
compliance monitoring can start
•
Balance is required between differences and synergies between and
amongst the approaches in regulating the three industries
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Governance issues and legal regulatory requirements are being
addressed
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MOU on concurrent jurisdiction is necessary
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THANK YOU
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