Eskom Campaign

WHY TARGET ESKOM?

OUTA believes that, as with so many of our state owned and Parastatal organisations, there are sufficient questionable practices a lack of accountability and transparency within ESKOM

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WHAT ARE OUR MAIN ISSUES & CONCERNS WITH ESKOM?

For reasons of management inefficiencies and in some cases maladministration

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HOW HAVE WE ENGAGED ON THIS ISSUE, I.E. ACTION TAKEN?

OUTA’s first engagement on the Eskom issue, was to appoint Energy Analyst

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THE COURT CHALLENGE

Court Application to Interdict 1 April 9,4% Tariff Hike

We believe that the National Energy Regulator of SA (NERSA), is currently applying its mandate and regulatory framework, in a manner that does not sufficiently tackle Eskom’s inefficiencies, allowing them to pass on their losses to the public, through unacceptably high tariff increases and bailouts by the state

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From the Knowledge Centre

WHO IS ESKOM?

Eskom is South Africa,s electricity supply company, generating +- 95% of South Africa’s electricity and +- 45% of Africa’s electricity. Eskom has as an electricity supply entity, distributes electricity to various users and distrubutors.

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From the Knowledge Centre

WHO IS NERSA?

South Africa’s National Energy Regulator authorised as a juristic person in terms of Section 3 of the National Energy Regulator Act, 2004 (Act No. 40 of 2004) to be the regulator of South Africa’s electricity.

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From the Knowledge Centre

South Africa’s Energy Profile

The below provides a good understanding of the energy environment as managed by Eskom and the various regulatory protocols in South Africa. This information is provided by Reegle. Original Source: REEEP Policy Database.

1. Energy Regulation Role

DEM is the primary department that is responsible for energy regulation.

2. Competition

The electricity sector in South Africa is essentially totally vertically integrated due to the continued existence of ESKOM’s monopoly of approximately 95% of the market. ESKOM is involved in practically every area of the electricity sector, from generation, transmission and retail. In 2009, ESKOM had a generating capacity of 40,503 MW. Municipalities in South Africa produced 2,400 MW, and private companies provided 800 MW. Currently, the contribution of independent power producers (IPPs) to electricity supply in the country is negligible, owing to the absence of appropriate policy and a funding model. Plans are under way to reorganise the energy distributors under Municipal control into a smaller number of 6 Metropolitan Regional Electricity Distributors (REDs) and 1 Rural RED. The first RED has been created in Cape Town in 2005. SASOL can be considered to be vertically integrated, while PetroSA is not, as it does not have a retail presence.

3. Energy Sources

Electricity Total installed electricity capacity (2009): ~43.5 GW In 2010, ESKOM had a generating capacity of 44,175 MW, with some 86% of this capacity in place at the company’s coal-fired power stations. Municipalities in South Africa produced 2,400MW, and private companies provided 800MW. Electricity is generated mainly from thermal sources. RE currently only produces approximately 1% of electricity. Primary energy (2008) South Africa uses coal, its major indigenous energy resource, to generate most of its electricity and a significant proportion of its liquid fuels. Because of this, South Africa is the 14th highest emitter of greenhouse gases. South Africa had proved coal reserves of 48,000 million tonnes, produced 283 million short tons of coal and consumed 203 million short tons of coal. It exports approximately 28% of all coal mined. As of January 1 2008, South Africa had proved oil reserves of an estimated 15 billion barrels, and according to 2007 estimates produced approximately 199,100 bb/day and consumed approximately 505,000 bb/day. Natural gas reserves were estimated at 27.16 million cu m in 2007, with 2.9 billion cu m being produced in 2006 and 3.1 billion cu m consumed in 2006.

4. Energy Efficiency

In January 2008, the Department of Minerals and Energy and Eskom released a new policy document, "National response to South Africa’s electricity shortage". The plan includes work on the country’s electricity distribution structure, and the fast-tracking of electricity projects by independent power producers. It also involves electricity co-generation projects between Eskom and private industry, where the heat generated as a by-product of industrial processes in sectors such as chemicals is captured to produce power that can be used by the industries themselves, or bought by Eskom for the national grid. At the same time, the new plan outlines the importance of reducing demand by pricing electricity correctly as well as promoting energy efficiency and deterring, and if necessary outlawing, energy inefficiency. Eskom aims to reduce demand by about 3,000 MW by 2012 and a further 5,000 MW by 2025, through an aggressive campaign which will include promoting the use of solar-powered geysers as well as liquid petroleum gas for cooking. The government is also set to introduce a rationing scheme that will reward and penalise customers based on their energy usage.

5. Energy Debates

State energy company Eskom has embarked on a massive program to upgrade and expand the country’s electricity infrastructure. Eskom plans to double its total generating capacity to 80 000MW over the next two decades, with nuclear power making up about half of the new capacity. The state supplier is considering bids from France’s Areva and the US’s Westinghouse Electric to build a new conventional nuclear power plant that could start generating electricity from 2016, and has said that it could build more nuclear stations by 2025. Apart from the electricity crisis, renewable energy has been receiving much attention both from the Government and from the media. Despite this, no new legislation or policy has been created to give effect to the White Paper on Renewable Energy of 2003, except for the publication of the REFIT Guidelines in March 2009. The development of a biofuel industry is still be debated, due to concerns around food and water security despite the fact that the Biofuels Industrial Strategy of the Republic of South Africa, 2007 calls for maize to be excluded due to its status as a staple food source.

6. Reliance

Net Exporter of energy: 1,186,647 TJ (2005).

7. Extend of Network

The national transmission grid covers 27,000 km of South Africa, and there has been a massive drive through the Integrated National Electrification Program (INEP) since 1994 to increase the extent of the population with access to electricity from 36% to approximately 71% in 2004, in order to address the imbalance of electricity supply due to apartheid. The country’s mass electrification program, started in 1991, has seen almost 3.5-million homes electrified. The government aims to achieve universal access to electricity by 2012.

8. Energy Regulator

The National Energy Regulator of South Africa (NERSA) established in 2004 regulates the electricity, natural gas and petroleum industries. www.ner.org.za

9. Capacity Concerns

ESKOM is suffering from capacity generation problems due to demand outstripping supply in 2007 and 2008. As a result, ESKOM introduced “load shedding”, or scheduled black outs that try to preserve the grid when demand is too high The power supply crisis has accelerated the need to diversify Eskom’s energy mix and its move towards alternative energy sources such as nuclear power and natural gas, as well as various forms of renewable energy.

10. Regulatory Roles

Licensing, arbitrator, tariff regulation, promotion of competition in petroleum and gas industries, settle customer disputes.

11. Ownership

Electricity Although ESKOM does not have exclusive generation rights in South Africa, it does have the practical monopoly on the bulk of electricity in the country, and it maintains the national grid. In 2002, ESKOM was converted into a public company, although it is de facto a parastatal. In 2003, Cabinet made a decision to increase private-sector participation in the electricity industry by dividing power generation between ESKOM and independent power producers, or IPPs, although ESKOM still has the majority of the generation rights. The distribution division has been severed from ESKOM, and has been merged with the electricity departments of municipalities to form regional electricity distributors, or REDS. The REDS shall buy electricity from ESKOM at a tariff set by the National Energy Regulator of South Africa (NERSA) and shall offer the electricity at a competitive price and efficient services. Coal & natural gas PetroSA has the monopoly on the gas sector, although the South African company, SASOL, also operates GTL facilities. SASOL has the monopoly on the Coal-to-Liquid (CTL) sector in South Africa

12. Energy Studies

Studies undertaken by: The Sustainable Energy Society of Southern Africa or SESSA, a non profit organization dedicated to renewable energy and energy efficiency. https://www.sessa.org.za AfriWEA promotes and supports wind energy development on the African continent by facilitating the exchange of information, expertise and experience in the wind energy sector. https://www.afriwea.org Sustainable Energy Africa www.sustainable.org.za Energy Research Centre, University of Cape Townwww.erc.uct.ac.za Two main studies, apart from the White Papers on Energy Policy and Renewable Energy, seem relevant: National Biofuels Feasibility Study, 2006; “Renewable Energy in Emerging Markets and Developing Countries: Current Situation, Market Potential and Recommendations for a Win-win for EU Industry, the Environment and Socio-economic Development” (RECIPE) Country Report on South Africa

13. Regulatory Framework

In 2009, NERSA approved the Renewable Energy Feed-In Tariff (REFIT) to achieve Government’s target of producing 10 TWh of electricity per year by 2013 and sustain growth beyond the target, The tariff for wind energy, 1.25 ZAR/kWh (€0.104/kWh, $0.14 USD/kWh, $0.17 CAD/kWh) is greater than that offered in Germany (€0.092/kWh) and more than that proposed in Ontario, Canada ($0.135 CAD/kWh). The tariff for concentrating solar, 2.10 ZAR/kWh (€0.175/kWh), is less than that in Spain (€0.278/kWh), but offers great promise in the bright sunlight of South Africa. NERSA’s revised program followed extensive public consultation.

14. Renewable Energy

South Africa has a high level of renewable energy potential and presently has in place targets of 10,000 GWh of renewable energy by 2013. Solar Photovoltaic: 14% of electricity supply by 2050. Solar Thermal Electric: 43TWh by 2030. Wind Energy: between ‘modest’ to ‘abundant’ prospects. Hydropower: 4700 MW. Biomass: In the longer term, around 9 to 16% of the energy demand. Landfill gas: 7.2 to 10.8 TWh of electricity generation by 2040. Waves and other categories: 33 TWh per year by 2050.

15. Regulatory Barriers

Possible barriers include the fact that the target set by the White Paper on Renewable Energy is too low to stimulate investment, while there are too few fiscal incentives for energy efficiency and renewable energy. The cheap electricity available in South Africa is a further barrier to the implementation of more expensive renewable energy technology. There is also a need for clearer direction from national government on the future of renewable energy and energy efficiency, in terms of legislation and regulations, as well as greater co-operation between the government departments and the private sector. Lack of non-discriminatory open access to infrastructure such as the national electricity grid.

16. Energy Procedure

The National Energy Bill has been published. This bill gives legislative effect to the Energy White Paper on Renewable Energy approved during 2004. In October 2010, the Department of Energy released its draft Integrated Electricity Resource Plan (IRP) for 2010-2030. The IRP outlines the country’s electricity demand, how this demand might be supplied, and what it is likely to cost. Its balanced scenario represents the best trade-off between least-investment cost, climate change mitigation, diversity of supply, localization, and regional development. The IRP requires 52 GW of new capacity by 2030, assuming 3.4 GW of demand-side savings. After public consultation the IRP was revised early in 2011 and passed by cabinet in March. According to this scenario, South Africa’s generation mix by 2030 should include: 48% coal; 13.4% nuclear; 6.5% hydro, 14.5% other renewables; and 11% peaking open cycle gas turbine. Although nuclear is included in the energy mix only from 2023, a decision on this "must be finalized as quickly as possible" and a procurement process set up. At least 9.6 MWe new nuclear capacity by 2030 is included in the plan, significantly less than the 2007 target.

17. Role of Government

The Department of Minerals and Energy (DEM) drives policy and regulation development and implementation.

18. Energy Framework

White Paper on the Energy Policy of the Republic of South Africa, 1998, that describes the government’s general policy for the supply and consumption of energy until, approximately, the year 2010. This policy sets out the path for development of renewable energy and improvement of energy efficiency with the ultimate goal to reach a more sustainable energy mix to facilitate the achievement of South Africa’s macro-economic goals.  White Paper on Renewable Energy, 2003, that lays the foundation for the widespread implementation of renewable energy and sets a target (currently not mandatory, only a policy objective) of ten thousand (10 000) gigawatt-hours of renewable energy contribution to final energy demand by 2013. Energy Efficiency Strategy of the Republic of South Africa, 2005 (reviewed 2008), that sets out a national target (currently not mandatory, only a policy objective) for energy efficiency improvement of 12% by 2015 and provides for a number of “enabling instruments”. Biofuels Industrial Strategy of the Republic of South Africa, 2007, that proposes the adoption of a 5 year pilot program to achieve a 2% penetration level of biofuels in the national liquid fuel supply. It further proposes the utilization of certain crops for the production of biofuels, and excludes others on the grounds of food security. It recommends the use of a fuel levy exemption for biodiesel and bioethanol. National Cleaner Production Strategy, 2004, that seeks to “to enable SA society and industry to develop its long term full potential by… adopting the principles of Cleaner Production… and promoting the practices of sustainable consumption".  Other pieces of legislation: Integrated Energy Plan (2003). Mineral and Petroleum Resources Development Act (2002). Electricity Act (1987). Gas Act (2001). Gas Regulator Levies (2002). National Energy Regulator Act (2004). Environment Conservation Act (1989). National Environmental Management Act (1998). Water Act (1998). There are also several programmes promoting sustainable energy, such as: Urban Sustainable Energy for Environment & Development Programme (SEED), focussing on energy efficiency; Renewable Energy Market Transformation Programme (REMT) run by the DME focussing on removing the barriers and reducing the implementation costs of renewable energy technologies, and also promoting on-grid electricity for renewable energy sources  REFIT run by NERSA focusing on remunerating IPP’s for renewable power, they feed into the national grid.

19. Degree of Independence

NERSA consists of four full-time and five part-time members appointed by the Minister of Minerals and Energy (including the Chairperson). The Regulator is funded by funds set aside by Parliament, levies imposed by or under separate legislation, funds collected under separate legislation, charges for dispute resolution and other services rendered in terms of the National Energy Regulator Act, as well as licence fee. The Nuclear Sector is regulated by the National Nuclear Regulator, established by the National Nuclear Regulator Act 47 of 1999.

20. Government Agencies

The Central Energy Fund (CEF). The South African National Energy Research Institute (SANERI), a wholly-owned subsidiary of the Central Energy Fund (Pty) Ltd, is the public entity tasked with coordination and undertaking of public interest energy research, development and demonstration. It is under the joint custodianship of the Department of Minerals and Energy and the Department of Trade and Industry.

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