OUR JOURNEY TOWARDS 2030

NELISIWE MAGUBANEDIRECTOR GENERAL, DOE, RSA

Overview of the RSA electricity industry sources of powerOutline of presentation

1. Macro-Economic Overview of South Africa

2. Overview of the South African Electricity Industry

3. Summary of the Policy Adjusted IRP

4. Implementation of the IRP2010

2

4. Implementation of the IRP2010

5. SAPP Future Energy Outlook

1. Macro-economic overview of South Africa

Macro-economic overview of South AfricaKey macro economy indicators

Key facts Nominal GDP vs Real GDP growth

� South Africa is Africa’s largest economy and the 25th

largest economy globally� Real GDP is expected to grow at 3.7% in 2011� South Africa’s Net Public debt to GDP ratio (33%) is

relatively low compared to comparative countries. In addition, the Government expects the fiscal deficit to narrow to 5.4% of GDP in 2010/11, and 4.7% in 2011/12

� The state plans on investing $114.31bn over the next three years on economic and social infrastructure

4,4834,041

3,6353,266

2,9412,659

2,3962,2742,016

1,7671,571

4.5%4.4%4.2%3.8%

3.4%2.8%

(1.7%)

3.6%

5.6%5.6%5.3%

0

1,000

2,000

3,000

4,000

5,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

ZARbn

GDP contributors Main trading partners

Electricity, gas and w ater 1.9%Agriculture, forestry & f ishing

2.3%Construction 3.2%

Personal services 5.7%

Mining and quarrying 5.3%

Transport, storage and communication

9.1%

Manufacturing15.0%

Finance, real estate and business services

21.2%

Genral government services13.6%Wholesale, retail, motor

trade and accomodation12.0%

Taxes less subisidies on products

10.6%

Main share of exports Main share of imports

Other42.2%

Japan7.6%

United States9.0%

European Union (27)

26.5%

China10.5%

Sw itzerland4.2%

Other37.0%

Saudi Arabia5.0%

United States7.8%

European Union (27)

32.2%

China13.1%

Japan4.9%

Macro-economic overview of South AfricaKey macro economy indicators

Current account deficit is expected to widen to 5.5% of GDP in 2011 (2010: 3.9%) as exports fail to keep up with imports owing to fragility in OECD markets

Gradual depreciation of the currency is expected during 2011 because of indirect action by the authorities to weaken the Rand (by building foreign-exchange reserves)

Interest rates are currently at a 35 year low

Outlook of South Africa’s economy is rated stable, Fitch cited the smoother than expected recovery from the recession

Reserves and external debt Exchange rate forecasts

25,5

87 32,9

43

34,0

69 39,6

75

43,8

29

45,6

33

46,5

59

30,0

53 38,3

46

37,3

89

34,9

16

40,1

31

41,8

11

41,8

11

0

10,000

20,000

30,000

40,000

50,000

2006 2007 2008 2009 2010 2011 2012

Intl Reserves Ext. Debt

9.3 10

12.9

10.6

8.8 9.

7 10.4

10.8

11 11.3

7 6.9

9.3

7.4

6.6

8.1 8.

8 9.3

9.4

9.6

0

2

4

6

8

10

12

14

2006 2007 2008 2009 2010 2011F2012F2013F2014F2015F

R/€ (av) R/US (av)

Spot Exchange(1): R/US 7

Credit ratingsIntl Reserves Ext. Debt R/€ (av) R/US (av)

Credit ratings

A-1

A

BBB+

A-2

NR

A3

A3

P-2

NR

A

BBB+

F2

Foreign Currency Long-Term Debt

Local Currency Long-Term

Debt

Foreign Currency Short-Term Debt

Local Currency Short-Term

Debt

1,201.2

1,023.5

832.5

646.9

532.0 500.1

525.5

517.9

35.5%

33.7%

30.3%

26.1%

22.9%24.0%

28.7%

32.1%

0

200

400

600

800

1,000

1,200

1,400

2005 2006 2007 2008 2009 2010 2011 201220%

24%

28%

32%

36%

40%

Government net debt (total and as % GDP)

Prime interest rates forecasts

13.6

11.210.5

11.7

9.89.2 9.7 10.1 10.5 10.5

0

2

4

6

8

10

12

14

16

2006 2007 2008 2009 2010 2011F 2012F 2013F 2014F 2015F

Prime Interest Rate(End Period; %)

ZAR m

2. Overview of the South African electricity industry

Overview of the South African electricity industry:Sources of power

Electricity consumption

Transportation2.7%

Commercial 11.4%

Industrial Segment 40.9%

Residential Segment 36.8%

Other 8.1%

Electricity production(1)

Hydroelectric0.5%Pumped

1.2%Nuclear Pow er

5.7%

Gas Turbine0.1%

Overview

� Electricity market grew by $1.4bn in 2009 to reach $5.6bn� Electricity generation dominated by state-owned power company Eskom(2),

which currently produces over 96.7% of the power used in the country� Eskom has a current nominal installed capacity of 44,175MW� Government addressing electricity supply issues with Eskom and Independent

Power Producers (“IPPs”)� South Africa needs over 40,000 MW new generation capacity by 2025� Eskom is part of Southern African Power Pool, a group of utilities in the region

aiming to create a common market for electricity in the region

Coal-Fired92.6%

Electricity market

10.39.3

8.57.8

6.55.6

291.2286.2280.5273.3240.6

221.2

0

2

4

6

8

10

12

0

50

100

150

200

250

300

350

2009 2010 2011E 2012E 2013E 2014E

Market Volume (Twh)Market Value ($bn)

Transmission and Distribution Overview

� Currently, the transmission of electricity in South Africa is undertaken by Eskom� The company has over 28,000km of transmission lines spanning the

entire country� Electricity distribution is the final stage in the delivery of electricity to end

users, currently undertaken by Eskom, together with 187 municipalities� Municipalities account for c.40% of the total electricity sales and c.60% of

the customer base

Overview of the South African electricity industry:Sources of power (cont’d)

Eskom Power Grid(1)

Coal power

� c.93% of power in South Africa is generated from coal fired power stations� South Africa is the 5th largest coal producing country in the world with coal

reserves of 30,408mt (3.68% of world total)� Coal accounts for 86% of Eskom’s nominal current capacity (37,755MW)

Nuclear power

� Only one nuclear power station (Koeberg), a base-load station with a nominal installed capacity of 1,930MW (c.5%)� Construction for the plant began in 1976 and full operation in 1985– Produced 12,806 GWh electricity in year ended 31 March 2010

� Uses c.30tpa of enriched uranium � Uses c.30tpa of enriched uranium � Government authorized contracts in place to supply Koeberg for the next 8

years� It is intended that nuclear will comprise 17% of South Africa’s base load energy

mix by 2030

Hydro-electric, Gas fuel and Renewable Projects

� Hydro-electric power stations account for less than 2% of nominal installed capacity, while the gas/liquid fuel turbine accounts for c.6%(2)

� With assistance from the World Bank, plans currently in place for the development of a 100MW Sere wind power project, as well as the Upingtonconcentrating solar thermal power (CSTP) project, covering 4km2

� Should the CSTP project prove to be commercially feasible, a larger facility could be constructed

Overview of the South African electricity industry:Regulatory environment

National Energy

Regulator

� National Energy Regulator (NERSA) regulates the South African electricity industry

� NERSA licences electricity generation, transmission, distribution and trading activities in South Africa

� NERSA sets tariffs based on its Multi-Year Price Determination Methodology (MYPD)

– Annual revenues are set for a three year period currently from 1 April 2010 to 31 March 2013

Electricity Pricing Policy

� In November 2008, the Government approved the Energy Pricing Policy (EPP) which sets the determination of regulated revenues going forward

– Future regulated revenues will be based on the replacement value of its assets

– Ensures long-term sustainability of the industry to fund future capacity expansion requirements

� EPP aims to reach cost-reflective tariffs that will reflect the full economic cost of supplying electricity to a customer

– EPP determines a 5 year transition period that will end in FY2015 to reach cost-reflective tariffs – EPP determines a 5 year transition period that will end in FY2015 to reach cost-reflective tariffs

Department of Energy

� Department of Energy is mainly responsible for electricity generation planning via Integrated Resource Plan (IRP), which determines electricity generation capacity expansion requirements in South Africa

– Objective is to develop a sustainable electricity generation capacity over the next 20 years

– Sets capacity requirements by energy source that will be provided by Eskom and other IPPs

– NERSA can only license a power station that is built in accordance with the IRP

3. The Integrated Resource Plan 2010

Overview of the IRP 2010

� The policy objective of the IRP is to determine South Africa’s long-term electricity demand and detail how this demand should be met in terms of generating capacity, type, timing and cost

� the 1st draft of the IRP was the Revised Balanced Scenario (RBS) of energy supply options published by the department in 2009

� The Final IRP2010 is a result of modelling changes to the RBS as a result of extensive public participation processes

� The Final IRP2010 (Policy-Adjusted IRP) represent a trade-off between:

– Least investment cost and consideration for economic growth– Least investment cost and consideration for economic growth

– Climate change mitigation

– Diversity and security of supply

– Job creation

– Sustainable development

Objectives of the IRP 2010

� The objective of the IRP is to develop a sustainable electricity investment strategy for South Africa over the next 20 years

� Strategy encompasses both implications from demand-side management and pricing as well as capacity provided by generators

� The intent of the IRP is to:– Improve the reliability of electricity generation– Ascertain South Africa’s capacity investment needs– Consider environmental impacts and the effect of renewable energy

technologiestechnologies– Provide a framework for the Ministerial determination of new generation

capacity

IRP is a “living” plan, which will be updated on an ongoing basis to reflect the changing needs of South Africa and

to learn from the inevitable changes in

South Africa’s economical, social and technological environment

Policy-Adjusted IRP South Africa’s generation mix

RT

S C

apacity

Medupi

Kusile

Ingula

DO

E O

CG

T IP

P

Cogeneration, O

wn

Build

Wind

CS

P

Landfill, Hydro

Sere

Decom

missioning

Coal (P

F, FBC

,

Imports, ow

n build)

Gas C

CG

T

Peak-O

CG

T

Import H

ydro

Wind

Solar P

V

CS

P

Nuclear Fleet

Total N

ew and

Com

mitted B

uild

MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW

2010 380 0 0 0 0 260 0 0 0 0 0 0 0 0 0 0 0 0 0 640

2011 679 0 0 0 0 130 200 0 0 0 0 0 0 0 0 0 0 0 0 1,009

2012 303 0 0 0 0 0 200 0 100 100 0 0 0 0 0 0 300 0 0 1,003

2013 101 722 0 333 1,020 0 300 0 25 0 0 0 0 0 0 0 300 0 0 2,801

2014 0 722 0 999 0 0 0 100 0 0 0 500 0 0 0 400 300 0 0 3,021

2015 0 1,444 0 0 0 0 0 100 0 0 (180) 500 0 0 0 400 300 0 0 2,564

2016 0 722 0 0 0 0 0 0 0 0 (90) 0 0 0 0 400 300 100 0 1,432

Committed Build New Build Options

13

Firm commitment necessary now Firm commitment in IRP 2012

2016 0 722 0 0 0 0 0 0 0 0 (90) 0 0 0 0 400 300 100 0 1,432

2017 0 722 1,446 0 0 0 0 0 0 0 0 0 0 0 0 400 300 100 0 2,968

2018 0 0 723 0 0 0 0 0 0 0 0 0 0 0 0 400 300 100 0 1,523

2019 0 0 1,446 0 0 0 0 0 0 0 0 250 237 0 0 400 300 100 0 2,733

2020 0 0 723 0 0 0 0 0 0 0 0 250 237 0 0 400 300 100 0 2,010

2021 0 0 0 0 0 0 0 0 0 0 (75) 250 237 0 0 400 300 100 0 1,212

2022 0 0 0 0 0 0 0 0 0 0 (1,870) 250 0 805 1,143 400 300 100 0 1,128

2023 0 0 0 0 0 0 0 0 0 0 (2,280) 250 0 805 1,183 400 300 100 1,600 2,358

2024 0 0 0 0 0 0 0 0 0 0 (909) 250 0 0 283 800 300 100 1,600 2,424

2025 0 0 0 0 0 0 0 0 0 0 (1,520) 250 0 805 0 1,600 1,000 100 1,600 3,835

2026 0 0 0 0 0 0 0 0 0 0 0 1,000 0 0 0 400 500 0 1,600 3,500

2027 0 0 0 0 0 0 0 0 0 0 0 250 0 0 0 1,600 500 0 0 2,350

2028 0 0 0 0 0 0 0 0 0 0 (2,850) 1,000 474 690 0 0 500 0 1,600 1,414

2029 0 0 0 0 0 0 0 0 0 0 (1,128) 250 237 805 0 0 1,000 0 1,600 2,764

2030 0 0 0 0 0 0 0 0 0 0 0 1,000 948 0 0 0 1,000 0 0 2,948

1,463 4,332 4,338 1,332 1,020 390 700 200 125 100 (10,902) 6,250 2,370 3,910 2,609 8,400 8,400 1,000 9,600 45,637

Summary of the IRP: Generation Capacity

1.08.4

3.06.6 8.43.92.42.66.3

05

10152025

WindCSP

Solar PVImport

15% 23% 6% 5% 9% 42%

NuclearCoal Gas-CCGT

Hydro RenewablesPeak-OCG

Policy-Adjusted IRP: New Build Programme

17.8

Share of total new GW

14

Committed new builds

in 2010

in 2030

ΣΣΣΣ = 260TWh

ΣΣΣΣ = 454TWh

10.1 0.0 0.05 0.0 1.0 1.0

35.5 1.8 2.1 0.0 2.4 0.0

65% 20% 5% 1% < 0.1% 9%

90% 5% 5% 0% < 0.1% 0%

Existing fleet (2010)

IRP 2010 Generation Mix towards 2030

40,000

60,000

80,000

100,000

CCGT

OCGT

Nuclear

Hydro

Wind

CSP

PV

Capacity installed EoY in GW1

15

0

20,000

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Coal

An increased role of IPPs in the power industry

Short – term generation capacity targeted

Independent pow er

producers10%

Eskom90%

Overview

� Independent power generation in South Africa will play a better role going forward

– Renewable energy generation

– Self-generation

– Cogeneration- the production of power using waste energy from industry processes in electricity generation, either for self-use or for contribution to the grid

– More conventional forms of generation, such as coal-fired facilities

Independent pow er

producers30%

Eskom70%

Long – term generation Capacity targeted

coal-fired facilities

� Key benefit for IPPs include:

– The relative speed at which that they can be brought to steam

– The resource burden on Eskom is alleviated (Eskom is not responsible for either financing or building the facilities)

– Large part of the IPP programme is intended to facilitate the introduction of “green” power which will improve South Africa’s renewable energy profile

4. IMPLENTATION OF THE IRP 2010

Establishment & Objectives

� The ISMO will be an operator of the National Electricity Transmission System who buys electricity from generators and sells it to customers at a wholesale level

� Objectives:

� Leverage private capital and spread the risk appropriately amongst all parties

� Create a fair, transparent and non discriminatory trading environment between IPPs and Eskom where a credible and non-conflicted buyer handles the transactions

� Renewables to be combined with gas, coal or nuclear, though with less firmly committed nuclear new builds from first IRP (9.6GW � 3.0GW)

� Mitigate a security of supply risk

� Facilitate non-discriminatory access to the Transmission Grid by all generators and distributors and ensure a fair environment for scheduling and dispatching of power from all generators

� IPP’s

� Create a platform to bring IPPs onto market as soon as possible

� Streamline the IPP procurement process

� Attract IPP’s to complement Eskom’s generation and address perceptions about conflicted role of Eskom as a simultaneous generator and buyer of electricity

Independent System and Market Operator Bill

18

Approach to Implementation

� Phase 1 (Drafting of the Bill) - March 2011 to December 2011

� The Draft Bill has been approved by Cabinet. The Bill closed for public comments on the 13 June 2011

� The Bill should be introduced to the parliamentary process before the end of the year, 2011

� Phase 2 (Making ISMO Operational) – July 2013

� Includes the transfer of functions, human resources and systems

� Phase 3 (ISMO in operation – without transmission assets) January 2014

� A fully populated and operational ISMO

Targeted Outcome

� ISMO will be a fully Public Entity legally separate from Eskom with four distinct functions:

� Planning (Integrated Resource Planning)

� Buying (from Eskom and IPP’s)

� Wholesale tariff aggregation

� Dispatch

The Department of Energy has decided to undertake a phased-in process

Renewable Energy Procurement Process

• 1st RE procurement for 3 725MW of Renewable Energy

– 1 800MW Wind

– 1 400MW Solar

• Request for qualifications and proposals issued 31 July 2011

• Bidder’s conference held on 14th September 2011

• Five phase bidding process with 1st Phase closing date: 4 November 2011

• Subsequent bidding phases only available if the 1st phase is not oversubscribed

19

____________________Source: Research Channel Electricity Review South Africa, February 2011, DoE IRP Process Document

5. SAPP FUTURE ENERGY OUTLOOK

Energy Resources in the Region

GABON

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GEO-THERMAL

Research Agenda for IRP 2012

� Decision making under

uncertainties and risk assessment

for key IPR scenarios

� Outlook for 2050- implications of

further greenhouse-gas reduction

in primary energy mix for all

21

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CSP

PV

sectors on the power sector

� Distributed generation and off-grid

generation (island grids)

� Grid integration of fluctuating

renewables including smart grids

and role of storage

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NgiyabongaNgiyabonga MerciMerci

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