Integrated Energy Plan (IEP): update by Department of Energy

PMG 20 November 2012.

Date of Meeting:

20 Nov 2012

Chairperson:

Mr S Njikelana (ANC)

Documents handed out:
Summary:

The Committee was given an update by the Department of Energy on the Integrated Energy Plan in which it was indicated that the Department was using a high-level approach guided by national objectives, informed by the Energy White Paper, National Energy Act and influenced by various government policies. The key global planning parameters involved were high-impact policies, policy-driven planning parameters and macroeconomic parameters (discount rate, economic growth and global oil prices).

Policy-driven parameters would include annual emissions limits, emission penalties, minimum renewable energy production where electricity would be based on total renewable energy in the Integrated Resource Plan 2010 and a reserve margin (the Energy Security Master Plan for Electricity 2007 had recommended a reserve margin of 19% for electricity generation capacity in South Africa. This reserve margin would indicate the point where the trade-off between costs and reliability was at a minimum.

The Committee was informed that as a net importer of crude oil, South Africa was a price taker in the oil market and its market was highly sensitive to fluctuating global prices. To this end, the Department of Energy was in the process of introducing new fuel specifications which would 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.

The National Development Plan had proposed for consideration of building a new oil-to-liquid refinery, building a new coal-to-liquid refinery, upgrading existing refineries or allowing significant expansions of one or more of the existing refineries or both, importing refined product and building a new refinery in Angola or Nigeria (and buying a share of the product of that refinery) as options.

The Committee was informed that meeting the emission (of greenhouse gases) reduction targets as set by the Department of Environment Affairs for the energy sector would partly require refurbishing the existing fleet of plants and a retrofit on the existing infrastructure. Mothballing the power plants that were responsible for emissions and investing in new technologies were the other options.

The Committee was also informed that the proposed carbon tax would impact the choice of energy technologies throughout the entire value chain. The current proposal was a tax of R75 per ton of CO2 (at 2005 prices) introduced as from 2015.

Committee Members asked questions about studies on externalities, other energy sources that were being considered besides petroleum, nuclear and gas, avoidance of carbon tax, measurement of impact of policies, timelines for building a new liquid refinery in Angola, whether South Africa had enough natural gas, clarity on shale gas and the consequences of South Africa not using nuclear energy anymore.

(Editor’s note: The IEP is supposed to drive the IRP, not the other way round! The report says: “where electricity would be based on total renewable energy in the Integrated Resource Plan 2010”. There were some good questions from the audience: “Committee Members asked questions about studies on externalities, other energy sources that were being considered besides petroleum, nuclear and gas, avoidance of carbon tax, measurement of impact of policies, timelines for building a new liquid refinery in Angola, whether South Africa had enough natural gas, clarity on shale gas and the consequences of South Africa not using nuclear energy anymore.” the GDP growth assumptions looks too high 3.6% for 2013. See the detailed minutes below.)

Minutes:

Ms Tshilidzi Ramuedzisi, Chief Director Energy: Planning – Department of Energy (DoE) in setting the context said that the DoE had been invited to give an update on the progress of the Integrated Energy Plan (IEP). By way of introduction, she said that the DoE had adopted a high-level approach in the IEP that required the identification of key objectives for IEP (guided by national objectives, informed by the Energy White Paper, National Energy Act and influenced by various government policies), a definition of the status quo and implications for future trends (such as local and global challenges and implemented policies that had a high impact on the energy sector), a definition of the problem statement (key policy questions to dealt with and a definition of the key criteria and relative importance), identification of policy alternatives (such as test cases/scenarios – impacts of existing high-impact policies and desktop studies), an analysis and evaluation of policy alternatives (such as supply optimisation based on projected future demand), and making recommendations that would be informed by outcomes from the Multi-Criteria Decision-Making Approach (MCDA).

For the benefit of the Committee, Ms Ramuedzisi said that a Base Case was a representation of a future outcome that could materialise in light of current policies and macroeconomic trends. It represented a Business-As-Usual or Status Quo scenario where current trends continued into the future. A Test case on the other hand defined a set of circumstances and resultant outcomes or impacts which were informed by the possible impacts of policies and policy interventions. It did not indicate what would happen but rather tested what would happen if a particular course of action took place.

Mr Ramuedzisi said that the key global planning parameters were high-impact policies (such as the Energy White Paper, the Integrated Resource Plan [2010], National Development Plan, New Growth Path, National Climate Change Response White Paper, National Transport Master Plan, Beneficiation Strategy, Proposed Carbon Tax), policy-driven planning parameters (such as Minimum Renewable Energy Production Target, Reserve Margin, annual emissions limits, emissions penalties) and macroeconomic parameters (discount rate, economic growth and global oil prices).

Ms Ramuedzisi gave an example of the committed Integrated Resource Plan 2010 (IRP) as a high-impact policy whose focus was not only electricity but other components such as petroleum and gas. In terms of the policy-driven parameters, these would include annual emissions limits, emission penalties, minimum renewable energy production where electricity would be based on total renewable energy in IRP 2010 and a reserve margin. The Energy Security Master Plan for Electricity (ESMP – Electricity) 2007 recommended a reserve margin of 19% for electricity generation capacity in South Africa. A reserve margin of 19% would indicate the point where the trade-off between costs and reliability was at a minimum. Regulations on blending of biofuels had not yet been promulgated.

In terms of the macroeconomic indicators, Ms Ramuedzisi said that these would include a discount rate of 11.3% as provided by the National Treasury, economic growth based on the National Treasury 2012 Budget Forecast (as had been provided prior to the 2012 Medium Term Budget Policy Statement), and global oil price based on the Energy Information Administration and the Annual Energy Outlook 2012. In terms of the GDP growth rate, growth scenarios were based on the National Treasury 2012 Budget Forecast and that for purposes of the Base Case, GDP growth would be based on ‘Moderate Growth Scenario’ (3.6% for 2013) as opposed to low growth scenario and high growth scenario.

Ms Ramuedzisi said that the key assumptions which informed the global oil price projections and the actual projections had been taken directly from the Annual Energy Outlook 2012 that had projections up to the 2035. Although daily spot prices of crude oil from different sources varied, trends for annual averages were similar and therefore the Annual Energy Outlook 2010 projections deemed an independent and reliable source of future projected prices.

In terms of the assumptions for various test cases, Ms Ramuedzisi said that the IRP 2010 had determined that nuclear power should form a large part (about 20% by 2030) of the country’s energy mix from 5% in 2010 – but the Fukushima nuclear incident in Japan had made countries around the world rethink the role of nuclear energy. In Test Case 1, the new nuclear build in the Policy-Adjusted IRP 2010 would be excluded as a supply option. 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. While new technologies such as Carbon Capture and Storage (CCS) were being developed to curb the greenhouse gas emissions, the use of natural gas had gained ground. Test Case 2 would thus exclude the new nuclear build in the Policy-Adjusted IRP 2010 as a supply option with nuclear being replaced by natural gas supply options.

Ms Ramuedzisi said that as a net importer of crude oil, South Africa was a price taker in the oil market and its market was highly sensitive to fluctuating global prices. The DoE was in the process of introducing new fuel specifications which would 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 was considering the construction of new refining capacity which would be aligned with these specifications. The National Development Plan had presented five different options that South Africa should consider: building a new oil-to-liquid refinery, building a new coal-to-liquid refinery, upgrading existing refineries or allowing significant expansions of one or more of the existing refineries or both, importing refined product and building a new refinery in Angola or Nigeria (and buying a share of the product of that refinery).

On the assumption that more people would continue driving fuel powered vehicles as their primary means of transport into the future and the best way of ensuring security of fuel supply in the country, Ms Ramuedzisi said that the National Development Plan provided a high-level analysis of the advantages and disadvantages associated with each of the options presented therein. The cost of increasing refining capacity would be determined together with total emissions and the cost of upgrading/expanding existing refineries (any production shortfall would be met by imports).

Ms Ramuedzisi on annual emissions limits said that the South African Government had 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. The findings of the study 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. The peak plateau decline trajectory would inform the emissions constraints for electricity generation and petroleum refining in one of the IEP Test Cases.

In terms of the impacts of meeting the emission reduction targets as set by the Department of Environmental Affairs for the energy sector, Ms Ramuedzisi said that this would partly require refurbishing the existing fleet of plants so as to meet the targets set and a retrofit on the existing infrastructure. Mothballing the power plants that were responsible for emissions and investing in new technologies were the other options.

Ms Ramuedzisi said that in 2010 the National Treasury had published a discussion document on a proposed carbon tax policy and that this was near finalisation with potential for promulgation in the short-to-medium term. Given the implications a carbon tax would have on the energy sector, the DoE would be considering it as a Test Case in the IEP.

In terms of the possible impacts of the proposed carbon tax on the energy sector, Ms Ramuedzisi said that it would impact the choice of energy technologies throughout the entire value chain. The current proposal was a tax of R75 per ton of CO2 (at 2005 prices) introduced as from 2015.

Ms Ramuedzisi said that progress in terms of the high-level work plan had been made in the areas of key planning assumptions, demand projections, key policy questions and alternative options for each, and key criteria and approach for evaluating model output (outcome of Base Case and Test Case) – these had been completed. Other aspects still be completed were: quality checking and finalisation of technology data collected, addressing any gaps that would arise, configuring Model for Base Case and model runs, configuring of Test Cases in model and model runs, analysis and evaluation of model output, report writing, tabling draft IEP report to Cabinet and a stakeholder consultations on the draft IEP report.

Discussion
Mr L Greyling (ID) asked why the Review of the Renewable Energy White Paper had not been considered in the IEP. He said that the IEP should be the ultimate blue print and so there was need to have studies carried out on externalities in terms of cost and benefit to society.

Ms Ramuedzisi replied that the Review of the Renewable Energy White Paper had not yet been adopted as a government policy. In terms of the externalities, studies and assigning cost to all externalities was not easy as it required input and co-operation from different departments.

Mr Greyling said that the relevant departments should be compelled to do the studies because this would better inform decisions to be made in terms of the best way forward in the energy sector.

Mr G Selau (ANC) asked what other energy sources were being considered besides petroleum, nuclear and gas? How could an individual avoid the carbon tax? What would be done with sources like crude oil that had various bi-products? How would the impact of policies be measured? Was DoE making policies for administration?

Ms Ramuedzisi replied that the IEP looked at existing and future sources such as nuclear, coal, clean energy (renewable energy) and alternative sources such as hydrogen fuel cells that were currently at research stage. Also it was difficult to indicate the impact of carbon tax on individuals but National Treasury was currently looking at ways of minimising the impact of the tax on the end-user.

Ms Ramuedzisi also said that IEP was going to consider only energy products for end-use and bitumen would be captured. IEP would measure the impact of policies in addition to a consideration of the impact of already existing policies. She added that IEP was not dealing with administration policies.

Ms N Mathibela (ANC) wanted clarification on the timelines for building a new liquid refinery in Angola and whether the dollar price would still apply. Was there enough natural gas in South Africa. He asked for clarity on shale gas and what would happen if South Africa stopped using nuclear energy?

Ms Ramuedzisi in response to the questions said that they all depended on the models that had not yet been completed. In terms of natural gas, this would be considered as a test case in the IEP.

Mr J Smalle (DA) asked for the possible time frame for achieving the 19% reserve margin.

Ms Ramuedzisi said that she could not tell when this would be achieved because a number of factors were in play.

Mr S Radebe (ANC) asked how far the DoE had gone with the biofuels regulation. He applauded the Test Case scenario involving the new built refinery, adding it was time for South Africa to generate capacity for self-sustenance.

Ms Ramuedzisi said that the regulation of biofuels was still in the pipeline with discussions on funding and other related aspects.

Mr A Moloto (ANC) sought clarification on shale gas which he said would be a game changer.

Ms Ramuedzisi replied that this was still in the early stages where environmental, social and technical issues were being dealt with.

The Chairperson asked for the difference between IRP and IEP? Was electricity an enabler of development or just a commodity to the citizen?

Ms Ramuedzisi replied that the IRP focused on electricity, its supply and granting of licences by the regulator. IPE looked at the entire energy sector and the implication of different prices. She responded that electricity was not only a commodity but also an enabler that allowed for social and economic development.

Ms B Ferguson (COPE) asked how outcomes would be monitored and how skills deficiency would be addressed.

Ms Ramuedzisi said that in terms of monitoring, engagements had been initiated with other departments such as Environmental Affairs. She added that skills development would require additional resources to address.

The Committee adopted minutes for the meetings held on 1, 7, 14 and 28 August 2012 with minor changes.

The meeting was adjourned

Advertisements