A view into the energy company of tomorrow – proactive adaptation to the evolving landscape Sicelo Xulu Managing Director City Power, Johannesburg South Africa
Contents 1 Key Global and African trends 2 Drivers of change 3 What’s in the headlines? COJ’s evolving business of tomorrow 4 5 A promising future?
Key Global and African Trends 01
Global demand for electricity Growth in electricity demand by Electricity generation in OECD region, 2012 40 (CAGR) and non-OECD countries 4% Global average: 30.0 3.3% 2.1% 2.5% 2.7% 25.0 20.0 15.0 0.8% 1.4% 10.0 5.0 0.0 OECD E.Europe Latin Middle Africa Asia 1990 2012 2020 2025 2030 2035 2040 Eurasia America East OECD Non-OECD Source: World Energy Outlook (WEO) 2014 ► World electricity demand expected to increase by > 75% over 2012 40 period; average growth rate of 2.1% per year ► The most dramatic growth in demand will come from Africa (4% CAGR) followed by Asia (3.3%).
Meeting this demand Investment in supply infrastructure, Drivers of capex 2014 40 (2013 US$b) Replacement cycle Power Power Gas Total ► Aging power stations plant T&D T&D* ► Asset replacement Expenditure Europe 2,109 970 303 3,382 Environmental targets E.Europe 835 526 417 1,778 Middle East 479 273 241 993 ► Government-imposed environmental India 1227 788 70 2,085 targets imply massive spend Africa 776 848 241 1,865 Demand growth Asia-Pacific 4,180 3,536 588 8,304 OECD Americas 1,952 1,215 586 3,753 ► Power demand to grow especially in emerging markets Non-OECD 593 530 93 1,216 Americas Enormous Infrastructure World 12,151 8,686 2,539 23,375 investment of more than US$23.3t required globally in power and gas Source: World Energy Outlook (WEO) 2014
Global electricity supply sources Coal still to be a dominant fuel source in 2040 with 31% of global generation, but a significant decline from its 40%-plus share today Natural gas-fired generation expected to maintain its 22%-24% share, which will still imply a huge expansion in natural gas absolute volumes The real global growth story of course is renewables, which are expected to overtake coal as the primary source of power generation by 2040
New Capacity addition New capacity additions by region, 2014 40 25% 40% 43% 49% 60% 13% 63% 69% 5% 1% 6% 43% 34% 4% 14% 2% 46% 5% 28% 32% 19% 30% 17% 19% 3% 3% 6% 9% 3% 5% 1% 1% 2% 0% Latin America Africa Middle-East Asia, Asia-Pacific E.Europe/Eurasia OECD Americas OECD Europe Oil Coal Gas Nuclear Renewables* ► Fossil fuels will still hold a dominant position, with renewables gaining ground ► Renewables will represent the lion’s share of new capacity installed over the next couple of decades in every region. . Source: IEA WEO 2014
Drivers of change 02
Key Drivers of Change Utility business models universally are evolving with a distinct shift from delivering kWh to delivering grid services Replacing power, gas and water assets Infrastructure New talent and fresh PV, Co-gen/tri-gen, investment Changing thinking Talent Storage energy mix and and DG diversity Sector in New New and powerful Energy management Empower competitors transform- customers private entrants solutions ation Regulatory Digital frameworks adoption Accommodation of Smart meters, “big Market and policy changing landscape d ata” and analytics reforms Restructuring, reshaping and creating incentives
Evolving Distribution Model Using the grid to support distributed generation New revenues need to be generated through integration of various distributed sources and reliable energy flows
Supply and demand options available to City Power Technology options (with high level consideration of technical, economic and market A combination of these sources leads to potential) increased diversity in the supply mix and decreased net emissions. Ownership options + National grid Kelvin upgrade Ops. efficiency Demand • Utility owned management • Customer owned (own supply) Energy Efficiency • Third party / customer owned (grid supply / wheeling) • Partnerships (e.g.. PPP) Demand Fuel switching WTE & Cogen and biogas reponse (gas) landfill gas + Opportunity to be utilised as an embedded or Gas turbines Solar RE incl Wind Energy storage distributed solution (PV and CSP) Other technology … Greener options innovations including Joburg Water Hydro conduit generation Nuclear
What’s in the headlines? 03
The Latest Headlines… Enel rolls out version Nersa releases New Electric Car to of Tesla home power reasons for 9.4% Hit South African kit in SA: Eskom tariff hike Market The renewable energy division of Italy’s In a summary of its decision Nersa said Gross Tesla's latest electric car would main power utility, Enel Green Power that the the Regulatory Clearing be available in South Africa, chief SpA, has started deploying a version of Account (RCA) balance of R11.241bn Tesla’s home -power kit in South Africa. executive Elon Musk said on 31 March. would be recoverable from standard The South African-born entrepreneur Bloomberg reported that this rollout tariff customers, local Special Pricing tweeted that the Model 3 would be sold initiative is to mitigate the effects of Agreements (SPAs) and international in South Africa, India, Brazil and New increasing electricity tariffs on South customers in the financial year Zealand, among other countries. African consumers... Full Article 2016/17. "The amount of R10.257bn Adding several more countries to Model would be recoverable from standard 3 order page tonight. Check for details, tariff customers for the 2016/17 but will include India, Brazil, SA, SK, financial year only; the average tariff for NZ, Sing & Ireland. — Elon Musk standard tariff customers increased by (@elonmusk) March 31, 2016 ... Full 9.4% for the 2016/17 financial year only… Full Article Article
06 COJ’s evolving business of tomorrow 07 04
Defining the new business Thoroughly maintaining existing core business functions will still be a priority for all utilities; should serve as a departure point for all business of tomorrow adaptations Optimising existing core business Delivering kWh’s functions: (Old centralised generation • Consistent service delivery model) • Streamlined grid refurbishment, expansion and new service provisions • Efficient billing and metering Sustainable Revenues Grid Resillience Utilize the full basket of energy options (incl. DG) in financially Delivering network Services ranked order; flexible loads to be (New distributed integrated generation model)
Basket of Energy Options Time of Use Tariffs 240 City – Waste to Load shedding IPP PV Renewable mitigation applications Energy tariff Energy City – Landfill Embedded GX PPA MTN / Rural Gas/PV 30 3 policy ABSA systems Gas City – Demand 60 Solar Water Diesel 20 Gravitational feed Response Heaters Generation GX 200 Demand Side Electric Vehicles Kelvin Battery Storage charging Management 112 Smart meter / 80 Gas Turbines Independent Power Producers / Load Limiting (OCGT) Embrace Renewable Energies Own Rooftop 20 6 Structural Open Ripple Control PV Changes Grid/Trading Immediate Short term Longer term
Embedded Generation Framework PV MTN quad Installation generation at residential & business Grid Tie Existing Customers City Power Micro PV Landfill gas Systems Embedded CP to Energy Generation Owned CP‘s gas Gen sites MOE generation PV Rooftops JW Pickitup‘s Bread Oven hydroconduit Waste to Project generation Energy
Cooperation between City policy and the private sector Customer generation is Utility service offering viewed as future IPP is to provide grid for partners ; micro-sized and energy balancing and Driving distributed within the City back-up services Policy and Tariff Evolution Net metering cannot be The deeper the distributed supported without losing generation penetration , the revenue; however City higher the revenue impact; Power can offer avoided CP revenue model and tariffs Eskom cost for the surplus need to be transformed to that generators produce more network and less energy charges
Complimenting Self-dispatched generation with flexible load Keeping pace with digital technology uptake is key to success… Load Management is enabled by smart metering technology On demand flexible loads are being created through load limiting and demand response programmes Load profiles can be shaped by implementing dynamic pricing or time of use tariffs Flexible load can be sold as an ancillary service in future, igniting an emerging electricity trading market Smart Meter investment is assisting in mitigating load shedding today; As more self-dispatched renewable energy is added (16 GW by 2030 – IRP 2010), this can be used for providing ancillary services Great potential for a new industry – home automation
Barriers for PV potential IPPs are only temporary Currently, queries around permitting AC/DC cables to cross erf boundaries, to • sell directly to neighbours so as to improve the PV business cases Queries around higher grid feed-in tariffs to enable bankable PV solutions • • As soon as the LCOE of PV < cost of Eskom, these questions will disappear With an element of storage and TOU tariffs adopted with PV systems, • customers stand to gain immensely
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