An Independent Transmission System and Market Operator (ITSMO) in SA A dialogue hosted by Nedbank, EE Business Intelligence and JCSE at Wits University With opening keynote address by Public Enterprises Minister Hon. Pravin Gordhan DATE: Thursday 15 October 2020 TIME : 12h00 to 14h30
An Independent Transmission System and Market Operator (ITSMO) in SA Opening keynote by Hon. Pravin Gordhan Minister of Public Fnterprises
An Independent Transmission System and Market Operator (ITSMO) in SA Presentation 1 by Mr Andre de Ruyter CEO of Eskom
Perspectives on the Independent Transmission and System Operator as an enabler for generation investment André de Ruyter Eskom Group Chief Executive 15 October 2020 Nedbank/ EE/ JCSE Energy dialogue
Approximately 10 000 MW will be retired in the next 10 years resulting in additional strain on the system and the need for new generating capacity Shutdown rates per year (based on 50 year life) MW 2.000 Camden Grootvlei Arnot Hendrina Matla Komati Kriel 1.500 1.100 1.000 950 800 700 600 600 400 400 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 New generation capacity must be brought on line to replace retired assets Source: Generation shut down dates/ rates 5
While DMRE Bid Window 5 is welcomed, more capacity is needed to bridge the gap, even assuming no market growth Options for new capacity Capacity conundrum MW 16,000 MW 46,000 gap by 2030 16,000 LCOE 1 2020 Average build Peak demand Technology time (c/kWh) 34,000 11,000 18-24 months PV 62.0 28,000 5,000 2,000 24-36 months 70.6 Wind 10,000 10-12 years New coal 117 12-15 years 128.5 Nuclear Installed Other Reliable MW to UCLF PCLF capacity supply retire ➢ New build timelines and LCOE limit the ➢ If demand reaches 34 000 MW, we will be constantly viable technology options to meet required short of capacity generation capacity ➢ DMRE gazetted Bid Window 5 will help to close the existing gap ➢ Renewable energy has load factor of 25% - ➢ However, more capacity is required in the short term 30%, so much more capacity has to be to replace retired capacity installed Source: Integrated Resource Plan (2019 ); EPRI ( 2017 NREL Annual Technology Baseline ( 2019 ); 1 CSIR, 2020 Systems analysis to support increasingly ambitious CO 2 emissions scenarios in the South African electricity system, system, ” Technical Report, July 2020 6 6 1 LCOE is approximate
New RE will be built where the sun shines and the wind blows 1 1) Allocate RE to where available network capacity already exists to save on costs and time Where applicable, upgrade and increase existing 2) 2 substation transformer capacities for IPP connections 3) Establish new infrastructure 3 (substation and lines) to meet the IRP 2019 requirements in areas of interest with limited network capacity Source: DEA/CSIR Wind & Solar, EIA & Applications Using existing transmission by repurposing old power stations will be done, but 7 won’t fill the gap
The expansion of the Transmission grid will require significant funding support and project capacity Insights Transmission TDP PCLM summary 2020 ▪ Based on the network Rbn requirements , 4689km of Expansion 24,8 138,5 power lines is expected from Refurbishment 2021 -2025 20,0 # of expansion projects X 33,0 ▪ A further 3567km of power 4,8 # of refurb projects X lines will be built from 2026- 30,0 2030 80,7 ▪ 3,0 However, based on re- 129,0 phasing and deferrals to beyond FY25 and due to Capex cuts, only 25% of 79,0 required lines can be built in the next 5 years, and 62% in the following 5 years 9,5 ▪ 1,7 Capex cuts and shifting out projects creates an Concept Definition Execution Total unsustainable Transmission phase phase phase environment due to: 65 52 48 165 ▪ Unachievable line and transformer build rates 204 43 358 605 ▪ Collapsing supply chain ▪ Increase in construction costs 8 Source: TDP 2020
Transition and Green financing is readily available in the local and foreign market for Eskom to utilise Shifting financing landscape Divestment Transition Green Pressure Finance Finance • Dual focus in international finance and climate action $ Divestment from circles is divestment from Investment in fossil fuel fossil fuels and increased green infrastructure / funding for renewables infrastructure / economies economies 2020 Numerous counterparties have indicated interest to support the Eskom JET “As discussed, we are interested to support ”…we would like to express our Eskom on this important agenda” interest to support Eskom in the repurposing of such coal fired power stations… ”…setting a clear timeline of our joint “AFD is keen to accompany work on this project would be beneficial Eskom in the decommissioning for both NDB and Eskom to understand and repurposing of some of its expectations of the parties… coal fired power stations…” NOTE: Funding of the transition is aimed at implementing a shift from fossil-fueled based power generation to cleaner power generation and 9 acquiring funds from investors that will enable the execution of such a transition
Such transition funding could also address the significant socio-economic challenges at a national level Reduction in emissions improving air quality Green energy can contribute improving Create growth investor attractiveness opportunities Contribute to reigniting local manufacture Repurposing coal plant means preserving socio- economic development Job creation and upskilling due to higher localisation potential Contribution to the Paris Agreement RE technologies have shorter commitment lead times, lower cost and will add generation capacity 10
Private investment in generation requires independence in transmission and market operation Transmission Grid System Operator Market Operator Central Purchasing Agency Potential bias in: Potential bias in: Potential bias in: Potential bias in: • • • • Grid maintenance Dispatch instructions Market access Procurement decisions (preference for (curtailing non-Eskom (providing smooth (providing Eskom maintaining lines plant in order to access for Eskom generators priority in connecting Eskom minimise cost impacts generators and procurement of new generators) on Eskom generators) retailers to the market capacity) and limiting non- • • • Outage scheduling Outage scheduling Risk allocation Eskom customers or (scheduling outages (favouring Eskom (imposing additional generators) that favour Eskom generators in risks for non-Eskom • plant) determining generator Information access generators that are not outage plans) (providing information in play for Eskom • Network access to Eskom generators generators) • (preference for Eskom Balancing decisions or retailers to give an • generators / customers (allowing Eskom plant Capacity requirements advantage in the for new connections) to reduce capacity and allocation market) without penalty to (potentially increasing • Resource allocation avoid costs) capacity requirements (expanding network in to favour new Eskom areas supporting build) Eskom customers or generators) • All these risks can be managed through ex-post regulation. Industrial Organisation theory, however, strongly indicates that industry behaviour follows structure, and that implementing ex- 11 post regulation is a second-best policy option to proper industry structure.
Eskom has started divisionalisation, as the first step towards its restructured end state • Eskom end state structure has been clarified, with divisionalisation as initial step – entrenching transparency and accountability to drive optimisation of the business capability • Repurposing of assets and disposals of non core assets is underway Divisionalisation deliverables Eskom Timeline 1 1 Establishment of divisional boards and MDs Mar 2020 appointed Completion of “Functional Separation” 2 ▪ Transmission Mar 2021 ▪ Generation & Distribution Mar 2021 Completion of “ Legal Separation” 2 3 ▪ Transmission Dec 2021 ▪ Generation & Distribution Dec 2022 Notes: 1. Eskom timeline aligned with DPE. 2. Commencement of Legal separation is after functional separation. A number of the processes required for legal separation are outside of Eskom’s control. 12
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