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Annual State of the South African Electricity Industry 2012

  • January 2014
  • -
  • Frost & Sullivan
  • -
  • 52 pages

Strategic Insight into a Rapidly Changing Market

The South African electricity industry is currently poised to enter a period of reform, particularly as discussions commence regarding the implementation of an Independent System and Market Operator (ISMO), which would take the transmission, distribution, system operator, and several other functions outside of Eskom. The country needs significant new-build capacity to come online in the next two decades, which should see the total generation capacity grow from 44 GW in 2012 to as much as 89 GW in 2030. A transition in the short-to-medium-term toward an ISMO will be beneficial to the nation's electricity industry and economy as a whole, as long as the implementation risks are mitigated accordingly.

Executive Summary

•The South African electricity industry is currently undergoing a phase of rapid growth.
•Eskom, the national utility responsible for generation, transmission, and distribution, currently generates and controls more than % of South Africa’s power.
•Under-investment in generation in the early 2000s created a security of supply crisis in 2007/2008 that is still apparent today as the system operator balances a tight reserve margin.
•More than % of South Africa’s generation is currently coal-fired.
•South Africa needs significant new-build capacity to come online in the next X decades, which should see the total generation capacity grow from Xgigawatts (GW) in 2012 to as much as X GW in 2030.
•South Africa also needs to diversify from coal-fired generation and incorporate cleaner technologies into the electricity mix to reduce carbon emissions and stimulate jobs by creating new industries.
•The task of both financing and building such significant new generation requirements is resulting in the need for involvement outside of Eskom, to both finance and construct the new capacity.
•As such, the Renewable Energy Independent Power Producer Procurement (REIPPP) Programme has guided the first successful integration of independent power producers (IPPs) into the South African market, with a fleet of X MW of renewable energy projects expected to be installed onto the grid by 2016.
•Other IPPs, such as gas and baseload IPPs, are likely to follow in the short to medium term.
•Energy policy decision-makers will consider increasing the role of gas into the electricity mix, which could act complimentarily with renewables in controlling the dispatch of the fleet.
•Nuclear power is also being considered.
•Furthermore, the South African electricity industry is currently poised to enter a period of reform, particularly as discussions commence regarding the implementation of an Independent System and Market Operator (ISMO), which would take over the transmission, distribution, system operator, and several other functions outside of Eskom.

CEO’s Perspective

1. Due to the security of supply crisis, private sector assistance is needed to finance and build new capacity.
2. Technology allocations in Integrated Resources Plan (IRP) energy planning are likely to shift in upcoming revisions of the IRP.
3. The energy industry is on the verge of reform to extract functions from Eskom.
4. The current complexity of decision-making in the electricity industry results in bureaucratic and political uncertainties and delays.
5. Significant investment is still required in both the generation and transmission sectors.

Overview of the Integrated Resource Plan

•The Integrated Resource Plan (IRP) 2010 is the South African government’s policy document that covers the allocation and timing of new-build generation from 2010 to 2030. The objective of the IRP is to meet long-term electricity demand and detail how this demand should be met in terms of:
oGenerating capacity
oType
oTiming
oCost
•The IRP also serves as a guideline to other planning functions in terms of:
oEconomic development
oFunding, environmental, and social policy formulation
•The IRP aims to achieve a balance between an affordable electricity price to support:
oSustainable and efficient economic growth
oLocal job creation
oThe demand for scarce resources, such as water
oThe need to meet nationally appropriate emission targets, inline with global commitments
•The graphic on the following slide contextualises the IRP document in South Africa’s electricity industry from the 1970s to present, explaining why South Africa is currently experiencing a supply crisis.
•The following slides in this section will analyse the South African electricity industry under the IRP planning document to 2030.

IRP Methodology

•The IRP 2010 is a living document to be updated and modified biennially.
•According to the IRP 2009 Preliminary Report, using a rigorous multi-criteria decision-making framework (MCDF) analysis, it is possible to describe, numerate, and score the preferences and values of the stakeholders with respect to each of the criteria.
•This provides a foundation to assist in choosing a single portfolio as the preferred option.
•In addition, it is possible to identify next-best alternates that can undergo additional stress testing to incorporate concerns regarding robustness to sensitivities.
•An important step in the MCDF analysis process is to determine weightings for each of the criteria.
•This provides the mechanism to score the scenario portfolios across the different criteria.
•The IRP 2010 was finalised on the Revised Balance Scenario (RBS), which was thereafter adjusted to be called the ‘Policy-Adjusted Revised Balanced Scenario’.
•The IRP is scheduled to be updated in 2013.


Table Of Contents

Annual State of the South African Electricity Industry 2012
Table of Contents

1. Executive Summary
2. Overview of the South African Electricity Industry and the Integrated Resource Plan 2010
3. External Challenges: Drivers and Restraints—Electricity Industry
4. South African Electricity Industry Analysis
5. Regulatory Structure
6. Forecasting and Tariff Structure
7. The Renewable Energy Independent Power Producer Procurement Programme
8. Conclusions
9. The Frost and Sullivan Story

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