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ELECTRIC SECTOR TRANSFORMATION PROGRAM (PTSE) 18th A.P.U.A. Congress Luanda – September 11th 2014 João Saraiva PTSE Manager Coordinator © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 1 AGENDA 1. Angola’s Power Sector 2. Electric Sector Transformation Program and Market Model 3. PTSE Phases and Progress 4. Future Perspectives © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 2 Angola’s Power Sector 2025 Goals The Presidential Decree 256/11 established a set of objectives for the electricity sector, reinforcing the importance of electricity to the country. Ensure and Increase Electricity Supply i Increase the electricity rate from 30% to 60% Quadruple generation capacity from current ~2.0 GW para ~9.5 GW in 2025 Extend more than 2.500 km of lines and substations in the transmission grid, and establish international interconnections Rehabilitate distribution networks, adding more than 1.5 million consumers Industry Competitiveness Improve the efficiency of public companies Implement a new market model that allows for cost reductions Develop a new regulatory model encouraging efficiency System Sustainability Reduce tariff subsidization Develop an optimal generation mix, making better use of Angola’s natural resources Develop the capabilities of the local workforce © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 3 Angola’s Power Sector Sector challenges and progress To successfully achieve the proposed goals in the energy sector a large amount of investment is necessary in generation assets and grid infrastructure. Installed capacity Transmission grid (GW) (Kilometers) 10.0 9,5 GW 0.78 8.0 6,9 GW x4 6.0 3.0 5,500 5,000 5,000 1.60 4,000 0.43 1.50 0.0 0,88 GW 1.10 0.33 0.55 0.87 2002 2013 2,000 2.5 3,354 1.5 x1.5 1.2 1.0 2,051 4.83 2017 2025 Other Renevables Combined Cycle Conventonal Thermal Hydro 1,000 0.5 0 0.0 2003 2013 2.4 x3 2.0 3,000 6.88 2,0 GW (Millions) 6,000 4.0 2.0 # Consumers 2017 2025 0.8 0.2 2002 2013 2017 2025 Source: 2002 Data – Development of a Energy Strategy , IEA; 2013 Data – MINEA Expanded Council Board; Financial Reports ENE e EDEL; 2017 and 2025 estimated data - PSEA 2009 © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 4 Angola’s Power Sector Electrification enhancers Angola is managing large, concurrent infrastructure developments, carefully planned to take advantage of Angola's national resources – natural gas, hydro, wind and solar. SIMPLIFICATION CONGO CABINDA ZAIRE North System UIGE L. NORTE K. NORTE LUANDA BENG O East System MALANJE SE. Cambambe* SE. Capanda elevadora L. SUL K. SUL Center System MOXICO BENGUELA HUAMBO Benefit from the hydro potential of Kwanza river – Laúca and CaculoCabaça Install combined cycle gas turbines, partnering with Sonangol/ Angola LNG National integration of transmission systems International interconnection with Namibia and Congo HUILA NAMIBE How to take advantage of Angolan natural resources South System K. KUBANGO CUNENE NAMIBIA Grid connections until 2025 Rural electrification with distributed renewables sources © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 5 AGENDA 1. Angola’s Power Sector 2. Electric Sector Transformation Program and Market Model 3. PTSE Phases and Progress 4. Future Perspectives © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 6 Electric Sector Transformation Program Goals In addition to infrastructure investments, MINEA considered necessary to establish a package of initiatives to allow a progressive restructuration and a orderly development of the Power Sector, by creating PTSE. Other Initiatives (non exhaustive) Expand the distribution network – rural (Solar Village) and urban Expand the pre-payment model Establish public-private partnerships Electric Sector Transformation Program (PTSE) Restructure the current organizational model Ensure economic and financial sustainability of the system Promote the entry of private capital Strengthen the regulator role in the new Market Model © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 7 Electric Sector Transformation Program Institutional reform of public companies The Electricity Sector Transformation Program (PTSE) seeks to improve efficiency by unbundling activities and a new market regulation that allows private participation. Restructuring of Public Companies Value Chain Generation Current status Future status Private Investors Private Investors Transmission National Company Transmission Distribution and Customer Operations Generation National Company Municipalities Distribution National Company Private Concessions Regulation Engineering Engineering Office (for strategic projects) © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 8 Electric Sector Transformation Program Institutional reform of public companies PTSE Includes organizational and corporate restructuring, leading to the establishment of three new public companies, one per phase of electricity value chain. Generation Generation Engineering Office (for strategic projects) Distribution Distribution Transmission Generation Transmission Distribution Generation National Company Transmission National Company Distribution National Company © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 9 New Market Model Principles and agents The design principles considered in the definition of the new model are listed below: Design Principles Strengthen the regulator role (IRSE) Competitive processes for both public and private generation Independent Transmission Operation, also acting as Single Buyer for all electricity generated in Public Electric System (SEP) Long-term Power Purchase Agreements (PPA) “Merit order” for generation dispatch based on PPAs Public Private Generation Generation Wholesale seller Expected Results Transmission Single Buyer Market Operator Distribution Wholesale buyer Market opening (ex.: generation and distribution) Promote the entry of private capital Greater transparency and competitiveness among companies New tariff model to reduce system costs and subsidies © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 10 New Market Model Market economic model The new sector configuration is supported by the new market model defined in Regulation, increasing the control of the economic flows and energy supply. Generation and billing of energy supplied to Single Buyer Transmission and billing of energy supplied to Distribution Distribution and billing to AT, MT, BT customers ENERGY SUPPLY FLOW Public and Private Generation I R S E Transmission (Single Buyer) PPAs Prices Distribution Uniform Prices Customers AT BT Pre-payment MT BT Post-payment Regulated Tariff PAYMENT FLOW – AGENT RETRIBUTION Market Operator pays Generators Distributor pays Market Operator (MO) MO operates the Compensation Fund and pays Distributor © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. Customers pay Distributor 11 New Market Model Tariff composition Tariffs are calculated by adding the real cost of the Agents. The Government is subsidizing the final tariff in order to not charge the customers with the high system costs. Exploration Costs Additive tariff Investment Retribution TRANSMISSION Exploration Costs GENERATION Exploration Costs Investment Retribution SECTOR COSTS DISTRIBUTION SIMPLIFIED Pays the generatio n total costs PPAs* Prices Investment Retribution GENERATION TO TRANSMISSION Billing Segment specific costs Energy cost of immediately preceding step of the value chain Pays the transmissio n total costs Regulated Price TRANSMISSION TO DISTRIBUTION Billing Pays the distributio n total costs Regulated* Tariffs Subsidy to customer Tariff DISTRIBUTION TO CUSTOMER Billing * PPA prices negotiated between Market Operator and each Generator, with IRSE supervision and Regulated Tariffs fixed by the Government, with IRSE supervision © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 12 AGENDA 1. Angola’s Power Sector 2. Electric Sector Transformation Program and Market Model 3. PTSE Phases and Progress 4. Future Perspectives © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 13 PTSE Phases and Progress PTSE’s phased plan PTSE is structured in three phases. At the moment is about to finish the second one, by the establishment of the new public companies for the power sector. 1. Diagnostic, Mobilization and Change Management 2. Electric Sector Restructuring (Unbundling) Confirmation of the expected market model i CONCLUDED Identification of open / pending issues Communication to companies senior management Release of restructuring and change Restructuring of IRSE, GAMEK and Public Companies CONCLUDING Market model & regulation and IRSE training Capability development of the electric sector Implementation plan of operational improvements Program and change management 3. Operational and Functional Improvement of Public Companies Detailed design of the new operating model 2014-2016 Pilots in reference areas Effective implementation of operational improvements of the new companies : • Focus on the most critical areas • Progressive rollout along geographies and isolated systems © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 14 PTSE Phases and Progress Phase III executive summary – Operational Improvements Locations until August 1st 2014 PROVINCE OF LUANDA Cazenga Thermal Power Plant Viana Transmission Substation Viana (EDEL) technical and commercial area PROVINCE MALANJE • Technical operational improvements • The establishment of a Work Orders Programming Centre in order to reduce failures resolution time • Commercial operational improvements Benguela Area Catumbela Area Baía Farta Area TRANSMISSION DISTRIBUTION BENGUELA Lobito Area • Actions over supply chain to ensure the availability of the parts and to reduce storage costs • Maintenance management to reduce unavailability times and increase assets productivity and lifetime OF OF • Actions over maintenance and operations plans of critical assets to increase their availability • Permit to work coordination in the system operator (CONS) to increase the system availability Capanda Hydric Power Plant PROVINCE GENERATION Generation • On field identification of consumers and contract regularization to improve electricity readings and to increase income Transmission • Optimization of commercial functions to reduce service times and improve customer service Distribution • Definition of Pre-payment and Agent models IRSE - REGULATION NOTE: During 2014 is foreseen the launch of new pilots in other provinces. • Statistical information systematization and tariff analysis • Concession contracts development © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 15 AGENDA 1. Angola’s Power Sector 2. Electric Sector Transformation Program and Market Model 3. PTSE Phases and Progress 4. Future Perspectives © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 16 Future Perspectives Levers of efficiency TO DISCUSS Some levers are available to increase sector efficiency and to reduce costs: Stabilization Transition to efficiency Partial liberalization 2014-2017 2018-2021 2021-2025 Review and adjustment of Electric System Regulations (IRSE) 1. Tariff Model • Increase tariffs 2. Commercial cycle improvement • Pre-payment • Meters in all consumer points 3. Reduction of acceptable system costs • Implementation of more demanding benchmarks To have all the supply points measured and tariffs more representative of the real costs 1 2 4. Reduction of system costs • Reduction of energy losses transferable to the tariffs 5. Adjusts of tariff models • Balance between the variable and fix terms • Price curves for qualified clients 6. Change in the retributive model • Change for a retribution model by incentives • Include incentives for the losses reduction 6 3 5 4 7. Sector restructuration • Public-private partnerships • Concessions of distributions areas to private companies 8. Reduction of system costs • Cheaper energetic mix • Coexistence of PPAs and market pool 7 8 Sustainable companies, service quality and efficiency Controlled costs and new retributive model defined. High control power from IRSE © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 17 Future Perspectives Sustainability In conclusion, PTSE is one of the building blocks to achieve maturity and sustainability in the Angolan Power Sector. Economic Sustainability Social Sustainability Environmental Sustainability Establish new electricity market conditions Reduce governmental tariff subsidization Develop regulation capabilities to promote efficiency Management professionalization Expand rural electrification, boosting growth and development in these regions Ensure long-term sustainability and independence of local capabilities (human and technological) Deliver results to society in the short term Adopt a better installed capacity mix focused on Angola’s natural resources Choose thermal power plant technologies with reduced CO2 emissions Develop pilot projects to expand renewable energies Promote electricity efficiency with mass installation of prepayment meters © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 18 EMPRESA PÚBLICA DE PRODUÇÃO DE ELECTRICIDADE Thank you João Saraiva REDE NACIONAL DE TRANSPORTE DE ELECTRICIDADE EMPRESA NACIONAL DE DISTRIBUIÇÃO DE ELECTRICIDADE © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 19 National Policy and Strategy for Energy Security Framework National Policy and Strategy for Energy Security define the main strategic guidelines for the sector, specially for Electricity, Oil and Natural Gas. January 2009 Establishment of the Interministerial Commission for Energy Security of Angola Strategy and Energy Policy of Angola and Energy Security Plan of Angola Institutional Model of the Energy Supply Industry and Oil Sector November 2011 Approved Presidential Decree n.º 256/11 - National Policy and Strategy for Energy Security Organized in the following chapters: Importance of transformation required in the Electric System Strategic guidelines for electricity Subsector Strategic guidelines oil and natural gas subsectors Environmental sustainability Institutional model recommended for energy system © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 20 National Policy and Strategy for Energy Security – Electricity Subsector Electric Subsector goals are focused on increasing the electrification rate, by ensuring electricity supply to large part of the population Strategic Guidelines for Electricity Subsector Strongly increase the power generation pool and enhance the role of renewable energy Connect North, South and East Systems Expand electrification (urban and rural) covering from 50% to 60% of population in 2025: Ensure the economic - financial sustainability (Tariffs cover 20% of the costs) Rearrange the current organizational model, through the creation of public entities , for generation, transmission and distribution/commercialization Strengthen the Regulator role – IRSE (Electricity Sector Regulatory Institute) and the AREA (Atomic Energy Regulatory Agency) Promote the entry of private capital and construction and operation capabilities (know-how) and define engaging compensatory systems for private investors Establish partnership between National Generation Company and Sonangol to provide the Centrals with Natural Gas. © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 21 Electric Sector Transformation Program Planning by phases 2013 2012 J Phase I F M A M J 2014 J Phase II A S O N D J F M Transition A M J J A S O N D 2015 2016 Phase III Companies startup follow-up and transition Diagnostic Electric Sector Restructuring (Unbundling) Phase I and II Prioritized improvements in Distribution (quick – wins) Transition Current Capabilities Diagnostic Corporate Constitution, Feasibility study and Financial statement Support Public Companies Restructuring, IRSE e GAMEK Organization and Allocation Preparation Market Model Development of Power Sector Capabilities and IT roadmap Change Management Company staffing and salaries equalization model Market set-up Operation Market Simulation Tariffs study CAE1 and CAR2 determination Actual IT System Adaptation and Start Up Operative procedures definition Operational and Functional Improvement of Public Companies, GAMEK and IRSE Quick-wins e Phase III (2014) Operative improvement in Technical and Commercial Areas, with short-term results in commercial cycle and customer service Pre-payment and Agent Models Definition Focus on maintenance planning of transmission and distribution key assets, to increase the availability Improvements in Support Corporative areas Progressive rollout along geographies and isolated systems SAP implementation to support HR, finance, procurement and logistics. 1) CAE – Contrato de Aquisição de Energia; 2) CAR – Contrato Comercial de Acesso às Redes © 2014. All rights reserved. Do not reproduce or allow access to third parties without prior authorization from the Ministry of Energy and Water - Republic of Angola. 22