Transcript ESKOM-Application for tariff increase-2009

John Joslin - Smart Green Prosperity
[email protected]
082-969-2497 January 2010
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Argument in a nutshell
California’s example
Energy Efficiency cheapest source of electricity
McKinsey Report and IEA on Efficiency
Total government campaign for efficiency
Reward ESKOM for selling Energy efficiency
Many efficiency projects pay for themselves
Evaluating Renewable energy
Levelised costs with low discount rates
Full cost of coal fired power
Making depreciation costs realistic
ESKOM and Climate Change
Green jobs
The Global green technology revolution
 Argument
in nutshell
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South Africa needs electricity for
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Planning and tariff requests must be based upon
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Development
Poverty reduction
Global competition
Future transportation
 Long term planning based upon evaluation of
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Energy Efficiency (treat it as a source)
Coal and fossil fired power
Solar utility size
Decentralised solar-SWH and heat pumps and PV
Wind
Biomass
 Full costs of each technology
 Levelised cost based upon 0% or 3% discount rates
 California’s
Experience with
Energy efficiency
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California’s energy efficiency programmes
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Saved building a dozen giant electricity plants
Saved 12000MW (12 GW) peak demand
Saved 40 000 GWh pa ( 40 TWh)
Household electricity bill savings of $56Billion (+R500 billion).
Created 1.5 millions jobs with payroll of $45 billion.
50 new jobs for every one lost by not building the
large plant operations and distribution.
Reduced CO2 emissions. About 7 tonnes per capita.
Continued economic growth
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What can we learn from California?
◦ Is this true=yes
◦ If so surely we can learn from this
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Has ESKOM studied this ?
◦ This is a question that ESKOM should answer
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Has ESKOM used this approach in its
planning?
ESKOM should take this into account for its
future planning
 Energy
Efficiency
 The cheapest Source of
electricity
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show
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is considerable evidence to
Energy efficiency is by far the cheapest energy
“source” .1/5 of a new plant.
ESKOM’s own application for 35%x3 increase
says it costs R5billion to save 1GW but it cost
R25 Billion to build a 1GW power plant.
The same results are achieved by spending
R5billion on efficiency and R25 billion on new
plant.
The choice is a “no brainer”
This is logic “101”
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If the choice is so obvious why does ESKOM
not do it.?
 One of the reasons is that government policy prevents
it!!
 How?
 Because the tariff calculation laid down by parliament and
NERSA only rewards the sale of electricity
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Essential reform
 ESKOM must be rewarded for selling efficiency
 This is the California secret
 A new formula is a win-win-win one
 The customers pays lower bills
 The Utility gets a good return from selling efficiency
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For example
◦ ESKOM can sell and provide R 1 billion of electricity
 It could earn a return of 5% say=R 50 million
◦ ESKOM could also sell R 1billion efficiency and
could get say 10% =R100 million return.
◦ With this formula ESKOM could create a very
motivated and efficient sales unit for “negawatts”
 Sales staff can be motivated by decent commissions
 ESKOM could work through third parties
 ESKOM could make long term plans to save electricity
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Now ESKOM does not know from year to year
whether it will be refunded for selling SWH.
◦ But to make energy efficiency a viable and much
cheaper alternative to building more power stations
 The whole government must promote the policy via
 Efficiency standards for office appliances
 For home appliances
 For factory motors
 We have about 100000 electric motors in industry
most of which could be made more efficient and save
say 1GW
 We all know about the CFL lights instead of incandescant
lights- say 30 million each use 50watts less=1.5 GW
savings
 Buildings standards
 Weatherisation of houses
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IEA says efficiency can halve the world CO2
emissions by 2050
◦ The IEA says energy efficiency accounts for half of the
potential to halve carbon dioxide emissions by
2050. Energy efficiency reduces energy costs, alleviates
energy dependency, decreases vulnerability to energy
prices and reduces greenhouse gas emissions. There
should be a major global effort to expand the role of
energy efficiency to make sure that we get as much out
of its potential as we can.
 For example, the global cost of lighting could be reduced by
$2.6 trillion by 2030 by phasing out wasteful incandescent
light bulbs from 2008 and implementing better street
lighting, with a cumulative saving of 16 billion tonnes of
CO2.”
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McKinsey and CO Global did a detailed Report
on potential global energy savings
◦ They concluded that the world could save 50% of
energy usage by using tried and proved methods.
 SA uses about 200TWhs/pa and could get by on
100TWh if it were very efficient.
◦ It could not be done overnight but it could be done
in 20 to 30 years
 Thus SA could save 20GW capacity. ESKOM has about
40GW now
◦ ESKOM wants to add 16GW at R 400 billion.
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We must keep this long term solution in
mind
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A 2007 report from the international consulting
firm McKinsey and Co. found that improving
energy efficiency in buildings, appliances and
factories could offset almost all of the projected
demand for electricity in 2030 and largely negate
the need for new coal-fired power plants.
McKinsey estimates that one-third of the U.S.
greenhouse gas reductions by 2030 could come
from electricity efficiency and be achieved at
negative marginal costs. In short, the cost of the
efficient equipment would quickly pay for itself in
energy savings
 Evaluating
Technologies
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Planning should be based on all viable
technologies
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Efficiency
Coal
Gas
Wind
Solar (Concentrated Solar power)
Solar PV
Full costs including externalities
Levelised costs with greater regard for future
generations ( use low discount rate)
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Full cost for Coal-fired power
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Pollution and Health
Pollution from coal mining
Carbon tax
Carbon sequestration and storage
Full coal costing (Dr Koos Pretorius)
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2010-2011
Eskom application R40 billion
External costs
R18 billion
Full costs coal
R58 billion
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Dr Koos Pretorius’s calculations of ESKOM
external costs
◦ = R 18 000000000 18 Billion pa.
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From ESKOM’s application
◦ 2010-2011 primary energy costs
◦ = R 40 billion
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With externalities
◦ Full primary energy costs
 = R58 billon pa.
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With full costs work out levelised costs
◦ Full costs over life/GW generated over life
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Reduce to present values by using discount
rate
◦ Discount rate is arbitrary- not required by
economic or accounting principles
◦ Based on belief of the importance of the future
◦ High discount rates like 10% place more value on
short term-3% places more value on future
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LTMS and Stern review say must calculate on
0% and 3% and higher and get representatives
to select based on value placed on future.
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For example apply to Coal vs Solar (CSP)
Assume both generate same GWh over life
Coal
◦ Capex coal R100billion
◦ Primary energy full cost R40 billion pa
◦ Life 40 years
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Solar
◦ Capex R150 billion
◦ Primary energy R 0
◦ Life 40 years
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Results - Primary energy costs
Coal
◦ 40 years R1600 billion
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Solar
◦ 40 years R0 pa. =R0
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Total costs
◦ Coal R100 billion + R1600billion =R1700 billion
◦ Solar power R150 billion
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Coal is R1700billion and solar is R150 billion
Solar wins hands down.
 This is using no discount rate
 Realistic
Depreciation Costs
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ESKOM can work with more realistic
replacement depreciation costs
◦ Historical depreciation is not acceptable
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ESKOM can work out actual replacement costs
for plants due to be replaced or upgraded in
5 years say
◦ This can be based upon actual quotations
◦ It will take actual new technologies into account
◦ Work with actual learning curve benefits
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Use the evaluation method described in this
presentation- full costs levelised costs
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“MEA is defined as an asset having a similar
service potential as the subject asset, judged
by its comparative performance and output,
not its physical characteristics. MEA is an
internationally recognised approach to
replacement cost valuation. It has the
advantages of tracking the actual cost
movement on new assets while also factoring
in technological improvements and the..”
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Depreciation costs are very large
◦ R47 billion in 2014
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This makes a big impact on the tariff
◦ They are just a “thumb suck” in the final analysis
◦ ESKOM can get real replacement costs quotation
costs
◦ It must consider all alternatives as explained above
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This will take account of the changing prices
and technologies
See learning curves below
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Historical costs not acceptable
◦ MEA method still based on formula
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ESKOM has a dozen or so big plants
 Those coming up for replacement in 6 years say can be
evaluated against alternative technologies
 The technologies are very different to coal
 Renewable prices are coming down
 Coal is going up
 Consider CCS
◦ All alternative can be evaluated fairly
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ESKOM can work out replacement costs based
on bidding
 Eskom
and Climate Change
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Copenhagen Accord
◦ 2. We agree that deep cuts in global emissions are required
according to science, and as documented by the IPCC
Fourth Assessment Report with a view to reduce global
emissions by 50
per cent in 2050 below 1990 levels, taking into account the
right to equitable access to atmospheric space. We should
cooperate in achieving the peaking of global and national
emissions as soon as
possible, recognizing that the time frame for peaking will
be longer in developing countries and bearing in mind that
social and economic development and poverty eradication
are the first and
overriding priorities of developing countries and that a lowemission development strategy is indispensable to
sustainable development.
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4. Annex I Parties to the Convention commit to reducing
their emissions individually or jointly by at least 80 per
cent by 2050. They also commit to implement individually
or jointly the quantified economy-wide emissions targets
for 2020 as listed in appendix 1, yielding in aggregate
reductions of greenhouse gas emissions of X per cent in
2020 compared to 1990 and Y per cent in 2020 compared
to 2005. Annex I Parties that are Party to the Kyoto
Protocol will thereby further strengthen the emissions
reductions initiated by the Kyoto Protocol. Delivery of
reductions and
financing by developed countries will be measured,
reported and verified in accordance with existing and any
further guidelines adopted by the Conference of Parties,
and will ensure that
accounting of such targets and finance is rigorous, robust
and transparent.
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5. Non-Annex I Parties to the Convention will implement
mitigation actions, including those listed in appendix II,
consistent with Article 4.1 and Article 4.7 and in the
context of sustainable development. Mitigation actions
subsequently taken and envisaged by Non Annex I Parties
shall be communicated through national communications
consistent with Article 12.1 (b) every two years on the
basis of guidelines to be adopted by the Conference of the
Parties. Those mitigation actions in national
communications or otherwise communicated to the
Secretariat will be added to the list in appendix II.
Mitigation actions taken by Non Parties will be subject to
their domestic measurement, reporting and verification
the result of which will be reported through their national
communications every two years
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Non Annex I Parties will provide biennial national
inventory reports in accordance with revised
guidelines adopted by the Conference of the Parties.
[Consideration to be inserted US and China].
Nationally appropriate mitigation actions seeking
international support will be recorded in a registry
along with relevant technology, finance and
capacity building support. Those actions supported
will be added to the list in appendix II. These
supported nationally appropriate mitigation actions
will be subject to international measurement,
reporting and verification in accordance with
guidelines adopted by the Conference of the Parties.
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Copenhagen Accord Saved COP 15 from Disaster
Engr. Khondkar A Saleque
Monday, 12.21.2009, 09:07am (GMT)
Finally at least a face saving accord could be
reached at Copenhagen. US President Barack
Obama brokered deal endorsed by India, China,
Brazil and South Africa got the acclamation as
Copenhagen accord 2009. Obama's day of
frenetic diplomacy produced a three-page
document promising $30 billion in emergency
aid in the next three years and a goal of
channeling $100 billion a year by 2020 to
developing countries with no guarantees.
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Copenhagen was heading for a deadlock
◦ I think we should feel proud of President Zuma for
being part of the team that negotiated a
compromise
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The Copenhagen accord has been signed by
190 countries
◦ All emerging developing countries have agreed to
submit their mitigation and adaptation policies
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These will be subject to bi-annual reporting
and verification
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During the Copenhagen Conference COP15
◦ South Africa promised to
 Reduce emissions by 34% by 2025
 To reduce emission by 42% by 2030
◦ These were subject to help from developed
countries
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The accord will be “policed” by global public
opinion
 If it becomes a binding treaty in 2010 it will get more
demanding
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The world will see if we keep to 34% and 42%
promises
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According to the LTMS
 BAU will mean about 650MtCO2e emissions in 2025
 BAU will be 800MtCO2 e emissions in 2030
◦ Thus we must reduce emissions by
 221 Mt CO2 e by 2025 reduced total 430MtCO2
 336MtCO2 e by 2030. reduced total 464MtCO2
◦ South Africa currently emits about 400MtCO2e
 ESKOM emits 200MTCO2e
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We are 400Mt now and must be 464Mt in
2030
 Only 64 MtCO2e increase allowed by 2030.
 ESKOM expansion adds 100MtCO2-e by 2014
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ESKOMs expansion plans will mean that GHG
emissions will rise to 500MtCO2e by 2014
 We promised Copenhagen we would have emissions of
no more than 464MTCO2e by 2030.
 ESKOM will have used up all our “carbon budget
allowance” for 2030 by 2014!!
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ESKOM technology selection will have to take
government climate policy into account
 If a massive efficiency programme and renewable
program by the government was launched we could
reach the 464MtGHG target
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This will not hamper development
 Green
jobs created
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Studies in many countries (Germany, China,
California, etc) show that energy efficiency,
which covers buildings, industry, households,
appliances and wind, solar water heating,
Photovoltaics and Concentrated Solar power
create many more jobs than the traditional
emphasis on big coal-fired or nuclear power
plants.
The table on the next slide gives the details
on this California study.
 The
Green technology
Revolution
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The world is going through a major transformation to
a potential “smart green Prosperity for all”.
◦ The United nations has recommended the world embark on
a “green New Deal”.
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Many countries are executing green new deals . This
includes Japan, South Korea, China, most of Europe
and with the new Obama white house the USA.
There seems to be an emerging global competition
for new “green” technology.
◦ This includes green energy production like wind and solar
technologies
◦ Energy efficiency buildings, industry, office equipment and
home appliances
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Implications for South Africa.
◦ This global green technology revolution will make it
easier for South Africa to follow a new energy strategy
New generation automobiles will be low or no carbon.
All manner of machines will be low energy and low carbon
Home appliances will be low energy
New building regulations worldwide will create mass
production of parts and fixtures , such as super windows,
Building Integrated PV (BIPV), PV panels etc and so reduce
the price significantly.
 This will all make it much easier for South Africa to have a
more efficiency intensive and renewable energy intensive
energy strategy.
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 Thank
You. Questions?
John Joslin
Smart Green Prosperity Project
 [email protected]
 082-969-2497
 January 2010
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