Eskom and Climate Change

including

Independent Power Producers and Renewables

Link to Industrial Policy Action Plan aspirations

Climate policy going forward

11 August 2010

2

CONTENTS OF THIS PRESENTATION

• Drivers, Leadership and Mandates

• National Policy development and the LTMS

• Eskom’s Climate Change Commitment

• Independent Power Producers (IPPs) and ReFit

• Industrial Policy Action Plan (IPAP) aspirations in comparison to Eskom’s plans

• Way Forward

Drivers, Leadership and Mandates

4

What are our drivers? What do we need to balance?

• Global increase in demand for energy• International Climate Policy process and

the DEA’s Long Term Mitigation Scenario Process (LTMS)•Future policy and penalties•Funders requirements

• Eskom has made climate change a key priority•Long term nature of the electricity business combined with our sustainability aspirations •Diversification strategy - competitiveness of South Africa, Energy security•Necessity for research and development into new technologies – local conditions•Carbon financing provides opportunities •Adaptation is a necessity

OECD

51%

CHINA

14%ASIA

10%

LATIN AMERICA

4%

NON-OECD EUROPE

3%

FORMER USSR

11%

AFRICA

3%

MIDDLE EAST

4%

Environment

Secu

rity o

f Sup

ply Efficiency

Stability of supply

Robustness

Low Cost

Low Prices

Climate Change Pollution Conservation

5

Mandate and Leadership

• Mandate

• Climate Change is a strategic priority for Eskom

• Acknowledgement that we need to operate and build in a carbon constrained environment.

• Not an environmental issue but an issue relevant to the sustainability of our business and the SA economy

• Leadership in troubled times

• Advocacy and communication with government, NGOs and business

• The support we require and how far we are prepared to go – pegs in the ground

• Planning in the midst of uncertainty – being confident about the probabilities around our uncertainties…

6

Performance

143.00147.00

159.00169.00

163.00159.40161.20

169.30175.20

190.10197.70

247.00203.70208.90

223.60221.70224.70

0.00 50.00 100.00 150.00 200.00 250.00 300.00

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Yea

r

CO2 emissions (Mt)

*2005 represents the 15 month time period when Eskom changed its calendar year period

*

ESKOM’S CLIMATE CHANGE STRATEGY

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Eskom’s 6 point plan on climate change

• Diversification of the generation mix to lower carbon emitting technologies

• Energy efficiency measures to reduce demand and greenhouse gas and other emissions

• Innovation through research, demonstration and development

• Investment through carbon market mechanisms

• Adaptation to the negative impacts of climate change

• Progress through advocacy, partnerships and collaboration

GeneratorTurbine

Gea

rbox

Compressor

Intercooler

CBCS

CCS

Recuperator

Rea

ctor

9

POINT 1 - DIVERSIFICATION

Planning• In 2009 Eskom made significant strides in ensuring that the planning process takes

into account a low carbon future and prioritising energy efficiency within and outside of Eskom. This included modelling a cap on emissions based on the LTMS.

• Determining planning for meeting the Copenhagen announcement by SA• Assessing the impact of a carbon tax on electricity pricing

Clean coal technologies• Development of a clean coal technology roadmap and involvement in the SA

process. • Significant strides in terms of clean coal technologies – supercritical technology for

Medupi and Kusile, Underground coal gasification pilot • Development of a Carbon capture and storage strategy and involvement in

developing an atlas for SA

Renewables• Policy interventions with DoE and NERSA• Successfully obtained funding to build 100 MW wind and CSP via World Bank

process • Investigation into co-firing with biomass• SWH programme established through DSM – doubling of subsidy

Nuclear• Funding requirements and policy interventions

Other• Gas and Hydro imports: On –going assessment of potential

2025 energy mix

CoalOCGTNuclearRenewable EnergyImportsPumped Storage

Existing energy mix

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Some longer term thinking……

0

50

100

150

200

250

300

350

400

450

500

550

600

650

700

2007

2009

2011

2013

2015

2017

2019

2021

2023

2025

2027

2029

2031

2033

2035

2037

2039

2041

2043

2045

2047

2049

Years

Mt C

O2

per a

nnum

Energy EfficiencyThermal EfficiencyRenewablesImportsNuclearCCSRemaining emissions

CURRENT EMISSIONS LEVELS

Our intent is to reduce our relative CO2 footprint until 2025 and thereafter continually reduce absolute emissions in support of national and global targets.

11

POINT 2 - ENERGY EFFICIENCY

Internal Energy Efficiency• Saving a billion kWh within Eskom. (Imagine

boiling 500 million typical kettles for one hour).

• Contributing to the National Energy Efficiency Strategy (NEES) target for the power generation sector (15% reduction in parasitic electrical usage by 2015)

Eskom's energy efficiency and demand management programme

• The plan is TO SAVE 5500 MW in 10 years (13.4 TWhrs)

12

POINT 3 - ADAPTATION

• Increasing the robustness of infrastructure designs and long-term investments

• Less water – dry cooling policy• Temperature changes and extreme weather events,

siting of power stations – Eskom Adaptation Strategy • Risk: looking into Insurance & Reinsurance

• Reversing trends that increase vulnerability• Relooking siting of generation plant (not all in one

area, smaller capacities, more dispersion (e.g UCG)• Develop load centres closer to primary energy

resources

• Improving employee / societal awareness and preparedness for future climate change

• Increasing employee awareness about climate change – realities and myths

13

POINT 4 - INNOVATION

• Development of technology roadmaps – coal, nuclear, renewables.

• Underground coal gasification pilot which can improve efficiency, reduce environmental impacts and possible provide a mechanism for the sequestration of CO2,

• 100 MW Solar Thermal plant which may overcome the barrier of intermittency and generate a local industry

• Research into Smart Grid applications

• Research into innovative technologies for load management such as the utility load manager

14

POINT 5 - INVESTMENT

• CDM (Clean Development Mechanism)• Projects continually assessed for CDM

potential through the investment process and through workshops with Project Managers.

• Carbon Price• A shadow price for carbon has been

determined for the evaluation of investments based on a future value for carbon.

• Green financing• lower cost green money• International funds are being explored to look

for grant money• Partners are being identified to share risk and

in some cases take equity investments.

15

POINT 6 - PROGRESS THROUGH COMMUNICATION, ADVOCACY

• Continued internal and external communication

• Participation on government delegation to the climate change negotiations, national government and business initiatives

• DEA• DPE• DoE• DST• NBI

• Various international business and government initiatives

• WBCSD• World Economic Forum • UN Secretary General’s advisory

committee• International Chamber of Commerce

Introduction of Independent Power Producers

(IPPs) with specific reference to the Renewable Energy Feed-in Tariff (REFIT)

programme

1717

• Introduction of private sector generation has multiple benefits:• Diversification of supply and nature of energy production• Introduction of new skills and capital• Reduction of funding burden on Government• Benchmarking of performance and pricing• Reduction of borrowing requirement of Eskom

• Eskom is committed to facilitate the entry of independent power producers and will collaborate with Government, NERSA and developers of projects to ensure this happens.

• Government is working on the enabling environment for IPPs using the Inter-ministerial Committee on Energy process.

• Eskom has already signed agreements with some IPPs in the last 6 months and will continue to do so within the framework of the Integrated Resources Plan (IRP) and the tariff determination for MYPD2 (multi-year pricing determination).

Introduction and background

182010/08/12 18

• There are the following options available to South Africa in the next 5 years in terms of Independent Power Producer options:– Medium Term Power Purchase programme (MTPPP) and further co-

generation opportunities.– Renewable Energy Feed-in Tariff programme.– Department of Energy Open Cycle Gas Turbine programme.– Regional import options.– Municipal generation.– Multi-site base load IPP programme.

• The Integrated Resource Plan (IRP1) makes provision for about 400MW from the MTPP programme, about 1025 MW from the REFIT programme and just over 1000 MW from the DoE OCGT (open cycle Gas Turbine) programme by 2013.

• The MYPD2 determination provides Eskom with revenue to recover costs from PPAs (Power Purchase Agreements) associated with the MTPP programme and the REFIT programme.

Current IPP programme status

192010/08/12 19

• Medium term power purchase programme (MTPPP):– 6 projects with 5 IPPs. This amounts to approximately 400MW.

– 4 contracts are finalised. All 4 PPAs have been approved by NERSA.

– 2 contracts has been sent to the IPPs for their final approval after negotiations have been completed and we are awaiting responses.

– At least 215 MW has been commissioned by July 2010 and we are hoping that up to 400MW will be operational by March 2011. This is dependant on the necessary approvals from the IPPs.

• Future co-generation opportunities:– Business and Eskom’s assessment is that the potential for more co-generation

projects is there. Possibly 1000 to 3000MW based on various studies. Some of this appears to be self-generation options rather than co-generation.

– The current price trajectory and possible energy conservation measures already provide an incentive for businesses to consider this.

– NERT (National Electricity Response Team) working groups have also suggest a co- generation feed-in tariff mechanism.

MTPPP and Co-generation programmes

202010/08/12 20

• National Energy Regulator of South Africa (NERSA) has approved tariffs for various technologies for phase 1 and phase 2 of the programme.

• NERSA has issued draft power purchase agreements for comment and proposed selection criteria for phase 1 of the programme.

• NERSA has held public hearings on the PPAs and selection criteria.

• The System Operations & Planning Division’s Single Buyer office has established a project team to execute the programme and is finalising the appointment of advisors for the process.

• What is still required:– NERSA to finalise the PPAs to be used.

– NERSA to issue the final selection criteria to be used by the Single Buyer office.

– NERSA has indicated that this could happen by the middle to end of August 2010

– Eskom will commence the procurement process once the PPA and selection criteria is issued.

Renewable Energy Feed-In Tariff Programme

212010/08/12 21

• DoE OCGT IPP programme– The Department of Energy is engaged in a process to achieve financial closure with

the preferred bidder.

• Regional imports– There are options that could be commissioned in the next 5 years. They could act as

a back up to the current build programme or play a role as the next base load capacity option in Integrated Resource Plan (IRP) 2010 Revision 2.

• Municipal generation– The current Integrated Resource Plan (IRP) assumes a certain level of municipal

generation. The availability of these generators in the next 3 years is important for security of supply.

– Eskom is engaging with the certain municipalities to understand the current constraints and to determine if there are innovative ways to ensure that their generators can operate in the next 3 years.

• Multi-site base load IPP programme– Currently on hold pending the finalisation of the Integrated Resource Plan (IRP 2010)

Revision 2 process.

– Continuation of the programme depends on capacity requirements and policy choices on technology and who should build.

Other IPP opportunities

2222

REFIT IRP2010 Rev. 1 programme size

• As per the Integrated Resource Plan (IRP2010 Revision 1) , the associated costs of the REFIT programme is summarised below

• Capital cost:

• Power purchase cost:

Technology Overnight costs Installed capacity Total capital costR/kW MW R million

Wind 14,445 600 8,667Solar (CSP trough + 6 hrs storage) 33,270 200 6,654Biomass (forest residue) 43,385 100 4,339Small hydro 22,348 50 1,117Landfill gas 19,469 75 1,460

22,237

Technology Assumed load factor Installed capacity REFIT rate Energy per annum REFIT cost per annum% MW R/kWh GWh R million

Wind 27 600 1.25 1,419 1,774Solar (CSP trough + 6 hrs storage) 40 200 2.10 701 1,472Biomass (forest residue) 80 100 1.18 701 827Small hydro 50 50 0.94 219 206Landfill gas 80 75 0.90 526 473

4,751

Notes:1. Indicative installed capacities for 1,025 MW as per IRP12. Capital costs as per IRP2010 parameters3. Investment cost as per NERSA4. Assumes all plants operational by 20135. Real 2010 ZAR

Industrial Policy Action Plan (IPAP) Aspirations and Action Plans in comparison to Eskom’s plans

24

(From IPAP 2 presentation to the media) Appendix A: Green Industries and energy efficiency

• IPAP: Environmental and climate change concerns have become a commercial reality

• Eskom has factored these concerns into its planning processes – planning for a low carbon future but also highlighting the need for integrated policies at a national level, including infrastructure development, natural resource availability and funding.

• IPAP: Increasing energy costs will be a major threat to manufacturing• The trade-offs between “cheap energy now” and increasing penalties on fossil fuels

in the near future requires national debate and resolution. We need to tap into funding available for lower carbon emitting technologies in order to protect the future of the economy. Energy efficiency presents significant opportunities

• IPAP: Increasing ‘eco-protectionism’ in advanced economies• We are currently embarking on work to look at the impact of carbon taxes and border

taxes – and the macroeconomic impacts. This threat remains a reality which is why Eskom is planning for a low carbon future. “Green” industrialisation also presents new market opportunities for South Africa

• IPAP: Opportunities to develop new industries and substantially increase energy efficiencies

• Energy efficiency is being driven internally and with our customers.

• Eskom can act as a key enabler for the development of renewable industries in support of their generation as well as IPPs – eg Solar Park Concept

25

(From IPAP 2 presentation to the media) Appendix A: Green Industries and energy efficiency

• IPAP: Key opportunities

• The ReFit programme will create significant investment opportunities in the renewables market

• Solar Water Heating• Eskom has doubled the subsidy and is working with large customers to assess the feasibility

of employee programmes.

• Concentrated Solar Power• Eskom has obtained funding through the World Bank to build a CSP pilot. A technology

feasibility study is currently being carried out. From an Eskom point of view we have included CSP as an option in the IRP and see it as an anchor plant for a major solar programme.

• Wind• Eskom has also obtained funding through the World Bank to build a 100 MW wind facility in

the Western Cape. The commercial process is currently underway.

• Biomass• We have begun a process to determine the feasibility of co-firing with biomass at existing coal

plants.

• Automotives

• Substantial improvements in industrial energy efficiency• This is being driven with our key industrial customers

• Potential to create thousands of direct jobs but requires more scoping

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Way forward

• Continue engagement with government:

• Development of national climate policy

• Introduction of taxes

• Integration of policies arising from DoE, DWEA, DTi, etc with a link to climate change, trade, energy and industrial development

• Engagement in the international climate process

• Successfully hosting the climate negotiations next year

• Immediate commencement of the REFIT procurement programme for 1025 MW.

• Continued refinement of Eskom’s Climate Change Strategy and the communication thereof.

Thank you

BACK-UP SLIDESCLEAN COAL PROGRAMME

RENEWABLES PROGRAMME

29

Eskom’s Clean Coal Programme

• Improved efficiencies on existing Sub Critical Pulverised Coal - future

• Supercritical Pulverised Coal – Medupi & Kusile - current

• Ultra-Supercritical Pulverised Coal - scanning

• Fluidised Bed Combustion - pilot

• Conventional and advanced emissions control - Current

• Carbon Capture and Storage – collaborative research

• Underground coal gasification – IGCC - current

IGCC = Integrated Gasification Combined Cycle

30

UCG-IGCC Basic Principles

Air in

Gas out

UCG is a process where air is injected into the cavity, water enters from surrounding strata, and partial combustion and gasification takes place at the coal face after ignition. The resulting high-pressure syngas stream is returned to the surface, where the gas is cleaned and then combusted in a high- efficiency gas & steam turbine combined cycle plant to generate electricity.

Surface Plant (incl. IGCC) commercially proven with other gases

UCG commercially proven in Former Soviet Union (FSU) – Eskom is demonstrating in RSA

Graphic Reference : Science & Technology Review, Lawrence Livermore National Lab, USA, April 2007

31

Eskom Coal Research

Fly AshUtilisation

Net CV, Constant PCalorimeter

Coal, Ash & SlagCharacterisation

Coal QualityEffect Model Mill

On-line Coal Analysis

RSA Inventory (done by DMR)

Assessment & Recovery

Coal Processing & Impact on Plant

RSA InventoryNon-commercial coal

Coal Diversification

PF Mass Flow Measurement

On-line Abrasiveness Probe

On-line Reactivity Heat Flux

Diagnostic Tools

Low NOx Burners Sorbent Evaluation (FGD)

Sorbent Evaluation (FBC)

Reburn Technologies

Firing (gas, coal & biomass)

Primary Emissions Reduction

Spontaneous Combustion

Safety

Combustion Theory

Combustion Practical

Education

Coal Research

Condition-based Monitoring

ParticulateEmissions Plant

Coarse Coal Discards

Fine Coal Discards

On-line Analysers

Coal Beneficiation

QemScanDatabase

OperationalOptimisation

Flame Monitoring

Fly AshFormation

Coal Variability & Long Term Changes

Pf Pilot Rig

Combustion Optimisation

Combustion ModelDTF

Demonstration Plant

Lab Scale Kinetics

Lab Scale Sorbent Testing

Fluidised Bed Combustion

Test Rig

Fluidised Bed Gasification - IGCC

Underground Coal Gasification

Clean Coal Technologies

Test Rig

Pilot Plant

International Coal Benchmarking

Strategic

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Sub-Critical PF

2000 2025 2050

Super-Critical PF

Sub-Critical FBC (for niche fuels, eg. discards)

UCG co-fired into Majuba

UCG-IGSC with GT Simple Cycle - Peaking

UCG-IGCC with GT Combined Cycle - Baseload

UCG-IGFC with H2 co-production

Ultra-super critical PF

2010 2020

Presumes 28-year development time no longer applied

German ULTRA super critical demo >45% in

2012

SUPER critical demo in Poland in 2009

(>43%)

Several international demos of IGCC complete by 2014

Several small oxyfuel demo plants planned up

to 2015

IGCC

CCS

POTENTIAL COAL ROADMAP FOR ESKOM

33

Eskom Renewable Energy

Summary of Eskom’s Focus

• All renewable energy resources will be considered- Big Four.

• Biomass ( MSW- Co-Firing), Solar (CSP), Wind, Ocean (Waves and Current)

• Eskom’s programme seeks to find multi-MW options for grid supply, with an internal target.

• Off-grid or stand-alone renewables will not be part of Eskom’s implementation, the exception is SWH in the DSM portfolio.

• Research into off-grid or stand alone options is acceptable in support of national objectives, though implementation will be done by other parties.

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Eskom Impact Concentrating Solar Power – Central Receiver Technology

• Application

Grid connected supply. Eskom impact – High

• Power Range

Plant sizes of 100-200MW

• Load Factor

Depends on site and storage, app 70%.

• Life of Plant

35 years

• Cost of Generation

Moderate

• Footprint

100MW would require app 4km2

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Technology Assessment - Wind

• Application

Grid connected supply. Eskom impact – Medium/High

• Power Range

Industry standard 2-3MW / turbine. Plant sizes of 50-100MW

• Load Factor

Depends on site. Avg 22-28%.

• Life of Plant

20 years

• Cost of Generation

Moderate

• Footprint

100MW would require app 20km2

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Eskom Impact Bioenergy – Generation using wood waste or Bagasse

• Application

Meeting internal power requirements, also grid supply. Eskom impact – Small/medium

• Power Range

Plant sizes of 5-50MW

• Load Factor

App 75%.

• Life of Plant

30 years

• Cost of Generation

Low

• Footprint

Depends on resource and project.

37

Biomass Proof of Concept

The initial uptake of biomass co-firing in Eskom should be based on: • Minimising Risks on plant availability

• Ease of Implementation

• Minimising initial Capital Cost

• Utilising fuels with a large reference base and user support group

• Utilising fuels that meet local sustainability criteria (including social, economic and environment)

The option that best fits these requirements is expected to be co-milling or separatemilling and co-injection of wood chips or pellets with coal• Of the biomass fuels available wood based biomass have the largest growth expectation, with the main advantages being

their high availability, heat content and transportability

• It is the biomass of choice for most European Utilities

• Technical risks tend to be lower than other biomass fuel sources

• Up to 5-10% wood pellet biomass can be co-combusted without significant modifications to the existing plant

• Biomass storage, pre-processing and handling are generally the largest costs associated with conversion into co-firing in a coal plant

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Biomass Resource

• The biomass potential for can be divided into four groups, that of wood, agricultural, municipal solid waste (MSW) and grass residues.

• The wood biomass includes commercial plantations, sawmills, pulp mills, harvestable woodlands, alien vegetation and deciduous tree off-cuts.

• The crop residues includes maize, wheat, sorghum, sunflowers and sugarcane.

• Grasses are represented by the woodland and savanna biomes of South Africa as defined by the NBI Institute.

• MSW is presented by the vast amounts of waste send to over 500 landfill sites. Early indicated potential over 500-800MW.

• Estimates indicate that there is potentially 1.26 billion GJ of energy available annually from biomass residues. Biomass energy could thus theoretically provide 50 % of the national demand.

*Ref. RSA Renewable Energy White Paper

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Experience to date – Solar water heating (SWH)

• Eskom has been active in the area of solar water heating for many years.

• Activities in the 90s were focussed on assessments of different systems and attempts to develop lower cost SA-based units.

• Subsequent work was aimed at understanding the requirements from the systems and the behavioural impact on the consumer – as such several pilot installations were made.

• The focus changed slightly as the SWH systems were not an attractive option to the residential consumer, given the low cost of electricity. As such, the use of SWH systems from a commercial and industrial perspective was considered.

• Current efforts are aimed at increasing the uptake significantly. Efforts are focussed not only on significantly increase the number of systems installed, but also see the accreditation of suppliers and registration of installer significantly enhanced; a key factors in enabling higher market penetration.

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Positioning Renewables in Eskom

• Even though the global economic situation has seen a decrease in the demand for electricity, Eskom remains committed to its expansion programme; significant investments are required resulting in capital prioritisation.

• As far as new generation is concerned, the main current focus is on baseload additions.

• As far as providing baseload options is concerned, few renewables are capable of load factors required from baseload plant – CSP and the biomass-based options being the only real options to consider. However, these options have to be developed to a confidence level similar to that of other technologies to be seriously considered in decision making.

• Options that have relatively low capital requirements and short lead times, e.g. wind can play a role while longer term options are developed.

• The development of a low cost Solar Water Heating option has to be encouraged and uptake stimulated.

• Research has to continue to drive new options forward, especially amongst the ocean power solutions, to deliver the next options for implementation.

41

CLIMATE CHANGE/RENEWABLE RESEARCH•Cofiring of Biomass (Wood, Grass, Crop residues) in PF Stations•Municipal Solid Waste•Continued support for SWH•Commission 100 MW Wind and 100MW Solar•Research into off-grid or stand alone options is acceptable in support of national objectives, though implementation will be done by other parties.•Wind and Solar Resource Assessment will be site specific.•STRATEGIC FUTURE•Combine with CSP with UCG in Eskom/SASOL strategic partnership for Hybrid PS•Retrofit Solar Hybrid to PF Stations•Hybrid UCG Gas, CSP combined cycle powerstation•UCG Co-firing

Ocean Current

Ocean Wave

Biomass Cofire

UCG

CSP 100

Ocean Pumped Storage

Municipal Solid Waste

Wind

Solar Water Heating

Solar PF Hybrid