the national energy bill the dme briefing national council of provinces select committee on economic...

The National Energy Bill

The DME briefing

National Council of Provinces Select Committee on Economic and

Foreign Affairs2 September 2008

The team from Department

• Nhlanhla Gumede– DDG Hydrocarbons & Energy Planning

• Zombango Nondabula– Energy Officer – Petroleum Regulation

• Elias Modiba– Energy Officer - Energy Planning

• Tembile Vilo– Director General’s office

• Kwazi Mhlongo– Director General’s office

Long title

• To ensure that diverse energy resources are available, in sustainable quantities and at affordable prices, to the South African economy in support of economic growth and poverty alleviation, taking into account environmental management requirements, and interactions amongst economic sectors; to provide for energy modelling and planning, increased generation and consumption of renewable energies, contingency energy supply, holding of strategic energy feedstocks and carriers, adequate investment in, appropriate upkeep of and access to energy infrastructure; to provide measures for the furnishing of certain data and information regarding energy demand, supply and generation; to establish an institution to be responsible for promotion of efficient generation and consumption of energy and energy research; and to provide for matters connected therewith.

Objects of the Act (cont)

• 2. The objects of this Act are to—(a) ensure uninterrupted supply of energy to the Republic;(b) promote diversity of supply of energy and its sources;(c) facilitate effective management of energy demand and its

conservation;(d) promote energy research;(e) promote appropriate standards and specifications for the

equipment, systems and processes used for producing, supplying and consuming energy;

(f) ensure collection of data and information relating to energy supply, transportation and demand;

(g) provide for optimal supply, transformation, transportation, storage and demand of energy that are planned, organised and implemented in accordance with a balanced consideration of security of supply, economics, consumer protection and a sustainable development;

Objects of the Act (cont)

2. The objects of this Act are to—

(h) provide for certain safety, health and environment matters that pertain to energy;

(i) facilitate energy access for improvement of the quality of life of the people of Republic;

(j) commercialise energy related technologies;

(k) ensure effective planning for energy supply, transportation and consumption; and

(l) contribute to sustainable development of South Africa’s economy.

Energy policy formulationHow do we evaluate the impact of our policies

Energy policy formulationPolicy impacts depend on where you sit

Commodity composition of household consumption

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

HH

0 -

9 %

HH

10 -

19 %

HH

20 -

29 %

HH

30 -

39 %

HH

40 -

49 %

HH

50 -

59 %

HH

60 -

69 %

HH

70 -

79 %

HH

80 -

89 %

HH

90 -

94 %

HH

95 -

100 %

Other products

Other services

Business services

Transport services

Petroleum products

Vehicles

Clothing, textiles, leather& footw earBeverages

Food

Mining

Agriculture

Source: Sadelec Report, 2003

BackgroundSome facts

-10

-8

-6

-4

-2

0

2

4

6

8

10

2001 2002 2003 2004 2005 2006 2007

Trade balance excluding oil imports

Total Trade Balance

R b

illio

n, 3

mon

th m

ovin

g av

eImpact of high oil prices on the trade balance

Source: National Treasury, 2007

Some of us would argue that we do not have an electricity but an energy challenge

Source: Eskom Holdings Limited Annual Report 2007

Addressing these peaks through electricity is a very

expensive option

RSA MAIZE: PRODUCTION, CONSUMPTION & CLOSING STOCKS

2 000

4 000

6 000

8 000

10 000

12 000

1997/98 1998/99 1999/2000 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

MARKETING SEASON

TH

OU

SA

ND

TO

NS

RSA Production RSA Consumption RSA Closing stocks


Source: Grain SA, 2008


Source: Energy Information Administration Conference, 2008

An alternate end of oil view


Peak oil view with lower recovery factors


Peak oil view with lower initial-in-place estimates


The Bill background

• Was first developed in 2003 to cover all EWP not covered that far

• Cabinet approved public consultation in 2004

• Widely consulted in 2004• Withdrawn in 2006 to effect certain

changes• Key focus now is energy security• Constructive engagements at Nedlac• All stakeholder comments considered

White Paper on Energy Policy, 1998 (EWP)

• Bill based on the EWP of 1998• Some assumptions underpinning the EWP - no longer valid

– Assumed that energy security can be achieved through greater diversification and flexibility of supply

– Asserted that the energy sector relied on market-based pricing– Placed greater emphasis on commercialisation and competition

• However acknowledged that competitive energy markets need sophisticated regulatory regimes

– Assumed that government will promote investment into energy sector rather than use energy to drive investment in other sectors of the economy

– Also assumed that there will be a healthy balance between the interest of capital and national objectives

• Experiences in other competitive markets have shown that markets work well in a situation of over capacity– In 1998, RSA had over capacity in all areas of energy

• In drafting the Bill, validity of the assumptions underpinning the policy was a concern

Interface with other legislation

• Energy Bill interfaces with a number of pieces of legislations

Legislation

Petroleum Pipelines Act

Gas Act

Minerals & Petroleum

Resources Act

National Environmental

Management Act

Electricity Regulation Act

Petroleum Products Act

Central Energy Fund

Act

Standards Act

Electricity distribution

industry restructuring Bill

The list is not exhaustive

National Energy Bill in perspective

• Whilst most of existing legislation are about the past and present, the National Energy Bill is about future

Key Energy Legislations

Other Energy legislation

Energy Bill

Governance & redress– Competition and industry structure

issues

– Economic issues (mainly prices and tariffs)

– Standards & specifications

– Quality of supply

– Health & Safety

– Social and national objectives

– Industry structuring & restructuring

Securing our energy future – Data & information

– Modelling & planning

– Future fuels

– Sustainable access

– Maintaining affordability

– Energy research

– Climate change

– Security of supply

Energy Bill aims to address all energy security issues

Energy infrastructure

planning Energy security

Macro-economic

framework

Climate change (mitigation & adaptation)

Demand management

Standards & specifications

Foreign policy

Reserve margins

Role of state in productive

sectors

Import & Export

policies

Local production

Energy Research

Diversity of supply

Energy Security Framework

• The National Energy Bill essentially about– Provision of energy data and information– Energy modelling and integrated energy

planning– Energy development

• Alternative and future energy • Efficient production & use • Coordinated research on carriers & technologies

– Security of supply (both carriers & feedstock)– State participation in key energy infrastructure

planning and development

The essence of the Bill

General guiding principles

• The Energy Bill does not seek to replace existing institutions but to strengthen them– “Energy is the lifeblood of energy

economy”– Economic decisions made w/o

consideration of energy availability and price are problematic

– Focuses on issues intended to strengthen energy security

– Seeks to complement data collection and facilitate sharing

Source: Energy Geopolitics, Professor Michael J. Economides,

Energy Bill energy data & modelling & 1998 White Paper on Energy policy

• P19: – For various reasons South Africa has

very limited energy data and, furthermore, very limited capacity to perform this sort of policy analysis

• P81: – Informed decision making, at all levels, is

only possible when suitable and credible statistics and information are available

Energy Bill energy data & modelling & 1998 White Paper on Energy policy

• P84: – Government will ensure that the necessary

resources are made available to establish structures and systems, and put in place legislation to facilitate the specification, collection, acquisition, storage, maintenance and supply of energy data, and energy-related data, according to the requirements of integrated energy planning and international standards. Government will facilitate the establishment of information databases.

– Government will provide information to the public at a reasonable price. The provision of this information will not compromise the commercial position of parties supplying data to government.

Energy Bill: Energy planning & 1998 White Paper on Energy policy

• EWP:84– The data should be collected, stored and

reported in accordance with international specifications and standards to facilitate easy comparison, integration and exchange

– Data should be collected regularly and the database kept up to date

• EWP:90– The Department of Minerals and Energy will

include explicit environmental considerations into studies regarding energy suppliers and users, and will integrate these results through Integrated Energy Planning

• Provision of high-quality, energy information, in manner that promotes sound policymaking, efficient markets and public understanding, to– Cabinet Ministers– National, provincial & local governments– Markets (for efficient market operation)– Public (communication)

PlanningAn integrated planning approach to ensure that all the constituting elements are addressed in a coordinated manner

ModellingAn integrated energy modeling capability which would be instrumental in the development of energy plans and evaluation of options that are proposed by policy-makers

Data collection, integrated energy modelling & planning

Modelling vs. Planning

• Should be descriptive and avoids policy advocacy

• Modeling should, as a basis for the development of energy plans, be undertaken in such a way as to use– prevailing policy,– legislative arrangements,– proven or almost proven

technology or industry structural conditions

• Is essentially prescriptive, and advocates for certain policy approaches.

• Involves deliberate policy choices, which may go beyond empirical evidence

• Should be about handling of sometimes conflicting objectives

Modelling Planning

NIRP LFIP IPAPTransport

Coordination

IDPs Entity n

Integrated Energy Planning

Policy,Options,Strategies

Otherfactors

Energy Modelling

Government Departments

SOEs

ModellingAgency

Individual Policies, Strategies, Plans, (Infrastructure)

Demand driven energy planning


• EWP:6– To cope with multiple causal linkages, energy policy

analysis usually commences with the demand side by means of the process entitled- ‘integrated energy planning’. This recognises that energy is not an end-good but is rather consumed as a means to an end. Policy must facilitate optimal energy consumption and production to meet social needs. This requires consumer choice and the operation of market forces.

– Integrated energy planning suffers from the same drawbacks as other ideal models. It requires a great deal of data and analysis to implement, of which South Africa has a scarcity. Nonetheless, this white paper identifies integrated energy planning as the most suitable base for planning purposes and also addresses the issue of data scarcity


• EWP:82 clearly articulates the IEP: “Integrated energy planning (IEP) is a process which entails the following technical functions:– interpreting the requirements of national economic, social

and environmental policies for the energy sector– analysing energy needs in terms of how their fulfilment will

contribute towards attaining national economic and social goals

– analysing the potential of energy supply systems and demand side management to meet current and potential future energy needs. This would include analyses of individual supply sub-sectors and the linkages between sub-sectors

– analysing energy sector linkages to the macro-economy – analysing the potential effects on the energy sector of global

and technological developments– evaluating the effects of legislative, institutional and industry

structure arrangements on energy supply and demand– specifying, sourcing and presenting data on energy supply and

demand, energy sector institutions, and linkages with economic and social factors in order to provide a statistical description of the energy sector’s historic evolution and current impact on economic and social development


• EWP:82– Government will facilitate the provision of the

necessary resources to establish IEP structures and systems to develop energy policy

– The Department of Minerals and Energy will ensure that an integrated resource planning approach is adopted for large investment decisions by energy suppliers and service providers, in terms of which comprehensive evaluations of the economic, social and environmental implications of all feasible supply and demand side investments will have to be undertaken.

– In the electricity sector’s case, the National Electricity Regulator will only license new facilities upon the satisfactory completion of an integrated resource plan


EWP:84 • Not only is good data required for the energy policy process

but it is fundamental to the implementation of integrated energy planning. To facilitate integrated energy planning a database needs to be maintained covering at least the following areas:

– energy resources– energy production from indigenous resources (mining, renewables, oil

and gas)– international energy trade (imports and exports)– energy transformation (production of liquid fuels and electricity from

other sources)– storage, transport and distribution of energy– national energy trade (wholesale and retail)– investment in plant and infrastructure associated with the above areas– disaggregated energy usage, expressed in energy and cost terms– energy efficiency– energy related environmental emissions– average sectoral energy prices and taxes– institutions linked to all the above areas– similar data from regional and international sources

Energy Modelling System (NIEMS)

Proposed energy modelling

• Represents energy supply, conversion, and demand in a unified, but modular system

• Detailed structural and process models in most energy sectors

• Typically a bottom up approach of model formulation

• Models real consumer, supplier and equipment behaviour

• Track changes to building stock and equipment & appliance stock by type and region

• Rely on data from residential and commercial energy surveys

• Choose new or replacement equipment for each energy service based on cost and performance characteristics and modelled economic behaviour

• Technology characteristics to reflect future cost reductions and performance improvements, and mandated efficiency standards and building regulations

Residential and Commercial Demand Modules

• Sector energy consumption– By fuel type (electricity, coal, gas, etc)– End-use (heat, lighting, cooking, etc), – Building/housing type– Region

• Households and floor space– New construction, surviving, building type

• Energy consumption intensity (use per square foot)– Delivered (site), electricity losses, total (primary)

• Sector carbon emissions by fuel type• Average residential equipment stock & efficiency

– By end-use– By fuel type (commercial),– By equipment (residential)– Stock (residential)

Buildings (Residential/Commercial) Sector Projections

• Heating• Cooling• Water Heating• Refrigeration• Freezers• Cooking• Clothes Drying• Clothes Washing• Coffee Makers• Handheld

Rechargeables

• Lighting• Dishwashers• Televisions• PCs• Furnace Fans• Spas• Security Systems• Home Audio• Microwaves• Ceiling Fans

Residential End Use Services

• Heating• Cooling• Water Heating• Ventilation• Refrigeration• Cooking• Lighting

• Office Equipment (PCs)

• Office Equipment (non-PCs)

• Other

Commercial End Use Services

• Industry sector decomposed into manufacturing industries, agriculture, construction and mining

• Energy use estimated by major process steps or end uses based on major technology bundles

• Energy intensity for each bundle declines based on time, rate of capacity additions, and energy prices

• Motor stock model included for manufacturing industries

• Combined heat and power (CHP) technology adoption simulated

• Fuel switching, recycling, and byproducts included

Industrial Demand Module

• Distinct approaches for light-duty vehicles, trucks, rail, shipping and air travel.

• Energy use in light-duty vehicles– Vehicle-miles traveled estimated based on cost of driving,

income, and demographics– Tracks light-duty vehicle stocks by type and age– Fuel-saving technologies selected for cost effectiveness

and compliance with fuel economy standards– Alternative-fuel and advanced technology vehicle sales

are a function of technology attributes, costs, and fuel prices

• Freight truck and air are also vintaged stock models– Commercial, medium, and heavy trucks– Regional, narrow, and wide body aircraft

Transportation Demand Module

NIEMS Macroeconomic Activity Module

• Could use Global Insight Macro Model– Links all energy variables within the GI

model to NIEMS energy variables• Global Insight model has 26 energy variables

– Uses Input/Output model with dynamic specification for industrial output

• Global Insight model has 60 industrial sectors

– We would require an employment model • We could calibrate existing similar models to

suit South Africa

NIEMS Macroeconomic Activity Module

• Regional Model– Forecasts regional product, wages and

salaries, disposable income, consumer prices, population and housing activity

– Uses Census projections for population and national concepts to estimate regional results

– Regional commercial floor space model estimates floor space stock and additions for floor space types

– Major explanatory variables include income, interest rates, population by region

• Emissions accounting included in NIEMS design

• Each solution generates and accounts for GHGs and other emissions

• Embedded cap and trade system• Marginal abatement cost for other

GHGs to simulate reductions under economy-wide policies

• All other environmental issues are determined in each module

Cap on CO2 Emissions

Energy efficiency & EWP 98

• EWP deals energy efficiency in detail• P10:

– It is estimated that greater energy efficiency could save between 10% and 20% of current consumption. Government needs to facilitate increased energy efficiency. Obstacles include:

• inappropriate economic signals• lack of awareness, information and skills• lack of efficient technologies• high economic return criteria; and• high capital costs.

– Government commits itself to facilitate greater energy efficiency


• P14: – Government will create an energy efficiency

consciousness and will encourage energy efficiency in commerce and industry. Government will establish energy efficiency norms and standards for commercial buildings and industrial equipment, and voluntary guidelines for the thermal performance of housing. A domestic appliance-labelling programme may also be introduced. Publicity campaigns will be undertaken to ensure that appliance purchasers are aware of the purpose of appliance labels


• P15: – Government's capacity to implement energy efficiency

programmes is currently limited– Government will investigate the establishment of

appropriate institutional infrastructure and capacity for the implementation of energy efficiency strategies (p29)

– The functions of such an institution are outlined– Targets for industrial and commercial energy efficiency

improvements will be set and monitored

• P27:– energy-efficiency targets will be established and

programmes will be mounted to conserve energy

Energy efficiency & EWP:87

• Government's capacity to undertake the energy efficiency programmes described herein is rather limited. Other countries in similar circumstances have found the establishment of an agency to be an effective means of providing the necessary capacity and flexibility to implement such programmes. The functions of such an agency could include:– building consumer awareness of energy utilisation and cost-

saving measures– demonstrating to consumers the benefits of energy efficiency

measures through audits, demonstrations, sectoral analyses and other activities

– building the capacity to implement targeted energy efficiency programmes

– training people in energy efficiency methods– identifying and facilitating the removal of barriers to energy

efficiency• Government will further investigate the establishment of

appropriate institutional infrastructure and capacity for the implementation of energy efficiency strategies

Energy research & EWP 98

• P15: Government expects energy suppliers and the private sector to carry out appropriate research

• P28: – Stimulate energy research and development partnerships

between local role players and international agencies– Facilitate the development of a research strategy to improve

energy research and development• P29: Develop and implement an appropriate system to

co-ordinate energy research• P64: promote research, technology development and

technology transfer to stimulate the optimal development of the country’s oil and gas resources

• P94: – Energy research is currently supported by government,

government agencies, parastatals and the private sector– The Department of Minerals and Energy manages a limited

non - nuclear research programme

EWP and Energy Research

• P96:– Government will consider the development of a

system to prioritise national research funding into the three main research categories in order to address the medium to long-term research needs in the energy sector. This will consist of an integrated, multi-year, national, needs-driven, energy research strategy, developed from time to time by an experienced team of experts appointed by the Minister. This strategy will identify medium and long-term priority programmes and themes

– Extensive energy-related research is taking place in other countries, the results of which may be of value in South Africa. These developments are monitored by researchers, energy industries, energy consumers and others

Renewable energy & EWP

• P7: The research and development of alternative and renewable energy sources is also being promoted

• P14: – Government believes that renewables can in many

cases provide the least cost energy service, particularly when social and environmental costs are included

– Government will also promote appropriate standards, guidelines and codes of practice for renewable energy and will establish suitable renewable energy information systems

• P29: Investigate an environmental levy on energy sales to fund the development of renewable energy, energy efficiency and sustainable energy activities


• P79: Government policy on renewable energy is thus concerned with meeting the following challenges:– ensuring that economically feasible technologies and

applications are implemented– ensuring that an equitable level of national resources

is invested in renewable technologies, given their potential and compared to investments in other energy supply options; and

– addressing constraints on the development of the renewable industry

• P80: – Government will provide focused support for the

development, demonstration and implementation of renewable energy sources for both small and large-scale applications

– Government will support renewable energy technologies for application in specific markets on the basis of researched priorities


• P81: – Government will establish suitable

information systems of renewable energy statistics, where justifiable, and will assist with the dissemination thereof

– The capacity of the Department of Minerals and Energy is presently being improved in order to cater for the need to implement the proposed renewable energy policies and programmes

Security of supply and EWP

• P27: – Objective 5 - Securing supply through diversity

• P55: – Concerns are, however, being raised in some

countries about the impact of competition on equity and environmental goals and the ability of a competitive market to ensure sustained investment and security of supply at low prices in the long term

• Security of supply not well captured in the EWP

Security of supply

• The Bill allows the Minister to, for the purposes of ensuring security of supply, direct any state-owned entity – to acquire, maintain, monitor and manage

national strategic energy feedstocks and carriers in accordance with the relevant published security of supply strategies or policies

– to—• undertake security of supply measures• provide for adequate investment in energy

infrastructure• invest in critical energy infrastructure• ensure upkeep of all critical energy infrastructure

Thank You

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