Investment in electricity generation, the role played by IPPs and market structure

1
Investment in electricity generation, the role
played by IPPs and market structure
Energy Summit Sandton Convention Centre26
September 2007

• Koena Moholola
• Director Electricity Supply
• Koena.moholola_at_dme.gov.za

2
Presentation Outline

• Introduction
• Energy White Paper Position
• Policy Principles and Assumptions
• What has changed?
• What has been achieved?
• Conclusions

3
Introduction

• With the adoption of The White Paper on the
  Energy Policy of 1998, Government has sought to
  integrate its broad policy frameworks, with the
  need to provide policy stability for investors,
  suppliers and consumers in the sector.
• Recognising the potential role that the energy
  sector could play in achieving national growth
  and development aims, the following five key
  objectives are identified in the White Paper on
  the Energy Policy
• Increasing access to affordable energy services
• Improving energy governance
• Stimulating economic development
• Managing energy-related environmental impacts
• Securing supply through diversity.

4
Energy White Paper Position

• The Energy White Paper (EWP) of 1998 clearly
  stipulates Governments intention regarding the
  introduction of Independent Power Producers
  (IPPs) in the South African electricity market.
• Stimulating economic development
• Government will encourage competition within
  energy markets.
• Government will adjust electricity market
  structures to achieve effective forms of
  competition
• Securing supply through diversity
• introducing competition into the industry,
  especially the generation sector
• permitting open, non-discriminatory access to the
  transmission system

5
Energy White Paper Position cont

• Electricity market structure
• Government will initiate a comprehensive study on
  future market structures for the South African
  electricity supply industry.
• The introduction of Independent Power Producers
  (IPP) will be allowed in the South African
  electricity market.
• Mechanisms will be put in place to ensure that
  equity and environmental goals are achieved, and
  possibly even accelerated, throughout the market
  restructuring process and thereafter.

6
Policy Principles and Assumptions.

• Some of the benefits identified by the EWP with
  regard to the introduction of competition and
  private sector participation include
• increased opportunities to exploit cheaper and
  environmentally benign generation options
• the potential to increase the level of supply
  security, at a lower cost, through a regionally
  integrated and diversified supply base
• the potential for efficiency improvements and
• the potential for downward pressure on
  electricity prices.

7
What has changed?

• Government decided to re-think its policy
  position regarding competitive electricity
  markets following events around the world
  affecting the electricity industry, the
  California Crisis, the Black out in North America
  and Western Europe, Enron all of these events
  suggested that the state has to put security of
  supply above all and above competition
  especially.
• In line with the government strategy to reduce
  the cost of doing business in South Africa,
  Government focused on improving the governance of
  the electricity sector.
• This was done through the development of the
  electricity regulation regime and by modernising
  the existing Electricity Act. The new
  legislation will created an enabling environment
  for new Independent Power Producers (IPP's) and
  improve governance of the electricity suppliers.

8
What has been achieved?

• In December 2003, Government nominated the
  Department of Minerals and Energy (DME) to
  promote the establishment of new, privately-owned
  power generation projects in South Africa.
• Government also required the DME to enhance the
  energy sector by promoting fuel diversity
  private sector competition in financing,
  construction and operation Black Economic
  Empowerment through investment and services
  production of least-cost electricity information
  to guide policy on private versus public sector
  procurement.
• After a rigorous tendering process, the DME has
  appointed a consortium lead by AES as the
  preferred bidder for two peaking power plants.
  It is envisaged that financial closed will be
  reached by the end of the year and the power
  plants will be operational by the last quarter of
  2009.

9
Conclusions

• It is evident that the IPPs are needed in the
  South African power generation sector to augment
  Eskoms capacity in meeting the growing energy
  demand. Eskom is currently embarking on a R150
  billion infrastructure roll-out programme.
• With the participation of IPPs in the power
  generation sector, Eskom will have an opportunity
  to pass some of its risks to the private sector
  (IPPs).
• The IPPs are the only vehicles at the disposal
  Government to ensure meaningful BEE participation
  with regard to equity ownership in the power
  generation sector.
• Experience has shown that there is sufficient
  market appetite for private sector participation
  in the power generation sector.

10
END