Integrating Renewables into Energy mix: NMBM Experience

by

Dr Wolsey Barnard

EnBar Consulting

Content

• Global Challenges• South African Energy Picture• NMBM Energy History • NMBM Renewable Energy Projects• Legal aspects on Powers and Functions of Municipali ties• Renewable Energy implementation challenges – NMBM

experience• Questions on the way forward on Renewable Energy pr ojects• Recommendations

Global Challenges

Global Challenges

• World primary energy resources and usage patterns are under serious threat.– Population growth; – Over exploitation of natural resources and – Pollution through CO2 and other Greenhouse gas

emissions from fossil fuels

• World wide implementation of Renewables

World population growth last 2000 years

World Energy usage: 1965 - 2005

Depletion of world wide oil reserves: 1920 - 2005

World proportional to CO 2 emissions – fossil fuels

Renewable Energy (RE) Global Statistics • Installed wind generators capacity in world by 2008

– World wide:120 800 MW– Africa about: 570 MW

• Egypt 365 MW• Morocco: 135 MW

• Tunisia: 55 MW

• South Africa :7.5 MW

• Installed PV world wide by 2007– World wide: 3 850 MW– Planned installed for 2010: 600 MW – Main usage

• Solar Home Systems: 23%• Grid connected Small scale: 17%

• Communications: 12%

• Rest for water pumping, village power,

remote housing/schools/clinics

South Africa Energy Picture

South Africa Energy Picture• Energy picture dominated by Coal – was in abundance and relative cheap • Energy-from-Coal technologies highly developed • Electricity prices were among the lowest in world, however sharp increase in

electricity tariffs for next three years, and the years to come• Successful Electrification programme – Highest electrification rate in world for

period 1999-2001• No formal national Energy Planning done before 2002

– Utilities or Enterprises driven planning processes followed

– Supply side focus

• High Energy consumption per capita - Energy Efficiency and DSM initiatives and measures implemented limitedly

• Highly monopoly vertical integrated industry structures• ESI structure and Regulatory environment limited competition and

entry of private players (IPP’s)• Limited Energy diversification - gas, renewable energy etc

National Primary Energy Supply, 2002

0%

10%

20%

30%

40%

50%

60%

70%

Coal

Crude

Oil

Gas

Nuclear

Hydro

Bio/Ren

ew

Primary Energy Carrier

%

National Energy Consumption, 2002

Coal28%

Petrol&Diesel35%

Electricity29%

Biomass8%

South Africa Energy Carriers and consumption

South Africa Energy Picture cont.

• White Paper on Renewable Energy announce 10 000 GWh (about 1650 MW) of RE to be implemented by 2014 – no strategy.

• Ever decreasing generation involvement by municipalities, • In SA the economic growth rate is about equal to our growth in electricity

demand,• Running out of base load and mid-merit generation capacity by 2007,• A number of generation units are in ‘mid-life’, thus requiring major planned

maintenance and refurbishment,• Electricity reserve margin for a coal based generation supply industry needs to

be about 15% - running it at a 7-10% (not taking into account coal contacts, coal supply and quality challenges,

• Announcement of Power Conservation Programme (PCP) ,• SA has proven RE possibilities,

Klipheuwel Load Profile

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1,000

1,200

1,400

30 130

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530

630

730

830

930

1030

1130

1230

1330

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2330

Time of Day

Ave

rage

kW

gen

erat

ed

200301

200302

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200312

Off-Peak Period Peak Period Standard PeriodStd Standard Off-PeakPeak

Klipheuwel Load Profile

South Africa Energy Picture cont.

• White Paper on Renewable Energy announce 10 000 GWh (about 1650 MW) of RE to be implemented by 2014 – no strategy.

• Ever decreasing generation involvement by municipalities, • In SA the economic growth rate is about equal to our growth in electricity demand,• Running out of base load and mid-merit generation capacity by 2007,• A number of generation units are in ‘mid-life’, thus requiring major planned

maintenance and refurbishment,• Electricity reserve margin for a coal based generation supply industry needs to be

about 15% - running it at a 7-10% (not taking into account coal contacts, coal supply and quality challenges,

• Announcement of Power Conservation Programme (PCP) ,• SA has proven RE possibilities,• RE bidding process announced by DoE and Eskom with assistance from NERSA,• NERSA announce RE Feed-in Tariffs (REFIT) in Aug 2009 and• Updated IRP 1 published in December 2009

Technology Unit REFIT

Concentrated Solar Power (CSP) trough without storage

R/kWh 3.14

Large scale grid connected PV systems (≥ 1 MW)

R/kWh 3.94

Biomass solid R/kWh 1.18

Biogas R/kWh 0.96

CSP Tower with storage of 6 hrs per day R/kWh 2.31

Table 2: REFIT Tariffs Phase II – 29 th of October 2009 approved

Technology Unit REFIT

Concentrated Solar Power Trough plant with 6 hours storage

R/kWh 2.10

Wind R/kWh 1.25

Small hydro R/kWh 0.94

Landfill gas R/kWh 0.90

Table 1: REFIT Tariffs Phase I – REFIT guidelines ap proved on 26 March 2009

NERSA - Renewable Energy Feed-in Tariffs (REFITs)

South Africa Future Electricity Supply Options

Options for South Africa – IRP 1• Coal fired power stations• Nuclear power stations• Gas power stations

Update IRP 1 published 31 December 2009• Renewable energies

– Wind– PV– Small hydro– Landfill gas– Biogas

NMBM Energy History

NMBM Energy History

• Electricity and Energy Directorate investigated Renewable options from early 2000’s as special projects

• Why was alternative options explored?– Expected electricity demand increase (COEGA development, NMBM increase in

demand)– Foresaw energy crisis – pro-active

– Environmental concerns

• Integrated Energy Plan (IEP 2004)– RE identified as critical focus area – specific potential for Solar and Wind projects

– Wind energy will be a competitive alternative

– Solar water heating will be an economical choice

• Mayoral Executive request for exploring renewable energy options - November 2005

• IEP incorporated into IDP - 2006

NMBM Energy History cont. • RFP was advertised - February 2006• Outcome a basket of renewable projects identified by end of 2006• Staff allocated on a permanent basis to RE projects – 2006/7• Started with site identifications, tests and EIA studies in 2006/7• Different business models explored in 2006 - 08• Involved universities, NGO’s, advisors and potential investors - 2007/8 • Held serious of Workshops and started to engage with decision making

entities - 2007/8 • Finalised project technical, financial and HR details – 2008/09• Approval processes started with EIA, Generation licence application,

drafting various contracts, PPA’s, equipment technical details, grid connection aspects, financing and business models – 2009

• IEP updated in 2009.

NMBM Energy usage 2002

Electricity 38%

Diesel 19%

Petrol 32.5%

LPG 1.5%

Paraffin 3.5%

Coal/Wood 2.5%

HFO 3%

Electricity

Diesel

Petrol

LPG

Paraffin

Coal/Wood

HFO

NMBM Energy usage 2007

Electricity 36%

Diesel 26.5%

Petrol 30%

LPG 0.5%Paraffin 2%

Coal/Wood 2%

HFO 3%

Electricity

Diesel

Petrol

LPG

Paraffin

Coal/Wood

HFO

NMBM energy consumption – 2002 to 2007

Category GWh 2008/09 Consumption %

Domestic credit 390 11.5%

Domestic prepaid 800 23.5%

Business - Small 100 3%

Business - Medium 450 13%

Business - Large 1 610 47.5%

Streetlights 45 1.5%

Total 3 395 100%

NMBM category and consumption figures 08/09 .

NMBM energy consumption predictions

NMBM Renewable Energy Projects

NMBM Renewable Energy ProjectsDSM and Energy Efficiency projects• Street light upgrade with EE ligths

• Entire network upgraded to be energy efficient

• City Hall added as showcase buildings• Water reticulation and waste water treatment

• Final stage of Solar Water Heater business case

and roll out strategy.

Generation projects – Renewable Energy mix• Wind farm – 23 MW

• Biomass – Fish Water Flats plant - 2 MW• Landfill gas projects:

– Arlington: 2 MW

– Koedoeskloof: 1 MW

Highest tariff increase of 2%, while after three ye ars shavings will be experienced

Legal aspects on Power and Functions of Municipalities

Legal aspects

• The Constitution in Section 152 states that: “The Objects of local government are

(a) to provide democracy and accountable government for local communities

(b) to ensure the provision of services to communities in a sustainable manner

(c) to promote social and economic development(d) to encourage the involvement of communities and community

organisations in the matters of local government”

Legal aspects cont. • The Constitution in Section 156 deals with Powers and functions of

municipalities “(1) A municipality has executive authority in resp ect of, and has the right to administer - the local government matters listed in Part B of Schedule 4 and Part B of Schedule 5; and any other matter assigned to it by national or provincial legislation . (2) A municipality may make and administer by-laws for the effective administration of the matters which it has the right to administer. (3) Subject to section 151(4), a by-law that conflicts with national or provincial legislation is invalid. If there is a conflict between a by-law and national or provincial legislation that is inoperative because of a conflict referred to in section 149, the by-law must be regarded as valid for as long as that legislation is inoperative. (4) The national government and provincial governments must assign to a municipality, by agreement and subject to any conditions, the administration of a matter listed in Part A of Schedule 4 or Part A of Schedule 5 which necessarily relates to local government, if -that matter would most effectively be administered locally; and the municipality has the capacity to administer it. (5) A municipality has the right to exercise any po wer concerning a matter reasonably necessary for, or incidental to, the effectiveperformance of its functions. “

• Local Government: Municipal Systems Act (32 of 2000 ) (MSA)S8 (2) of the Local Government: Municipal Systems Act (32 of 2000) (MSA) states that “ A municipality has the right to do anything reasona ble necessary for, or incidental to, the effective performance of its fun ctions and the exercise of its powers ”

S 11 of the MSA deals with executive and legislative authority and S11(3) records that a municipality exercises its legislative and executive authority by inter alia “ promoting and undertaking development, providing mu nicipal services to its local community and promoting a saf e and healthyenvironment ”

It follows that a municipality has the responsibili ty, and the powers to ensure that services are provided in a financially and environmentally sustainable manner.

Legal aspects cont.

Renewable Energy Implementation challenges – NMBM experience

NMBM Experience The following issue were identified as important to the NMBM RE projects:• Conduct an IEP• Get political support from onset, since various approvals are required, • Make RE part of IDP,• Need permanent staff allocated to RE projects, • Budget for external professional technical, legal and financial expertise,• Secure investors into project(s),• Clarify if RE will be incorporate into broader electricity mix or supplied to

dedicated customers, both have tariff implications to be clarified with NERSA,• Notify your intentions and projects to DoE, Eskom and NERSA, • Secure local engineering companies/NGO’s/universities/ to run pilot projects

on the technologies to be implemented,• Keep good communication with municipality internally, to customers,

media, and all relevant national entities

NMBM Experience cont. • Apply for generation licence with NERSA

– Conduct EIA – allow at least 18 months– Complete regional/municipality IEP– Get technical issues finalised– Projects are in line with various grid and meter codes– Complete financial model – Developed and get PPA signed by all parties– Obtain funding letters from investors/financial institutions– Finalise HR info and relevant issues– Sort out Health and Safety aspects– Make sure that projects are BBBEE compliant– Secure land rights– Obtain primary energy rights, i.e gas, water etc.– Developed tariff structure and cost structures with RE

projects as part of energy mix.

NMBM Experience cont.

• Various challenges can be experienced such as: – No clear-cut policy and regulatory principles been formulated,– Conflicting answers from different officials within the same institution,– Respective institutions are only focusing on their narrow areas and don’t

understand the broader picture,– Single buyer model with Systems Operator that are within Eskom is

making it basically impossible to get any PPA’s signed, – Small scale projects are not taken seriously when negotiating with Eskom,– Lack of practical experience by officials involved with RE makes it difficult

to obtain supportive assistance,– Due to long process times in SA, international investors, manufacturers

and financial institutions may lost interest in RE projects and – Timeframes of any RE project need to be multiplied by π.

Questions on the way forward for RE • Where will the finance come from to sustain REFIT?• What criteria will DoE, Eskom and NERSA be made in evaluating

various RE ? Will it be transparent decision ?• To many entities currently running around try to get a RE project going,

consolidation will have to take place in the near future. How long before amalgamation?

• Foresee that for the next couple of years, as with the onset of electricity generation industry in SA, various municipalities will again be involved with its own RE generation,

• When will the newly announced ISO be in operation and if it willbe in time for the current RE projects to receive the benefit if it.

• South Africa has all the various policies, IRP announcement, various RE projects, when will we receive the go-ahead?

Recommendations• Municipalities can and need to fulfil the Renewable Energy

obligation in terms of their powers and functions that they have in terms of the Constitution and MSA,

• Renewable Energy project implementation is a time consuming and challenging process,

• DoE, Eskom and NERSA will have to follow a transparent evaluation process in allocating Renewable Energy licences,

• Current ESI structure not supportive to Renewable Energy licenceapplications and implementation options and

• Municipalities to investigated the option to become Renewable Energy generators.

• Believe the recent initiatives of Government and NERSA will assist in RE role-out.

Thank You

Fossil IPP1 Nuclear IPPn

Eskom holdings

Eskom EnterprisesImports

Market operator

Distributor2Distributor1 Distributor6 Distributorn

Independent TRANSMISSION company (State owned)Systems operator + Network operator

Eskom Generation

Customers

RE IPPnRE IPP1

Gen nGen 1

Distributor1

Electricity Supply Industry (ESI) future structure

Legal aspects cont.

• It follows that in undertaking the municipal functions referred to above (which is for the reticulation of electricity and gas) municipalities must do so in a way which “promotes and protects the right of its citizens to a clean and healthy environment and specifically with regards toservices, deliver these in a sustainable manner whilst at the same time promoting social and economic development”

• With regard to the powers of municipalities, municipalities have the rights to exercise any power concerning a matter reasonably necessary for or incidental to the performance of its functions

NMBM Renewable Energy Projects

DSM project• Solar water heaters project

• 1000 units installed by July 2009

• Fieldwork of first baseline study completed• Community workshops been held

• Community must understand:• Technology• Usage and

• Maintenance of system

• Implementing body• Community to take ownership

NMBM Renewable Energy Projects

DSM project

• Universities, NGOs, departments and other relevant stakeholders were invited to takepart in the pilot project.

• Local labour is used where possible to empower communities

• A one-year maintenance program for allinstalled systems.