John Joslin - Smart Green Prosperityjohnjoslin@mweb.co.za

082-969-2497 January 2010

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

South Africa needs electricity for◦ Development◦ Poverty reduction◦ Global competition◦ Future transportation

Planning and tariff requests must be based upon Long term planning based upon evaluation of

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

California’s energy efficiency programmes 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

What can we learn from California?◦ Is this true=yes◦ If so surely we can learn from this

Has ESKOM studied this ?◦ This is a question that ESKOM should answer

Has ESKOM used this approach in its planning?

ESKOM should take this into account for its future planning

Energy EfficiencyThe cheapest Source of

electricity

There is considerable evidence to show

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”

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

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

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

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

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.”

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.

We must keep this long term solution in mind

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

Planning should be based on all viable technologies◦ 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)

Full cost for Coal-fired power◦ Pollution and Health◦ Pollution from coal mining◦ Carbon tax◦ Carbon sequestration and storage

Full coal costing (Dr Koos Pretorius)◦ 2010-2011◦ Eskom application R40 billion◦ External costs R18 billion◦ Full costs coal R58 billion

Dr Koos Pretorius’s calculations of ESKOM external costs◦ = R 18 000000000 18 Billion pa.

From ESKOM’s application◦ 2010-2011 primary energy costs◦ = R 40 billion

With externalities◦ Full primary energy costs

= R58 billon pa.

With full costs work out levelised costs◦ Full costs over life/GW generated over life

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 LTMS and Stern review say must calculate on

0% and 3% and higher and get representatives to select based on value placed on future.

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

Solar◦ Capex R150 billion◦ Primary energy R 0◦ Life 40 years

Results - Primary energy costs Coal

◦ 40 years R1600 billion Solar

◦ 40 years R0 pa. =R0 Total costs

◦ Coal R100 billion + R1600billion =R1700 billion◦ Solar power R150 billion

Coal is R1700billion and solar is R150 billion Solar wins hands down.

This is using no discount rate

Realistic Depreciation Costs

ESKOM can work with more realistic replacement depreciation costs◦ Historical depreciation is not acceptable

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

Use the evaluation method described in this presentation- full costs levelised costs

“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..”

Depreciation costs are very large◦ R47 billion in 2014

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 This will take account of the changing prices

and technologies See learning curves below

Historical costs not acceptable◦ MEA method still based on formula

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 ESKOM can work out replacement costs

based on bidding

Eskom and Climate Change

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 50per 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 aspossible, 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 andoverriding priorities of developing countries and that a low-emission development strategy is indispensable to sustainable development.

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 andfinancing 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 thataccounting of such targets and finance is rigorous, robust and transparent.

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 nationalcommunications every two years

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 seekinginternational support will be recorded in a registry along with relevant technology, finance andcapacity building support. Those actions supported will be added to the list in appendix II. Thesesupported nationally appropriate mitigation actions will be subject to international measurement,reporting and verification in accordance with guidelines adopted by the Conference of the Parties.

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.

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

The Copenhagen accord has been signed by 190 countries◦ All emerging developing countries have agreed to

submit their mitigation and adaptation policies These will be subject to bi-annual reporting

and verification

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

The accord will be “policed” by global public opinion

If it becomes a binding treaty in 2010 it will get more demanding

The world will see if we keep to 34% and 42% promises

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

We are 400Mt now and must be 464Mt in 2030

Only 64 MtCO2e increase allowed by 2030. ESKOM expansion adds 100MtCO2-e by 2014

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!!

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

This will not hamper development

Green jobs created

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

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”. 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

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.

Thank You. Questions? John Joslin

Smart Green Prosperity Project johnjoslin@mweb.co.za

082-969-2497 January 2010