Eskom

1
Eskoms Pilot National Cogeneration Project
60th AMEU Convention

• Rob Higgo, Project Development Department
• Stuart van Zyl, Industry Association Resource
  Centre
• 16 October 2007

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Contents

• Background
• Strategic issues
• The need for a pilot project
• Objectives Principles of the pilot project
• Eskoms Pilot Project
• What is Eskom Offering
• Consideration of Connection Billing Issues
• Network considerations

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What is Co-generation?

• Co-generation a source of electrical power that
  is a co-product, by-product, waste product or
  residual product of an underlying industrial
  process.
• Type I projects utilizing process energy which
  would otherwise be underutilized or wasted (e.g.
  waste heat recovery).
• Type II Primary fuel based generation projects
  which produce other usable energy in addition to
  electricity (e.g. Combined Heat and Power
  projects).
• Type III Renewable fuel based projects where
  the renewable fuel source is a co-product of an
  industrial process (e.g. use of bagasse and/or
  forestry waste from the sugar and paper
  industries).

4
The Eskom challenge

• During June 2006, Eskoms Exco challenged the
  organisation to develop new cogeneration
  opportunities in South Africa
• A target of 900MW1 was established, to be
  achieved within a 5 year window, ending March
  2011
• In so doing, Eskom would
• Support NERSAs initiative to established a
  cogeneration framework (guidelines) that will
  promote new cogeneration
• Pursue and actively procure cogeneration
  opportunities that make good business sense
• An Eskom cogeneration workgroup was established
  internally to support the initiative
• Eskom has worked jointly with the EIUG workgroup,
  NERSA and others in industry to meet its
  objectives

1) The target is not definitive, and actual
cogeneration developed will be dependent on
market response
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Strategic Considerations

• Cogeneration has potential to deliver capacity
  quickly
• Cogeneration may provide electricity at lower
  cost than conventional generation (not all
  Cogeneration is cheaper)
• Cogeneration potentially reduces investment in
  networks and supports distributed generation
• Transmission cost savings
• Cogeneration may improve industrial efficiency
  and can be environmentally friendly e.g.
  Combined Heat and Power (CHP)
• Deferred investment at (possible) lower cost
• Overall efficiency gains
• Environmental benefits
• Improved reliability and quality of supply
• Employment / BEE opportunities

Eskoms strategic considerations closely mirror
those of the EIUG and Industry
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The need for an Eskom pilot project

• NERSAs guidelines, regulations and
  implementation programme may take some time to
  conclude
• Window of opportunity exists between now and
  approximately 2012
• Eskoms first new base load power plants due to
  come on line during 2012 to 2013
• The initial pilot will allow both Eskom and
  NERSA an opportunity to gauge the cogeneration
  market in SA
• Quantity and size of the market offering
• Cogeneration mix, location, profile
• Pricing of cogeneration options being proposed
• Timing of potential cogeneration projects
• Results from the pilot project will feed into
  the current NERSA guidelines and thinking
• Lessons learned will be carried forward into the
  long term model for SA

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Objectives Key principles

• Develop the necessary tender documentation to
  attract new cogeneration
• Obtain NERSA support and approval for the process
• Develop a standard contract for cogeneration
  developers which is bankable (PPA)
• Have a transparent evaluation process to evaluate
  tender submissions
• Implement the process in a timely fashion
• Develop a ceiling price which will be approved by
  NERSA beyond which contracts will not be offered

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Objectives Key principles

• Transparency
• Well defined and clearly understood process
• Known implementation parameters
• Equitable treatment across projects
• Determination of qualifying projects
• Simplicity
• Procedural simplicity for projects to achieve
  regulatory approval
• Minimisation of transaction negotiations
• Minimisation of transaction costs

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What is Eskom offering?

• An opportunity to attract and contract new
  cogeneration into the market
• Requirements
• new build or re-commissioned plant of nett
  capacity gt1MW.
• Must be co-generation not renewable generation
  that requires renewable energy grants (i.e. must
  be cost effective as a stand alone co-generator)
• Cheapest bids from technically and commercially
  qualified bids win contract provided that they do
  not exceed the ceiling price set by Eskoms
  avoided cost model
• there are modifiers for siteing and timing (first
  on line) advantages
• Maximum 15 year contracts are offered
• A standard contract (PPA) was developed for the
  Cogeneration projects which include inter alia
• Payment profiles aligned with energy needs
  support TOU / peaking periods Winter vs. Summer
  etc.

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Progress to date

• Pilot project is essentially a tender process.

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Progress to date

• Summary of EOIs received Co-generator Types

Waste Energy
Renewable Energy
Generation with 2ndary Process Energy
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Progress to date

• Summary of EOIs received Generator net output

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Contractual vs Physical Flow
Eskom Generation
Physical flow
Contractual flow
Eskom Wholesaler
Eskom Tx Network
ESAa (Meter 1 2)
Retailer (Eskom Dx / Munic / RED)
Dx Network (Eskom Dx / Munic / RED)
PPA (Meter 2)
ESAb (Meter 1 2)
Meter 1
Meter 2
Industrial Load
Cogeneration
Within embedded generation networks
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Contractual vs Physical Flow
Physical flow
Eskom Generation
Contractual flow
Eskom Wholesaler purchases Eskom energy generated
at existing Eskom generation tariff
Eskom Wholesaler
Eskom Tx Network
ESAa (Meter 1 2)
Eskom Wholesaler purchases gross energy
generated at Meter 2 at cogen PPA tariff
Retailer (Eskom Dx / Munic / RED)
Dx Network (Eskom Dx / Munic / RED)
PPA (Meter 2)
ESAb (Meter 1 2)
Meter 1
Meter 2
Industrial Load
Cogeneration
Within embedded generation networks
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Contractual vs Physical Flow
Eskom Generation
Physical flow
Contractual flow
Eskom Wholesaler
Eskom Tx Network
Eskom Wholesaler bills for energy summating
Meters 1 and 2 at standard power sales tariff
within identified and ring fenced area
ESAa (Meter 1 2)
Retailer (Eskom Dx / Munic / RED)
Dx Network (Eskom Dx / Munic / RED)
PPA (Meter 2)
ESAb (Meter 1 2)
Meter 1
Meter 2
Industrial Load
Cogeneration
Within embedded generation networks
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Contractual vs Physical Flow
Eskom Generation
Physical flow
Contractual flow
Eskom Wholesaler
Eskom Tx Network
Retailer similarly bills for energy summating
Meters 1 and 2 at standard power sales tariff
within identified and ring fenced area
ESAa (Meter 1 2)
Retailer (Eskom Dx / Munic / RED)
Dx Network (Eskom Dx / Munic / RED)
PPA (Meter 2)
ESAb (Meter 1 2)
Meter 1
Meter 2
Industrial Load
Cogeneration
Within embedded generation networks
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Connection Billing Arrangements

• The export of energy may be physical or only a
  commercial arrangement (own use but paid for by
  Eskom)
• The commercial arrangement (PPA) will not impact
  the distributors revenue (no netting off of
  usage)
• PPA will be with co-generator and ring-fenced
  contractually from the usage by the end user
  (load)
• Standard tariff paid by end user (load) for
  energy purchased by consumer is that metered by
  the distributor plus energy generated by
  co-generator and sold to Eskom via the PPA
• No impact on sales and revenue
• Distributor to take into account technical
  factors arising from generator connection
• The associated costs payable by the generator
• Physical export will increase technical
  complexity and impact connection costs

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Technical Considerations

• Penetration levels of Embedded Generation are
  low Experienced SA engineers are few.
• Consultant(s) to be appointed to assist in
  evaluating technical impact and provide designs
  where required
• Includes skills transfer on network studies
• Embedded Generator connection policy is handled
  in the Grid and Distribution codes
• Distribution Code approved by NERSA October 2007
• Principle of open access to Embedded Generators
• Each Distributor to develop interconnection
  standards
• Detailed technical guidelines lacking
• Eskom interconnection standard
• Planning guideline

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Technical factors to be considered

• Fault level contribution
• Detection of Loss-of-Grid
• Difficult to detect in some instances
• Guidelines given on when dedicated protection is
  required
• Network earthing and earth fault protection
• MV networks are resistively earthed at the
  source. Generator neutral to be left unearthed
• Protection and protection settings
• Related to generator operating philosophy
• Isolation of system for safe working
• Metering
• Installation near generator terminals

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Conclusion

• Eskoms Pilot National Co-generation project
  seeks to connect 900MW of new-build generation by
  2011.
• Effectively a tender process
• Expression of interest netted 124 submissions,
  5000MW.
• Power Purchase Agreements (PPAs) and Technical
  Standards presently under development.
• Distribution Code is a second driver for
  interconnection standards
• Earthing, loss-of-grid protection some of the key
  technical aspects

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ESKOMHoldings Ltd

• Thank You

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Connection Billing Arrangements

• The co-generator is required to sign a connection
  and use-of-system agreement with the distributor.
• Eskom is currently developing a pro-forma
  contract for generators connected to Eskoms
  Distribution network
• Sets out the financial, technical and legal
  conditions
• Challenges
• No national policy on use of system charges for
  distributed generators
• Eskom formulating a stance (still in development
  phase)
• Technical criteria being developed
• Task team looking at Eskom connection standard
  for Embedded Generators (as required by
  Distribution Code)
• Need to develop skills regarding connection
  quotations
• Proposed to include munic reps in a broader
  stakeholder workshop to discuss the technical
  connection criteria (once we have internally
  reviewed/work shopped). This would also include
  the co-generators

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Industry PerspectivePower Generation in South
Africa

• GDP growth of 6 per annum projects electricity
  growth of 4 per annum
• Generation capacity will need to be expanded
  annually 1200MW
• Cost of new generation capacity high a large
  percentage of the world is currently expanding
  its generation base Sellers market
• 2005 power generation by Eskom Munics 92 coal
  and 6 nuclear
• Short term base load generation capacity
  expansion Coal fired
• Cogeneration in SA approximately 3
• Waste gasses and waste heat potential in large
  industry is potentially 2.2 of national demand
  (could be achieved by 2010) increasing to 6 by
  2016 / 2018
• No current national policy exists to introduce
  cogeneration into the South African energy /
  generation mix
• Current decision making on cogeneration projects
  takes far too long, frustrating industry

Extracts taken from an EIUG presentation dated
January 2007
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Industry PerspectiveEnergy Management in South
Africa

• Compared to Europe relatively inefficient
• Government policy frameworks include
• The energy efficiency policy of South Africa
• The White Paper on Renewable Energy
• The Energy Efficiency Accord (EEA)
• Targets established for energy improvements
  include
• 15 improvement in energy efficiency by industry
  by 2015
• 10,000 GWh (4) of projected demand to be from
  renewable energy sources 2013
• Several EIUG members have endorsed the EEA in
  support of energy efficiency improvements
• Efficiency improvements promote and ensure
  sustainable development
• Department of Minerals and Energy (DME) have
  committed to supporting and providing incentives,
  enabling industrys response to meeting
  established targets

Extracts taken from an EIUG presentation dated
January 2007
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Industry PerspectiveEnvironmental benefits

• Cogeneration has in most cases, a direct and
  immediate beneficial impact on the environment at
  large
• South Africa is amongst the worlds highest per
  capita CO2 emitters due to its large installed
  coal generation base
• Development of CDM projects in South Africa have
  proven difficult to justify, primarily due to the
  relatively low avoided costs of electricity
  purchases
• European Union (EU) targets established for
  emission reductions will in time, impact on the
  South African economy

Extracts taken from an EIUG presentation dated
January 2007
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Industry PerspectiveCogeneration can make a
difference

• Energy to be used for cogeneration is already in
  the system Overall emissions would therefore be
  reduced by harnessing this energy, as well as an
  improvement in energy efficiency
• Cost of cogeneration (electricity) will be less
  than costs of alternative new base load power
  plants
• Lead time for cogeneration plants estimated to be
  24 to 30 months from order substantially
  quicker than alternative base load power plants
• Unit sizes significantly smaller than existing
  Eskom power plants, reducing risk associated with
  unplanned outages
• Cogeneration units are directly linked to an
  industrial process, so in most cases, reduction
  in net electricity demand is associated with
  generator outages
• Transmission system losses may be reduced due to
  distributed generation advantages, with
  associated capacity being freed up on the system
• Cogeneration projects create employment
  opportunities

Extracts taken from an EIUG presentation dated
January 2007
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Industry PerspectiveLarge industry participation

• Power generation is not core business!
• Large industry is required to produce acceptable
  investment returns for its shareholders
  Cogeneration projects will therefore compete for
  Capital Expenditure
• Large industry is however committed to energy
  efficiency projects in support of government and
  associated initiatives
• Eskoms current average cost of electricity
  generation does not make cogeneration projects
  financially viable A mechanism will need to be
  introduced to close the gap between cogeneration
  and existing power generation in South Africa
• Many EIUG industry players are able to convert
  waste energy into cogeneration (electricity) at a
  lower cost than new generation capacity in South
  Africa

Extracts taken from an EIUG presentation dated
January 2007
28
Industry PerspectiveEnabling drivers

• Fast and efficient implementation of the long
  term cogeneration framework developed by NERSA in
  conjunction with Fieldstone, Eskom and industry
• An avoided cost model, based on the cost of new
  base load power plant should be adopted in
  determining the ceiling price of competitive
  cogeneration projects, as adjusted and determined
  by NERSA
• Industry should be given an opportunity to bid
  for cogeneration against the avoided cost (as
  above), and where cheaper, be contracted to
  supply cogeneration (electricity) to the market
• Promulgation and implementation of the NERSA
  guidelines allowing industry to develop, bid for,
  and develop cogeneration projects, to be
  contracted with Eskom
• In many cases, industry have completed
  feasibility studies for cogeneration projects,
  and are ready to respond

Extracts taken from an EIUG presentation dated
January 2007