“INTEGRATED DEMAND MANAGEMENT (IDM) OFFERINGS FROM ESKOM” by Stephen Koopman of ESKOM

1. IDM / EEDSM
South African Institute of Foundrymen
25 January 2011
Stephen Koopman
Energy Services Manager

2. Contents
• Balancing demand and supply
• Case for EE
• Programmes
• Benchmarks
• Standard Offer
• Implementation Methodology and Channels
• Q&A
Together we have the power to save 2

3. Quarterly Update: State of the power system; 6 January
2011
• Keeping you informed
• Transparent communication
• Sharing concerns about the state of the system
• Quarterly system status updates system for the next two years
• Risks have increased
• Unexpected heavy rains
• Summer most challenging season
• Unplanned shutdown at Koeberg
• Uncertainty around how fast demand will ramp up
• Our resolve to keep the lights on will be tested.
• Support is important
• Eskom cannot do it alone
• We need cooperation to keep lights on
• Anticipated increased demand as we all return to work
Together we have the power to save 3

4. Ensuring security of supply in the next 3 years
• Eskom’s generation plant performance and new build programme
• Ensure critical plant maintenance is done to ensure sustainable plant performance.
• Target to improve generation output by between 1% and 2%.
• • Energy efficiency initiatives
• Eskom will need to execute its 4TWh demand-side management programme and do more with
its funding and internal energy efficiency programme (target is 1 billion kWh).
• Enabling the 1 million solar water geyser programme run by Government.
• Own and co-generation
• Sign up about 400MW of co-generation and own generation by April 2011.
• Procurement process for 1 025MW of renewable energy technologies, to be commissioned in
the next 3 to 4 years, should start as soon as possible. Eskom is ready to connect and pay the
IPPs.
• Investigating mechanisms with NERSA and Government to ensure already commissioned
municipality generators produce and further co-generation options are secured.
• Working with industry and NERSA to finalise a grid access framework to enable wheeling and
own generation.
Together we have the power to save 4

5. SA can prevent load shedding by working
together
• There are risks to the successful execution of some of the levers
identified.
• In the next two years, there is an energy gap and therefore an
immediate focus is needed on implementing the identified actions and
establishing a “safety net”
• This can only be done through a national effort involving all
stakeholders and the people of South Africa
• Eskom will play its part in leading and partnering
Together we have the power to save 5

6. Signing up non-Eskom generation
• Municipalities: Coal-fired stations
• Eskom is engaging with the Johannesburg and Tshwane municipalities to support
the operation of the stations (at least 200 MW)
• Municipalities: Open cycle gas turbine stations
• Eskom is engaging with the Cape Town, Nelson Mandela and Johannesburg
municipalities to have the turbines on standby if needed (up to 100 MW)
• “Embedded generation”
• We are looking to contract with large shopping malls and other businesses that
have substantial backup generators (up to 20 MW in some cases)
• Co-generation/ MTPPP
• Have signed four contracts for 287MW (Sasol, Ipsa and two Sappi contracts).
Waiting for approvals on two more (88 MW) .
Together we have the power to save 6

7. What can SA do to help?
• In the next two years, there is an energy gap and therefore an
immediate focus is needed on energy efficiency
• This can only be done through a national effort involving all
stakeholders and the people of South Africa
• A voluntary, incentive-based demand response programme is in place
for our largest customers
• If needed, a mandatory Energy Conservation scheme aimed at the
largest 500 customers may be implemented
• Eskom will play its part in leading and partnering
Together we have the power to save 7

8. Action needed from households
• “If you’re not using it, switch it off.”
• Geyser: Switch off geysers between 06:00 and 22:00, reduce thermostat to 60 degrees, insulate
geyser and water pipes and replace geysers with solar waterheaters using Eskom’s rebate
programme
• Lighting: Replace incandescent light bulbs with energy savers, and switch off lights in unoccupied
rooms
• Bathing: Shower rather than bath as less hot water is used, and install an energy efficient shower
head
• Climate control: Minimise use of air conditioners by first opening windows to allow cool air to
circulate
• When using an air-conditioner keep the temperature setting between 18 – 22 degrees C
• Insulate ceilings to keep home cool in summer and warm in winter
• Pool pumps: Reduce the operating time to limit water circulation to twice a day and set the pool
pump to operate between 24:00 and 05:00
• Vampire appliance usage - Don’t leave appliances in standby mode. Unplug cell phone charger
• Participate in the Power Alert programme on national TV (SABC and etv)
Together we have the power to save 8

9. Action needed from commercial offices
• “If you’re not using it, switch it off.”
• Standby electricity:
• At the end of the day, don’t leave your computer, copier, printers and fax machines on standby mode
• Lighting:
• Replace inefficient systems - Eskom incentives available
• Motion sensors for meeting rooms and security lighting,
• Reduce lighting levels in parking areas to the minimum legal requirement during the day, and turn it off at night
after the building lights have been turned off
• Climate control:
• Replace inefficient systems - Eskom incentives available
• Maintain a difference of not more than 10 degrees Celsius between inside and outside a building,
• Extraction fans can be turned on at around 04:00 to draw cold outside air through the building to cool down the
structure,
• Close window blinds to shade your rooms from direct sunlight, allow your workers to wear light, comfortable
clothing during hot weather.
• Appoint an Energy Manager for each building to monitor usage and identify savings opportunities
Together we have the power to save 9

10. Action needed from industry
• Electricity usage optimisation needs to be driven by top management
• Participate in a voluntary 10% energy reduction programme – some SA companies
have already reduced by 10%
• Identify opportunities for improved energy utilisation
• Process optimisation
• Technology improvements
• Shift usage to off-peak periods
• Participate in Eskom’s demand saving programme
• Incentives available for energy savings projects
• Approval lead times improved considerably
• Participation in Demand Market Participation Programme
• Incentives for hourly load reduction when tight system conditions prevail
Together we have the power to save 10

11. Chief Executive’s (and therefore our) Priorities
Priorities
• Regaining the confidence of all South • Relationship with Labour
Africans and markets in Eskom – our
reputation • Strong Engineering governance
• Keeping the lights burning • Energy efficiency movement in South Africa
• Find and implement a funding solution that • Develop competencies for execution
strengthen the Eskom balance sheet and • Safety
retain current investment grading for BBB+ • Operational excellence “back to basics”
• Become customer centric • Southern African strategy
• Deliver the build • Transforming our supply chain
• Lean and mean – cost efficiencies • Efficient management of Capital
• Comprehensive response to climate change • Introduction of private generators in the
• Universal access South African Market
• Employee value proposition • Management of bad debt
Together we have the power to save 11 11

12. Defining the Problem
Nature of the problem: Energy vs Demand
Energy 55 Capacity
300
290
50
51.45
279.75
280
ve
ser
273.17 47.17
Energy Required 46.50
Re
GW
45 45.58
Ga
p it y
pac
270 45.01
gy
265.44
Ca 44.78
258.58 E ner 270.31 Capacity Required 42.83
260
41.36
250.42 40
258.63
Additional Buffer 40.23
38.84
250 252.25 250.86
249.69
Supply Available Supply Available
35
240
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
Initial
2010 2011 2012 2013 2014 2010 2011 2012 2013 2014
Gap -1.7% 0.5% 3.6% 3.5% 1.6%
Gap 15.9% 13.3% 12.4% 10.1% 14.9%
+Buffer 0.3% 2.4% 5.5% 5.3% 3.4% (Reserve)
Energy Availability rather than Capacity is the challenge!
12

13. Implications if the Gap is not closed
National Implications
• The electricity supply system will be under severe pressure, posing a risk to
Security of Supply
• Using open cycle gas turbines to mitigate the risk is expensive, ultimately
increasing the price of electricity
• It will not be possible to connect large customers, negatively affecting
economic development
• South Africa’s sustainability, reputation and competitiveness will be
negatively affected
• Pressure to reduce supply to neighbouring countries could have negative
political implications
• Further reputational damage to government and the electricity industry
• Lost opportunity to unlock economic efficiencies through more efficient use
of electricity
• Emergency and short term solutions to conserve energy could have
unintended consequences.
13

14. Decisive actions are required to secure supply
in each of the four time periods
2021 onwards
Time period 2018-2020
2014-2017
2010-2013
Capacity
10GW 9GW 5GW 26GW2
addition
▪ DSM and ▪ DSM ▪ Baseload IPP ▪ Majority of
Base case energy base load
efficiency ▪ Kusile fleet: Nuclear
▪ Committed ▪ IPP/imports ▪ Other
projects1 capacity:
(promulgated CSP, gas,
IRP) imports, coal
1 Medupi, Ingula, REFIT, MTPPP, DoE OCGT IPP, Sere. Return to service (RTS) capacity not included
2 16GW incremental plus 10GW replacement for decommissioning by 2028 in the proposed scenario
SOURCE: Team analysis 1414

15. The role of Eskom and stakeholders
Independent • Commission the capacity indicated in the medium-term power purchase
Power programme and the first phase of the renewable energy feed-in tariff programme
Producers
• Commission the required capacity on time, based on the country plan
• Ensure 86% energy availability is achieved for current power stations (excluding
Ensure 84% energy
RTS)
RTS)
• Commission return to service plants as planned
Eskom • Finalise power purchase agreements for IPPs (subject to cost recovery
mechanisms and tariff level)
• Implement DSM programmes
• Support customers with education on energy efficiency
• Large industrial and commercial customers to confirm their energy base-line and
targeted savings to provide greater demand certainty
Customers
• Make changes in behaviour and technology to bring down electricity utilisation
• Consider an overall target of 8 - 15% energy efficiency improvements for the
country over five years 15
21

16. Voice of the Customer
• “Let’s work together to find a solution that will bring the best economic
return to the country”
• “The incident of the 24th January 2008 taught us all the difference between
the value of electricity vs the cost of electricity”
• “The key customers should be considered partners to Eskom in resolving
the countries energy challenges”
• “Load shedding is not an acceptable solution to safeguard the integrity of
the system”
• “Load shedding to Mining Operations & Industrial customers is like
depriving a human of oxygen”
16

17. The Business Case for Energy Efficiency
Issues Supply Demand
Cost (R/MWh) ±R4000/MWh (OCGT’s) ±R1000/MWh (DSM)
Responsible for Funding Eskom Eskom + end consumer
Delivery Timeframes Long Term (3 years +) Short Term (1-3 years)
Country Objective : Climate Negative Positive
Country Objective : National
- Positive
Productivity
The financial advantages of a fundamental shift towards demand management are
compelling. The benefits in terms of security of supply drives the urgency of our
17
interventions here.

18. The Case for Energy Efficiency
South Africa vs. the Rest of the World
Per Capita Electricity Consumption for Countries with similar GDP per capita (± 20%) relative to South Africa*
1.20
Gabon
1.15 (1,128 kWh pa)
GDP per capita x South Africa GDP per capita
1.10
Venezuela (Bolivarian Republic of)
1.05 (3,770 kWh pa) Russian Federation
Compared to other
(6,425 kWh pa)
South Africa
1.00
Mauritius Turkey Malaysia countries with a similar
(1,775 kWh pa) (2,122 kWh pa) (3,196 kWh pa) (4,818 kWh pa)
Saint Lucia Uruguay
per capita GDP (15%
0.95
(1,879 kWh pa) (2,408 kWh pa)
variance), SA is more
Panama
(1,807 kWh pa) Argentina
(2,714 kWh pa)
electricity intensive by
Costa Rica
0.90 (1,876 kWh pa) Romania factor of 35-65%
(2,548 kWh pa)
Grenada
(1,963 kWh pa)
0.85
Brazil
(2,340 kWh pa)
0.80
- 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60
Electricity consumption per capita x South Africa Electricity consumption per capita
Source: UN (United Nations). 2007d. The 2004 Energy Statistics Yearbook. Department of Economic and Social Affairs, Statistics Division. New York.
18
*Situation as in 2004, beneficiation policy and co-generation will alter the above picture

19. The Integrated
Resource Plan for
Electricity 2010
(IRP2010)
Revision 2
VERSION 8
8 OCTOBER 2010
2011/01/26 19

20. Additional essential reading ….
• The IRP 2010 should be read together with a document titled:
• “Medium Term Risk Mitigation Project Phase 1” dated 17 September
2010.
• As part of the IRP development process an Executive Medium Term Risk
Management Plan was developed to address the short to medium terms risks
of the current electricity supply shortage.
• This plan aims to quantify and clarify the nature and the extent of the short-
term supply risks and provide a quantum for immediate interventions to avoid
load shedding’.
20

21. IRP2010 definitions
• “Demand Side” refers to the demand for, or consumption of,
electricity.
• “Demand Side Management” refers to interventions to reduce
energy consumption
• “Energy efficiency” refers to the effective use of energy to produce a
given output (in a
• production environment) or service (from a consumer point of view), i.e. a
more energy-efficient
• technology is one that produces the same service or output with less
energy input.
21

22. IRP2010
• In summary the plan includes:
• The continuation of Eskom’s committed build programme (including the return to service of Grootvlei
and Komati power stations, and the construction of Medupi (4332 MW), Kusile (4338 MW) and Ingula
(1332 60MW) power stations).
• The construction of the Sere power station (100 MW wind farm).
• Phase 1 of the Renewable Energy power purchase programme linked to the National Energy
Regulator of South Africa (NERSA) Renewable Energy Feed-In Tariff (REFIT1) programme
amounting to 1025 MW (made up from wind, concentrated solar power(CSP), landfill and small hydro
options).
• Phase 1 of the Medium Term Power Purchase programme of 390 MW (made up from cogeneration
and own build options).
• The Open Cycle Gas Turbine (OCGT) Independent Power Producer (IPP) programme of the
Department of Energy (DoE) of 1020 MW.
• A nuclear fleet strategy, commencing in 2023, contributing at least 9,6 GW by 2030. The nuclear
costs included in the IRP are generic values as for the other technologies and are not intended to tie
the IRP to a specific technology.
• A wind programme in addition to the REFIT1 wind capacity, commencing in 2014, of a minimum 3,8
GW.
• A solar programme in addition to the REFIT1 solar capacity, commencing in 2016, of a minimum 400
MW. This does not include solar water heating, which is included in the DSM programme (to the
extent of 1617 MW).
• A renewable programme from 2020, incorporating all renewable options, inclusive of wind,
concentrating solar power (CSP), solar photo-voltaic, landfill, and hydro, amongst others) of an
additional 7,2 GW. 22

23. IRP2010 (continued)
• Imported hydro options from the region totalling 3349 MW from 2020 to 2023.
• CCGT capacity, fuelled with imported LNG, totalling 1896 MW from 2019 to 2021.
• Own generation or co-generation options of 1253 MW as identified in the Medium Term Risk
Assessment study.
• Up to 5 GW of generic coal-based power generation from 2027 to 2030 (in addition to Medupi and
Kusile). The choice of technology could be traditional pulverised fuel or clean coal technologies. The
builder of the capacity could be Eskom, South African IPPs or regional IPPs. The choice of
technology will be based on current assessments of carbon capture and storage sites and the impact
of climate change mitigation targets.
• With the commercialisation of carbon sequestration technologies, additional coal options
INTEGRATED RESOURCE PLAN (2010 Rev 2) DRAFT Report October 2010 viii could become
viable. However for this IRP it was assumed that such technologies arenot sufficiently developed to
be included. Further iterations of the IRP could revisit this.
• Up to 5750 MW of peaking OCGT. This option could also be provided by demand response
programmes.
• Eskom’s DSM programme as stipulated in the multi-year price
determination (MYPD) application has been incorporated. The
breakdown of associated technologies for DSM is included in
Appendix B, indicating the expected savings from the various
constituent programmes.
23

24. Together we have the power to save 24

25. Programmes and Forward Plan
Total Year 1 Year 2 Year 3
Programme MW GWh Costs MW GWh Costs MW GWh Costs MW GWh Costs
Lighting &
HVAC 88 554 403 24 131 131 32 213 156 32 210 136
Hot Water 382 1,244 2,006 92 303 654 104 347 531 186 595 864
Demand
Response 261 0 785 47 0 51 71 0 238 144 0 489
Compressed Air 118 464 511 42 166 120 37 146 165 39 153 174
Ind Process Opt 225 1,464 955 96 396 200 70 583 385 59 486 367
Other & New
Initiatives 0 0 631 0 0 83 0 0 100 0 0 448
Total 1,074 3,727 5,292 301 995 1,239 313 1,288 1,576 459 1,444 2,477
Together we have the power to save 25

26. Benchmarks
Programmes Offer
Lighting & HVAC Up to 5.2m/MW
Solar water heating (SWH) Up to 6.3m/MW
Heat pumps Up to 5.2m/MW
Demand Response Up to 3.5m/MW
Compressed Air Up to 4.4m/MW
Process Optimisation Up to 5.2m/MW
Shower Heads Up to 2.8m/MW
Together we have the power to save 26

27. Processes of Implementation
ESCo Programme ESCo submitting proposals and execute
Standard offer/Customer
Paying for savings at predetermined rate
Offer
Funded programs to encourage energy efficiency in
Standard Product
communities – e.g. CFL’s
Incentives given to encourage energy saving e.g. Solar water
Rebate Programmes heating
Customers encouraged to fund own energy efficiency projects
Energy Advisory Services through self funding schemes but savings claimable by Eskom
Together we have the power to save 27

28. ESCO Implementation Model
Eskom DSM
• Evaluation DSM Customer
• Financier Agreement • Sustainability
ESCo
ESCo Maintenance or
New Engineering
• Audit Performance
Contract
• Proposal agreement
• Installation
Together we have the power to save 28

29. ESCO process flow
29

30. What is the standard offer?
• The Standard Offer is a mechanism used by Eskom for acquiring EE savings
under which Eskom shall pay for verified energy savings using a pre-
determined and pre-published rate in c/kWh for the implementation of an
approved technology.
• Any energy user (customer) or energy service company (ESCO) that can
deliver verifiable energy savings shall be paid the fixed amount per kWh over a
period of four-years.
• Achieved savings will be verified by an authorized measurement and
verification (M&V) organization.
• It should be noted that the Standard Offer does not replace the existing Eskom
EEDSM application process.
30
30

31. Standard offer
31

32. Funding
•Eskom has a total budget of R30 million for this Pilot Program over the next four
years. Eskom may increase this amount subject to certain conditions if the response
to the Pilot Program in the first six months exceeds expectations.
34c/kWh
•The standard offer price = 26c/kwh
•The project developer is limited to receiving no more than R 4 326 400 for a project or
group of projects subject to measurement and verification under the Pilot programme.
•In no case will Eskom provide more than the Initial Purchase Price per project for the
Pilot Program purposes.
•Initial Payment Price = Estimated Annual Energy Savings (kWh/pa) x Fixed rate
(c/kWh) ÷ 100 x 4 years
32
32

33. Operational Process Requirements
IDM Delivery Channels
Standard Product
Standard Offer
ESCO Process (incl rebate) (being Mass Roll-out
(Pilot)
developed)
Size Projects > 1MW 100kW<Project<1MW Projects <100kW Large Scale Roll-outs
Eskom Standard value per Standard value per item
Based on individual In line with MYPD
kWh saved per calculated based on
Payment Value project calculation
technology savings potential
benchmarks
Customer and Eskom Market price per Market price per
Funding (up to NERSA technology (up to 85% technology (up to Eskom or Fiscus
benchmark) of NERSA benchmark) NERSA benchmark)
40% on
Progress payments to 100% on installation,
Payment ESCO
implementation, 20%
based on M&V
Progress payments
p/a based on M&V
Risk Eskom risk Limited Eskom risk Limited Eskom risk Low risk
Investment Individual Investment Bulk Investment Bulk Investment Individual Investment
Decision approval approval per technology approval per technology approval
Procurement Price evaluation based Streamline individual Streamline individual Individual tender
Decision on submitted approval project approvals project approvals processes
33

34. Thank You
Together we have the power to save 34