Electricity cost risk modelling of the Energy Conservation Scheme (ECS) for the

Gold mining industry of South Africa

Lodewyk van der Zee

16-08-2012

Background of study Load shedding from 2008 cost the South African economy

an estimated 50 billion rand. The Power Conservation Program (PCP) was developed as

a mitigation strategy.

Power Conservation

Program (PCP)

Energy Conservation Scheme (ECS):

•Voluntary or price driven Mechanisms •10% Load reduction

Energy Growth Management (EGM)

•New connection management•Network planning

Demand Side Management

(DSM)Pricing

Motivation for the study

≤ 2% : R0.99 per kWh (290%)

No penalties Summer (2011)= R0.34 per kWhWinter electricity tariff (2011)=R0.66 per kWh

>2 %≤ 10% : R3.97 per kWh (1100%)

>10%: R11.91 per kWh(3500%)

ECS procedure

1. Baseline negotiations 2. Allocation of electricity quota: reduction target 10%

3. Reallocate electricity according to ECS rules

4. Settle bill and penalties if needed

Baseline negotiations

Baseline consumption options

Reference period A :Consecutive 10/2008 -10/2009Reference Consumption A:

0.97 x sum ( Ref period A)

Reference period B :12 Consecutive 12/2002 -

10/2009Reference Consumption B:

sum ( Ref period B) up to maximum of 107.5 % of Ref

consumption A

Reference period C :12 Consecutive 10/2006-

9/2007Reference Consumption

C:sum ( Ref period C)

Total energy allocation :A = B + C + D + E

A: ECS customer total annual energy allocationB: ECS customers annual energy allocation in respect of reference loads. C: ECS customer's annual energy allocation in respect of post reference loadsD: ECS customer's new connections and/or additional loads, if applicableE: ECS Customer's Investment Allocation(s)

Allocation management

Default daily allocation : Divide total annual allocated energy by 365 and allocate to 366 days evenly.User defined: Throughout the ECS year the customer may redistribute the previously allocated energy provided that:•Not less than 14 days ahead •Not more than 126 days ahead •The maximum monthly adjustment of 0.167%

Present situation of ECS Consultation draft

by NERSA Negotiations with

40 top consumers have started

Baselines have been put in place

Voluntary partaking have started

Safety net

Cost Risk for Gold mining industry

Impact on direct mining cost Large loads are essential for production Electricity supply vital for safety Simulation assumptions 1. No transgression penalties 2. Average summer electricity tariff (2011)=

R0.34 per kWh3. Average winter electricity tariff (2011)= R0.66

per kWh

Scenario A

Default allocation – no late rephasing

Scenario B

Avoiding high winter month penalties

Mitigation strategies

Invest in optimal load prediction Install required monitoring equipment Mine personnel must be trained Invest in EE loads and DSM Avoid penalties during winter months Identify and isolate non essential loads Communicate ECS rules with mitigation

strategies

Conclusions

ECS is uncertain but remains a risk If not well managed mining group could

incur serious financial losses Investment in allocation management

will lead to additional benefits

Questions

Goals of ECS

Improved management of South Africa’s electricity system

Enhancing information exchange between

A. large industrial commercial customers

B. System Operator Sustained reduction arising from improved energy

efficiency Promotion of energy efficient growth in electricity

consumption.