Presentation to Portfolio Committee on Energy

15 March 2011

Eskom Holdings Ltd Update of ’s Capital Expansion Programme

Paul O’Flaherty Finance Director

2 1. Business overview

2. requirements and the capital expansion programme

3. Alignment with SA macro-economic principles

4. Costs and funding

5. Conclusion

3 Eskom at a glance

• Strategic 100% state-owned electricity utility, strongly Eskom power grid(1) supported by the government

• Vertically integrated across generation, transmission and distribution

• Supplies approximately 95% of South Africa’s electricity (45% of the total electricity consumed in Africa)

• 40 887 employees as at 31 December 2010

• Serves 3 000 industrial, 1 000 mining, 48 000 commercial, 84 000 agricultural and more than 4 million residential customers

• 27 (including 1 nuclear) operational power stations with a Existing grid system Thermal power station Possible future grid system Future interconnection substation net maximum capacity of 40.87GW as at 31 March 2010 Future hydroelectric power station Nuclear power station Future thermal power station Future gas station Hydroelectric power station Gas power station • Total electricity sales of 218 591GWh and total revenues of Interconnection substation Town R71.21bn for the year ended 31 March 2010 (R71,6bn for 9 months ended 31 December 2010) Eskom’s net capacity mix – 31 March 2010

• Infrastructure includes 390,338km of power lines and Total: 40.87GW cables (all voltages) as at 31 March 2010

• Committed to build 17GW new generation capacity expected by 31 March 2018. This includes 5,032MW already commissioned as at 31 December 2010

(1) The map indicates the South African power network and interconnections with neighbouring countries 4 Generation

• Operates Eskom’s generation plants Key figures • 27 power stations: 13 , 4 gas / liquid fuel turbines, Financial Year 2009 Financial Year 2010 6 hydro electric, 2 pump storage, 1 nuclear and 1 wind Net Capacity (MW) 40,506 40,870 • Total net capacity of 40,870MW as at 31 March 2010 Capacity from Coal (MW) 34,294 34,658 • Approximately 85% of net capacity is coal-fired Coal Share in Total Capacity 84.7% 84.8% Capacity from Nuclear (MW) 1,800 1,800

• Koeberg nuclear power plant Nuclear Share in Total Capacity 4.4% 4.4% Total Output (TWh) 229 233 • 1 800MW net capacity Production from Coal (TWh) 212 216 Coal Share in Total Output 92.6% 92.8% • 12 806GWh electricity produced from nuclear in Production from Nuclear (TWh) 13.0 12.8 year ended 31 March 2010 Nuclear Share in Total Output 5.7% 5.5% • 17 000MW of new capacity plans committed

expected by 31 March 2018 (including already commissioned since 2005) Reserve margins

• 10 896MW of new capacity to come from three projects

15% international norm • Medupi: 4 764MW coal-fired; first unit expected to be commissioned in 2012 and Eskom target

• Kusile: 4 800MW coal-fired; first unit expected to be commissioned in 2014

• Ingula: 1 332MW pumped storage; expected to be commissioned in 2014

• Reserve margin of 15,1% for the nine months to31 December 2010, up from 5,6% as at 31 March 2008 and above international norms and Eskom’s target of 15%

• No load shedding since April 2008 5

Transmission and Distribution

Key Figures – 31 March 2010 • Total electricity sales of 218,591GWh and more than 4,46 million customers (including transmission 2010 Gross Electricity customers) as at 31 March 2010 2010 Sales Split Revenue Split Customers Total: 218,591GWh Total: R69,942m Total: 4.46 million • Directly provides electricity to 45% of all end users in South Africa

• Country split into six regional distribution areas • Two main types of customers:

• Redistributors: Mainly municipalities that sell electricity to residential customers. Eskom bills the municipality; the municipalities are responsible for billing and collecting their own tariffs

• Direct customers: Industrial, commercial, mining, agricultural and residential consumers Energy Losses

• Key Sales and Customer Service unit (‘KSACS’) NERSA 2010 deals with customers using more than 100GWh of 2008 2009 2010 Target energy per year Distribution losses 5.47% 5.46% 5.87% <=6.00% • At 31 December 2010, KSACS had approximately 130 customers accounting for Transmission losses 3.13% 3.08% 3.25% <=3.30% 38.6% of total revenues Total Eskom losses 8.00% 7.94% 8.45% <=8.76%

• A member of Southern African Power Pool (“SAPP”)

• Overall energy losses of 8,45% in FY2010, within the regulator’s (NERSA) allowed target of 8.76%

6 1. Business overview

2. South Africa requirements and the capital expansion programme

3. Alignment with SA macro-economic principles

4. Costs and Funding

5. Conclusion

7 IRP 2010 – balanced scenario

8 The future

• South Africa needs to create ~40 800MW of new electricity capacity by 2030 – more than doubling the current requirements

• This assumes decommissioning of 10 000MW of existing capacity

• There will be two periods in the next 20 years when the risk of supply interruptions significantly increases in South Africa

• from 2011-2013, and then again …

• from 2018-2024

• South Africa needs to take urgent action in 2010 in order to ensure security of supply for the country for the next 20 years

9 Eskom Capital Expansion Programme – began in 2005

Mpumalanga Return-to-service (RTS) New Baseload Peaking & Renewables Refurbishment Transmission

„ Komati „ Medupi „ Ankerlig „ Arnot „ 765 KV projects

„ Camden „ Kusile „ Gourikwa „ Central projects

„ Grootvlei „ Ingula „ Northern projects

„ Sere „ Cape projects

3,720MW 9,564MW 3,516MW 300MW 4,000km

Commissions of new stations

First Unit Last Unit „ 17,000MW of new capacity (5,032MW commissioned ) Medupi 2012 2016 Kusile 2014 2018 „ 4,000km of required transmission Ingula 2014 2014 network (3,103km commissioned)

Medupi is the first coal-generating plant in Africa to use supercritical power generation technology

10 Progress to date (as at 31 December 2010)

• To date, a large amount of construction work has been completed, adding ~5,031.8 MW, ~3,103.40 km of transmission network, and ~15,670 sub-stations . . . Megawatts 125 MW of capacity 452.5 1,769.9

1,042.6 5,031.8 1,351.8 0 290

Transmission 278.80 Km line 600.30 418.30 480 430 3,103.40 237 659

Substations 3,940 1,630 MVAs 1,375 1,355 1,000 1,090 5,280 15,670

FY FY FY FY FY FY FY Total 2004/5 2005/6 2006/7 2007/8 2008/9 2009/10 2010/11 11 Of the new capacity being installed, baseload coal-fired power stations account for 73%, while the peaking portfolio (OCGT, pumped storage, wind) will contribute the remaining 27%

Of the coal-fired power stations, all but Medupi are located in the Mpumalanga province. Medupi is in Lephalale (Limpopo province). Medupi

Kusile

Arnot Peaking Komati

Grootvlei Camden

Ingula New coal

Return To Service Sere

Ankerlig Gourikwa

Capacity upgrade

12 Key Transmission projects

Medupi integration

East Grid 765kV

Ingula integration

Cape corridor

Southern Grid 765kV

13 13 While there is quite some progress already, there is a lot more construction work to be done in this programme

The main technical KPIs are on track. . .

Installed to date Not yet installed

29% MW

MW installed ~5,031.8 ~12,188.5

~17 220.3

78% Km Transmission lines installed ~3,103.4 ~896.6

~4 000 76% MVAs

Substation ~15,670 ~4,930 projects

~20 600

14 Focus is now on Medupi, Kusile, and Ingula - the first units will come on line between 2012 and 2014

Construction activities 1st unit commissioned Fully commissioned started December 2012 Mid 2016

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Fully 1st Unit commissioned Construction Construction commissioned 1st unit commissioned Fully commissionedFully commissioned January 2014 activities started activities started September 2014OctoberDecember 207 2014 October 2017 DecemberOctober 207 2018

• Kusile Power Station Ingula Power Station

•Execution partner: Execution partner: Road works

•Coal supply Coal supply Civil works

•Boiler Boiler

•Turbine Main Civils

•Enabling Civils Infrastructure Turbine B&E Quanza

•Main Civils Enabling Civils

Dam construction Concor -WBHO •Generator transformers -Silver Rock Generator transformers Edwin

15 Build programme overview

Medupi Kusile Ingula

Project Summary Project Summary Project Summary ► Greenfields Project – Lephalale ► Greenfields Project – Delmas ► Greenfields Project – Ladysmith (Limpopo Province) (Mpumalanga Province) (KwaZulu Natal Province) ► 6 Unit Coal Fired Power Station ► 6 Unit Coal Fired Power Station ► 4 Unit pumped storage power station ► Planned capacity 4,764MW ► Planned capacity 4,800MW ► Planned capacity 1,352MW Financial & Economic Impact Financial & Economic Impact Financial & Economic Impact

► Projected project cost to ► Projected project cost to completion ► Projected project cost to completion ~R98.900 bn (excl. ~R121,000 bn (excl. IDC) completion ~R21.377 bn (excl. IDC) ► Estimated 25% impact on Delmas IDC)

► Estimated 95% impact on town GDP ► Estimated 7% impact on Lephalale town GDP Ladysmith town GDP

Project Schedule Project Schedule Project Schedule ► Construction commenced March ► Construction commenced Mid 2008 2007 ► Construction commenced Mid ► First Unit planned to be 2006 ► First Unit planned to be commissioned December 2014 commissioned December 2012 ► First Unit planned to be ► Subsequent Units 2 & 3 at 12 month commissioned January 2014 ► Subsequent Units at 6 to 9 month intervals and Units 4, 5 & 6 at 8 ► Subsequent Units at 3 month intervals thereafter months thereafter intervals thereafter ► Last Unit planned for ► Last Unit planned for ► Last Unit planned for commissioning late 2015, mid commissioning during December commissioning during September 2016 2018 2014

16 Build programme overview

Return to Service Transmission Mpumalanga & Other

Projects Summary Project Summary Projects Summary - Mpumalanga ► Refurbishment and return to service of ► Transformers – 20 600 MVAs: ► Major refurbishments of existing and previously moth-balled coal fired •765kv (Planned: 12,000 MVAs) operational power stations, i.e. power stations in Mpumalanga. Duvha, Matla & Kriel. •Cape Grid (Planned: 1,500 MVAs) - Camden (8 units – total 1,600MW) ► Arnot capacity increase (300MW). •Northern Grid (Planned: 3,500 MVAs) - Komati (9 units – 1,000MW) ► Majuba Rail infrastructure for coal •Central Grid (Planned: 3,600 MVAs) supply for the operational Majuba - Grootvlei (6 units – 1,200MW) ► Transmission Lines – 3,977.5 Km: Power Station. CO planned for August 2014. Financial & Economic Impact •765kv (Planned:1,689.9 km) ► Camden Rail infrastructure for coal ► Projected RTS cost to completion •Northern Grid (Planned: 1,253.6 km) supply for the operation Camden ~R23.477 bn (excl. IDC) •Cape Grid (Planned: 621 km) power station.

Project Schedule •Central Grid (Planned: 413 km) ► Tutuka Brine Project to reduce ► All 8 units at Camden power plant are amount of brine in water. now in commercial operation Financial & Economic Impact ► Projected Mpumalanga Projects cost to completion ~ R12.950 bn (excl. ► 3 units, each rated at 125MW, have ► Projected Transmission cost to been commissioned at Komati power completion ~R27.800 bn (excl. IDC) IDC)

Other Projects (not part of original) station. Last unit (unit 1) planned for Project Schedule handover May 2012. (Projected completion dates) ► 100 MW Greenfields pilot Wind Farm ► 4 units, each rated at 200MW (total ► 765kv: December 2013 (Sere) project on the West Coast. CO 800MW) have been commissioned at planned for October 2013. Grootvlei. Last unit (unit 6) planned to ► Northern Grid: June 2015 ► 100 MW Concentrated Solar Power be completed end March 2011 ► Central Grid: Mar 2015 (CSP) pilot plant project. CO planned for December 2015. ► Cape Grid: Aug 2016

17 Kusile and Medupi will be the third and fourth largest coal- fired power plant in the world, respectively,…

Higher than Sandton 4x more investment than City Towers Gautrain

Coal-fired power plants (MW) 1▪ Taichung (Taiwan, 7 1001) 2▪ Waigaoqiao (China, 5 000) 3▪ Kusile (South Africa, 4 800) 4x 4▪ Medupi (South Africa, 4 764) 5▪ Zouxian (China, 4 540) ~113m 6▪ Kendal (South Africa, 4 374) 7▪ … 8▪ …

Medupi

1 = 5 50018 existing + 1 600 planned 18 …requiring huge amounts of materials and large transport effort in their construction

Characteristics of Medupi/ Kusile

▪ … to build 4 Greenpoint stadiums will be Concrete… used per plant

Parts and ▪ …weighing the same as 14 super tankers cement… will be transported over land

▪ …to build one of the world’s tallest Steel… buildings (The Burj Khalifa) will be used

▪ …of materials to site is equivalent to at least 40 Transport… times around the world

19 1. Business overview

2. South Africa requirements and the capital expansion programme

3. Alignment with SA macro-economic principles

4. Costs and funding

5. Conclusion

20 As such, the programme will have significant impact on local industry, skills, jobs, infrastructure and regional development

1 2Local skills 3 4 5Regional Local content development Jobs Infrastructure development >50% of local content Rapid growth in SA’s ~40 000 jobs created, Development of roads Spend and invest- directly benefiting the skills pool directly and indirectly and railways ment in local areas SA economy

1 Based on GDP in 2008

SOURCE: Eskom Enterprises division and Medupi project, STATS-SA 21 A large share of the Medupi, Kusile and Ingula spend will go to the local economy, thereby also benefitting local construction companies % Composition of total project Examples from Medupi, Kusile, and Ingula spend Main civils Main civils (MPS-JV): Medupi 42% 58% 84% of contract (~2,5bn) are Foreign Local spent locally

Main civils Main civils (KCW-JV): Kusile 56% 44% Local 65% of contract (~2,9bn) are Foreign spent locally

Access roads package 26% Ingula Foreign Main civils (Grinaker-LTA): 100% of contract (~0,3bn) 74% Local are spent locally

SOURCE: Medupi, Kusile, and Ingula project management 22 Many skills are being developed as local content requirements kick-start whole new industries in SA

New fabrication and training facilities 90% of major orders placed established on Mechanical equipment

Equipment Local content ▪ Brand new fabrication facility built Air Cooled Condenser (ACC) in Nigel >90% – Boiler Membrane Wall Workshop Major pumps >55% – Two new CNC Benders commissioned Heaters >45% – New welding training centre – CNC header drilling machine LP outer casing Unit 6 100%

Feedwater tank >80% ▪ Training facilities in Pretoria and in Wadeville Heaters Drain recovery pumps >20%

SOURCE: Medupi project management 23 The programme will fuel demand for relevant graduates and artisans and will grow the wide required skill base

Medupi would …

… consume 43% of a year’s relevant university graduation (engine- ering, project planning, etc.)

… deploy 48% of a year’s output of artisans

… rapidly grow South Africa’s supply of engineers, artisans, R&D and project management experts

… develop a wide range of additional skills through ASGI-SA commitments

SOURCE: Eskom Enterprises division and Medupi project 24 Across Medupi, Kusile, and Ingula new employment opportunities will touch the lives of ~160 000 people

DIRECT Medupi Kusile Ingula On site construction 8 300 7 200 4 100 Supporting project staff 2 200 2 000 300 Coal mine expansion 2 100 2 000 Transmission expansion 2 700 200 Crocodile River expansion 3 000 Ongoing operations 700 600 100

Subtotal ~19 000 ~12 000 ~4 500

INDIRECT Social services + 1 700 1 700 1 100 local business Total employed 20 700 13 700 5 600 x family multiplier x 4 (4/family)

People directly impacted ~160 000 Other projects such as 765kV and by Medupi, Kusile & Ingula RTS provide ~ 11 000 direct employment opportunities during construction and a further ~1 700 during operation

SOURCE: Eskom Enterprises division and Medupi project 25 Medupi, Kusile and Ingula will support local and national infrastructure

Area of impact Example

National infrastructure Richards Bay to Lephalale and Lephalale bypass 22 km of new Roads roads reinforcing of 3 bridges: >R500bn, 500 jobs

Ongoing roads maintenance Maintenance of local access roads: > R100m p.a.

Freight forwarding Richards Bay facility: R90m, 150 jobs

3 x 38 wagon train per day for limestone, 2 x 12 tank carriers per Trains year of oil maintenance or rail lines: 100 jobs

Local infrastructure Catering and workforce Food, laundry, maintenance security supplied to workforce: supply >R2bn, 1 000 jobs

Hotels Hotels to expand significantly

Local transport Additional buses at peak, increased taxis: ~500 jobs

Vehicle maintenance 1 000+ extra vehicles maintained locally: 50 jobs

3 300 houses and accommodation units to be built by Eskom and Housing suppliers: ~R4bn

Water Benefit from Crocodile River diversion pipeline from Kendal

Sanitation Sewerage plant upgrade: R50m

7 schools impacted, increased policing, recruitment centre, fire, Social facilities social club, ICT centre. Ongoing work with stakeholder forums

SOURCE: Eskom Enterprises division and Medupi project 26 5 Each project will measurably impact the local towns through local spend & investment

Impact on local town’s GDP from each project

Lephalale (Medupi) 95%

Delmas (Kusile) 25% Other businesses and Ladysmith (Ingula) 1% infrastructure created: • Catering • Laundry • Building companies Typical local businesses and infrastructure created • House maintenance • Hotels • Entertainment • Training facilities • Security Shops Civil infrastructure • Schools / education • Policing • Churches • Medical care • Banks & financial services

Schools Transport

SOURCE: Eskom Enterprises division and Medupi project 27 1. Business overview

2. South Africa requirements and the capital expansion programme

3. Alignment with SA macro-economic principles

4. Costs and funding

5. Conclusion

28 Significant progress in build programme

R billion spent and to be spent (excluding borrowing costs capitalised) % completion as at 31 December 2010 17.7% 121.2 38.6% 98,9

52.5% 88.8% 33.1% 27.4 23.5 21.4

16,3 5,2 6,6

23,7

29 Strong Government support

„ The Government, through the Department of Public Enterprises, is the sole shareholder and after consulting with the Board appoints the Chairman, the Chief Executive and Non-Executive Directors

„ The Government recognizes Eskom’s critical role in the economy and remains committed to ensuring Eskom’s financial stability

„ To ensure Eskom has the financial resources necessary to deliver on its R550bn(1) capital expenditure up until the 2017 financial year, the Government has committed R430bn financial support to Eskom:

ƒ In 2008 Government committed a subordinated R60bn loan to Eskom. R55bn disbursed so far with the balance by 31 March 2011

ƒ In 2009 Government approved R176bn of debt guarantees to be used over 5 years. R117bn utilised as at 30 September 2010

ƒ Under the guarantee, the rights of Government are subordinated to all other unsecured and unsubordinated creditors of Eskom, including the holders of the proposed Note issuance

ƒ In October 2010, Government announced that it would extend its guarantees for Eskom by a further R174bn to a total of R350bn

ƒ In November 2010, Government announced a proposal for an additional equity recapitalisation of R20bn (subject to internal Government approval) into Eskom to help it fund its capital expenditure.

(1) In 2005 Eskom embarked on a R340bn capital expansion programme that is planned to achieve additional capacity of 17GW by 31 March 2018

30 Funding plan

• Eskom’s funding plan has been finalised with the Department of Public Enterprises, Department of Energy and National Treasury • R300bn total funding requirement over the next seven years (from 1 April 2010); including R550 billion of capital expenditure of which R250 billion relates to the completion of the capacity expansion programme (total cost R340billion)

• R300bn funding secured or identified as at 30 September 2010

• R160bn to come from bond and commercial paper markets • R95bn from development finance institutions and export credit agencies • R40bn from the government (R20 billion loan and proposed R20bn equity recapitalisation) • R5bn from other sources • Government guarantee facility increased to R350bn (R174bn increase) • S&P and Moody’s have reaffirmed Eskom’s investment grade ratings under this funding plan and removed the negative watch

Eskom’s expected and assumed 7-year funding plan

ZAR bn

Eskom secured or identified R300bn of funding over the next seven years 31 1. Business overview

2. South Africa requirements and the capital expansion programme

3. Alignment with SA macro-economic principles

4. Costs and funding

5. Conclusion

32 Expansion programme challenges - since inception

The market

The market within which Eskom is operating is extremely tight, with significant demands on supplier capacity and basic commodities being a feature since 2005

Contracting and risk sharing

New thinking on contracting and risk sharing has become essential based on the following: •Global demand for new plant is high •The supplier market is global and limited •Supplier market experiencing shortages of material, components and engineering capacity •Fixed price or construction commitments cannot be secured •Increased demand for power plants leading to significant escalation in prices •Seller’s market, not a buyer’s market •Contract and risk-sharing profiles fundamentally changed

Timeline

Given the reserve margin, the Eskom programme is working with very tight timelines

33 Expansion programme challenges - since inception

Funding

Eskom clearly finds itself in a very challenging funding environment. Until October 2010, Eskom did not have a full funding plan to complete the capacity expansion programme

Safety

Despite the importance of executing projects on a tight schedule and within a tight budget, it is Eskom’s firm belief that safety is the most important objective of all. The inherent risky nature of major construction activities requires constant management and leadership

Skills development

•The build programme is used to contribute to skills development and facilitate manufacturing capability in South Africa •Skills remain a significant factor for Eskom. The competition for skills is fierce, both internationally and locally

Local communities

The new build impact on local communities is massive – housing, education, safety, health services and social impacts

34 In conclusion, since 2005 until today

• The new build programme is significant by any measure. Cost increases are understood and taken into account, lessons have been learnt and implemented for future projects and across existing projects.

• Good progress has been made, but many serious risks will need to be carefully managed in the future. Strong mitigating measures have been put in place to manage these risks.

• The global financial crisis has affected all sectors of the economy, Eskom included. This led to a review of the build program taking into account:

• Financial contractions of the markets,

• Resultant re-prioritisation of certain capacity projects and

• Delaying the execution of some of the projects at certain times since 2005; full go ahead on Kusile was given in October 2010

• Macro-economic factors have negatively impacted the build programme:

• CPA, and

• Cost of cover and other market forces

35 State of the Power System – Current Situation and Future Prognosis Kannan Lakmeeharan Divisional Director: System Operations and Planning

36 Table of contents

Introduction

Reflecting on what we said

What Eskom is doing

What SA can do to help

Conclusion

37 Introduction We have said 2011-2012 will be tight. Now 2011 is here.

• The supply-demand margin will remain slim for the next 5 - 6 years and in particular the next 2 years. Overview • Peak gap in 2012 equivalent to 9TWh – supply to Cape Town for a year. • Plan in place that requires all stakeholders and citizens to work together to keep the lights on.

• Support from Government will ensure Eskom’s new build programme is completed. • Procurement of 1 025MW renewable generation in the next 3 years. Supply-side • Signing up co-generation and municipal generation on short to medium-term contracts (minimum of 600MW). Initiatives • Eskom will improve its plant performance over the next 3 years.

• Create an enabling framework to support own generation options.

• Support Government’s million solar water geyser rollout programme by 2012. • Eskom will execute its planned demand-side management programme and aim to accelerate it by 25% Demand-side over the next 6 years.

Initiatives • Eskom will aim to contract incentivised demand response from its customer base.

• Call to voluntarily save 10% across the customer base through campaigns.

• Need “safety nets” as last resort to prevent disruptive load shedding.

• Energy Conservation scheme enables mandatory savings from largest 500 customers. Safety nets • Demand response programmes aimed at smaller customers to respond to price and system signals. • Running Eskom’s open cycle gas turbines harder

• Switch off if you are not using it.

Call to action • Respond to the Power Alert messages on TV and other campaigns by Government and Eskom. • We can meet our resolve to never load shed again if we all work together. It is good for our economy and for our environment

38 Keeping the lights on: the next seven years

The system will be constrained

Annual energy gap for 2010 to 2017 under base case outlook, TWh shortfall

9 TWh is equivalent to ~1000 MW baseload capacity

2010 11 12 13 14 15 16 2017

Assumptions Eskom estimate of the IRP2010 moderate load forecast (~260 TWh in 2010); New build (e.g., Medupi, Kusile, Ingula) and RTS at current dates; REFIT as per IRP1 (1GW by FY2018); DSM as per base plan (3.9 GW by FY2018); Planned maintenance allocation 39increased to ±10% 39 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.

40 Putting a safety net in place

A “safety net” is required in case further risks materialise, which would consist of: 1.Energy Conservation Scheme

• Mandatory and aimed at the largest 500 electricity users • Will provide certainty of demand (for at least 7 years from those customers that consume between 50% and 60% of the electricity) • Will send strong signals to move to energy efficiency • Imposes mandatory savings targets rather than disruptive load shedding.

2.Demand response initiatives

• Incentive-based demand response programme in place already for our largest customers; achieves about 500MW. • Imminent placement of contract with aggregator to obtain nearly 500MW from the larger commercial and smaller industrial customers. This can be ramped up to 2 000MW in the next 3 to 6 years. • Investigation into technologies for residential demand response completed. 3.Open cycle gas turbine use

• The OCGTs in South Africa will have to be run at higher load factors incurring significant cost.

41 SA can prevent load shedding by working together

• There are risks to the successful execution of some of the initiatives 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

Energy gap after all the “safety nets” and “levers”

10 5 0 ‐5 ‐10 ‐15 ‐20 ‐25 ‐30 ‐35 ‐40 2011 2012 2013 2014 2015 2016 2017

Worst case Best Case 42 What is Eskom doing currently?

• Plant performance: Creating maintenance windows and targeting improved plant performance of 1 to 2% in the next 3 years.

• Engaging with stakeholders: Eskom will update stakeholders and the country on a quarterly basis over the next two years. Management is fully focused on keeping the lights on and will monitor the state of the system on a daily basis and take action. • Tackling the coal challenges: Eskom’s coal stockpile levels are healthy (over 40

days). The focus has shifted to improving the coal quality and coal handling at the power stations. Steps taken have already resulted in improvements in the last 2 months. This is still a significant challenge. • Signing up non-Eskom generation: • Eskom has signed up 373MW through the medium term power purchase programme and aims to sign 376 MW by April 2011. • Eskom is supporting certain municipalities to run their generation plant. 410 MW has been signed up and 260 MW have been operational in the last month. • Integrated Demand Management: • Eskom is aggressively rolling out its demand management programme to achieve at least 1000MW over the next 3 years and will work on accelerating the programme to achieve 25% more. • Eskom will aim to achieve 1billion kWh in savings through improved plant efficiency and energy efficiency initiatives in its operations over the next six years 43

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

44 Good for the environment and good for the economy

• A 10% saving in consumption could save up to 20 million tons

of CO2 emissions per annum.

• The demand forecast caters for the projected growth in GDP

output and therefore any improvement in energy efficiency provides an increased reserve to support this growth. Compared to other countries with a similar per capita GDP • Energy efficiency enables (15% variance), SA is more customers to save money and electricity intensive by a factor of 30-85% assists in shifting to a more This includes countries like competitive economy. Argentina & Botswana. This is influenced by the current structure of the economy

45 Energy intensity - based on World Energy Outlook 2010 new policy projections

Energy intensity for selected countries and regions

1.2 2010)

South Africa has a higher energy intensity as well Brazil 1.0 (IMF compared to the BRIC countries and Africa and higher the world Russia GDP average. This is influenced by 0.8 PPP

the current structure of the India of economy. China 0.6 dollars

South Africa Intl. 0.4 Africa

0.2 World thousand

per

toe 0.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: 1) Calculations based on IMF World Economic Outlook, BP Energy Statistics and IEA World Energy Outlook 2010 policy projections. 2) South Africa projection based on trend growth for period 2005 ‐ 2009 since IEA WEO 2010 does not provide policy projection.

46 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 water heaters 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 cellphone charger • Participate in the Power Alert programme on national TV (SABC and etv)

47

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

48 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 constrained system conditions prevail

49 National Power Alert Impacts – Evening Peak Impacts

Power Alert impact during the World Cup period (11 June to 11 July 2010) Average MW saved Worst day MW impact 1800 1600 1400 1200 1000

MW 800 600 400 200 0 1

Worst day indicates the highest daily savings on a red alert. The energy savings during the World Cup in terms of the public reacting to Power Alert on national television is showing that working together, South Africans can make a difference

50 Reserve Margin – based on the draft IRP2010

% 35 Reserve Margin

30

25

20

15

10 Total Capacity 5 Total Reliable Capacity 0 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

The draftNote Integrated to Kannan: Resource Does not Planinclude (IRP) Co-gen aims and to Ownkeep build the reliable reservefrom 2011 margin – 2015. close Remember to or above Medupi 15% Ifrom 1 year 2013 later onwards. than mtrm and Kusile 2 years.

51 Reserve Margin – Not further Expansion after current commitments

% Reserve Margin ‐ No Expansion after 30 Committed 25 The reliable reserve margin 20 goes below 15% after 2018 15

10 Total Capacity 5 Total Reliable Capacity 0 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

It is importantNote to the Kannan: decisions Same areas previous made this but withyear all on non capacity to build after 2018 to committedensure security taken out of supply after 2018

52 Conclusion

• The supply/demand balance will be tight for the period 2011-2013

• The summer of 2011 has seen risks to the system increase

• Eskom is on alert and its leadership is taking action to

keep the lights on • We cannot do it alone – we seek to partner with stakeholders

• We will communicate with our stakeholders and the public

every quarter on the state of the system

53 49M Campaign

Chose Choeu Divisional Executive: Corporate Affairs

54 49M is an Eskom initiative, supported by government, spurring an urgent need for the more than 49 million South Africans to embrace energy saving as a national culture, joining the global journey towards a sustainable future

55 The value proposition

49M desires a better future for all South Africans

•economically, •socially and •environmentally

49M asks that we look for a sustainable future and a better tomorrow for all

Energy efficiency is not only a national concern, it is a global concern.

56 By saving, South Africans will be contributing to ensuring continued economic growth by taking the pressure off the ‘grid’, while Eskom builds the power stations to ensure electricity sustainability for the future of all South Africans

57 Thank you