Eskom’s position as top dog is looking increasingly less secure

Eskom, once the mighty energy supplier to sub-Saharan countries, is rapidly losing that status as more and more member states of the Southern African Development Community (SADC) turn for help to their neighbours or start looking at alterative resources.

The days when Eskom could sell lots of electricity to SADC members ended before 2008 when it ran out of power for domestic use itself. This was after having invested heavily during the apartheid era in electricity generation capacity, which led to substantial excess capacity. It sold electricity via bilateral agreements and via the Southern African Power Pool (SAPP), of which its current members are the utilities and ministries involved in energy usage in Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Tanzania, Zaire, Zimbabwe and South Africa.

Being offered discounted prices by Eskom, the costs to these SADC member states of linking up to South Africa’s power grid were much lower than installing their own generation capacity.

“Currently, there is simply not much excess electricity available to trade in the region,” states a recent report published by the Southern African Research and Documentation Centre. “Faster-than-projected growth, underinvestment and an over-reliance on South Africa for cheap electricity have taken a toll on the regional reserve margin, which has dwindled to well below the internationally accepted norm of 15% or the regional target of 10%.”

In fact, what we have seen over the past few years have been power outages in Namibia, South Africa, Zambia and Zimbabwe, which have had to resort to load-shedding as a stop-gap measure to conserve energy.

South Africa, the region’s economic powerhouse, was particularly badly hit by energy shortages, with its mining industry temporarily shutting down operations in January 2008 while the power supply situation stabilised.

The result: Swaziland, which depended for 80% of its electricity needs from South Africa, initiated talks with Mozambique; while Namibia and Zimbabwe have put in place a power-sharing deal that involves Namibian investment.

Botswana had to turn elsewhere for its energy.

Although it still supplies small quantities of excess into the SAPP grid, it will take Eskom about five years to close South Africa’s own energy gap, which it expects to peak in 2012 when demand will exceed supply by nine terawatt-hours, equivalent to about 1 000 megawatts of base-load capacity.

“The projected gap will only go down to zero in 2016, and the reduction depends strongly on Eskom’s build programme, the Department of Energy’s independent power producers project, the renewable energy process, and the rollout of the funded demand-side management programme,” states the “Eskom Holdings Limited Integrated Report 2011”.

Much of Eskom’s strategy, and many of its future projects, are aligned with the government’s Integrated Resource Plan 2010, which sets out a long-term electricity plan for South Africa.

The report says the future involvement in African markets beyond South Africa is currently limited to projects that have a direct impact on ensuring a secure supply of electricity for South Africa itself.

Eskom said, however, that it was investigating additional opportunities in the SADC region, through Eskom Enterprises (Pty) Limited, and its subsidiaries that provide life-cycle support and plant maintenance, network protection as well as support for the capacity expansion programme for all Eskom Holdings Limited divisions.

“There are 200 million people in the southern African region. Significant unmet demand and strong participation in economic growth around access to resources, addressing climate change and enhancing regional infrastructure, present opportunities for Eskom to enter into strategic partnerships with other role-players looking to establish regional presence,” the report says, adding that Eskom would try to do this through new sources of funding for low-carbon technologies and its ability to influence the structure of the
energy industry.

Eskom Enterprises operates primarily in South Africa, but it has two subsidiaries that have an interest in electricity operation and maintenance concessions – in Mali, Senegal, Mauritania and Uganda.

In the interim, it is trying to get its own house in order.

Eskom is one of the top 20 utilities in the world by generation capacity (net maximum self-generated capacity: 41 194MW) and generates approximately 95% of the electricity used in South Africa. It is now building additional power stations and major power lines to meet South Africa’s rising demand for electricity. This is part of a capacity expansion programme started in 2005, which will increase its generation capacity by 17 120MW and its transmission lines by 4 700 kilometres.

This is being done by way of building the Medupi and Kusile coal-fired power stations, two new gas-turbine plants, the Ingula pumped storage plant, the recommissioning of three coal-fired plants that were previously mothballed, and upgrading other existing plants.

It further involves building new infrastructure, including two renewable energy plants.

The completion of the Kusile Power Station in 2017/18 will constitute the last stage of Eskom’s committed capacity expansion programme. There has been no approval or commitment to any capacity expansion projects thereafter.

Eskom’s capital expenditure (including expenditure on the capacity expansion programme) up until the 2017 financial year is expected to be between R450 billion and R500bn (excluding capitalised interest).

In the interim, SADC countries have commenced their own projects.

Angola

With oil reserves estimated at around 13 billion barrels, Angola’s production rivals that of Nigeria. But, in addition, it has a reported 6 000MW of hydro potential: construction is under way on seven hydro-electric projects on the Kwanza River, with the two largest facilities of Lauca and Caculo Cabaça to have a joint capacity of 4 100MW.

In June, Angola’s Minister of Energy and Water Emanuela Vieira Lopes announced her government’s intention to build 150 micro-hydroelectric projects, for which the necessary administrative procedures had been completed.

Hydropower is not the only renewable energy option being pursed by the Angolan government, even though the nation is one of Africa’s rising exporters of oil.

Vieira Lopes said the country’s solar energy programme would be implemented in developing a nationwide array of photovoltaic solar systems. The first phase of 63 facilities was under way, while the second stage would comprise 244 systems.

As for wind power, she commented that the government’s studies related to the wind power in southwestern Namibe province were nearly complete, and that the authorities soon would launch a public tender for drafting a wind map of Angola.

Moreover, Angola, Mozambique and Namibia together have combined reserves of 460 million cubic metres of natural gas.

Botswana

Botswana, reliant on imports for 80% of its power needs, is trying to go it alone.

Construction of the new 600-megawatt Moropule B coal-fired power station is under way, and the station is now expected to come online in 2013, with first output expected in January next year.

It will supplement the existing two-year-old, 132-megawatt Moropule power station, and is being constructed by China National Electric Equipment Corporation.

Botswana, an independent power producer, recently commissioned a 70-megawatt diesel generator in Botswana.

Democratic Republic of Congo

The DRC has a realistic potential hydroelectric resource of 40 000MW, which can almost double the present Eskom capacity.

The rehabilitation of Inga 2 hydroelectric project (160MW) is under way, but a long-term project is the Western Power Corridor project – a giant five-country initiative that will exploit the hydroelectric energy of the Inga Falls site.

Lesotho

Lesotho is planning a 110-megawatt expansion of the Muela hydropower project, which will be part of the Lesotho Highlands Water Project.

Mozambique

In Mozambique, the Temane gas project is expected to add 750MW of generation capacity by 2013.

In 2007, the country took over ownership of the giant Cahora Bassa Dam and its hydroelectric power company from Portugal, the former colonial power. The system was restored to full power transmission capacity by 1998.

The project has a capacity to produce 2 000MW of electricity, and is one of the main suppliers of power to the SAPP.

Namibia

Namibia is pushing for a 20-megawatt diesel generator by 2011, and completion of the 83-megawatt Ruacana hydropower station and 40-megawatt Lüderitz wind station by 2012.

Perhaps most important in terms of energy needs, is that an estimated 11 billion barrels in oil reserves have been found off Namibia’s coast, with the first production planned within four years.

The finding could put Namibia on par with Angola.

According to government officials, Brazilian company, HRT Oil & Gas Ltd, has raised $1.3bn on the Brazilian stock market, with $300m earmarked for oil and gas exploration in Namibia.

It has certified about 5.2 billion barrels of potential reserves. This finding could turn offshore Namibia into a great producer of oil and gas in a short time.

Swaziland

In Swaziland, the Lumumbo coal-fired station could add 1 000MW.

Tanzania

Struggling to end constant power outages on the national grid, Tanzania has decided to pool its resources with neighbouring countries in the eastern and southern Africa region, while continuing with its efforts to mobilise funds for implementing a countrywide power system master plan.

It banks on the East African Power Pool and the SAPP, adding projects estimated to add up over 8 800MW to the region’s power grid.

Tanzania is currently exploiting only 5% of its hydro capacity of over 4 700MW.

The Tegeta Gas Plant (45MW) is also under way in Tanzania.

Zambia

Zambia plans to build two new hydropower plants, which are expected to add a total of 247MW to the national grid and boost regional supply by 2016, Elisha Tsindikidzo, the chief executive officer of Zambia’s Lunzua Power Authority, told Reuters recently.

The project was estimated to cost $650m, which will be raised through debt and equity financing.

The plant, the first large-scale electricity generator in northern Zambia, would supply power to the copper mines, and was expected to feed planned manganese mines, Tsindikidzo said.

It will entail construction of two power stations with capacities of 96MW and 151MW, and associated transmission lines.

The CEO said foreign investors were willing to fund the project because of the power deficit in southern Africa.

Preliminary engineering work had already begun, and construction would commence by 2013, he added.

The Kariba North Bank power station in Zambia (540MW) is being upgraded to 720MW through a $430-million loan from the Development Bank of Southern Africa and the Export-Import Bank of China to state-owned power utility, Zesco.

Zambian Energy Minister Kenneth Konga said the loan would pay for the extension of the Kariba North Bank power station, located more than 130km south of Lusaka, which is to be completed by 2012.

“The project involves putting up two new machines with a power generation capacity of 180MW, each and we expect that work will be completed by November 2012,” he added.

Zambia currently generates 1 800MW, with peak demand estimated at 1 600MW, but forecasts demand to rise sharply in the coming years, government data shows.

Forecasts

Three years ago, southern Africa’s future energy needs were forecast by the SADC to increase to around 93 637MW by 2025, which even then was frantically trying to ensure energy shortages would not halt the fast economic growth now being experienced in the region.

The SADC’s Energy Ministerial Task Force (EMTF), comprising energy ministers from the region, recognised that the positive economic growth that averaged about 5% in most of the SADC member states, and rural electrification projects in most member states, required expenditure of USD$7.88bn on short-term projects and a further US$32bn was earmarked for longer term electricity generation projects.

The SAPP estimated at the time that projects commissioned between 2009 and 2013 would add another 13 584MW of capacity to the power pool, which would be adequate to satisfy projected demand.

As projects are announced – possibly more at the 17th Conference of the Parties to the United Nations Framework Convention on Climate Change in Durban – a strong case is again being made for increased regional power trade, as several countries in the region have the potential to generate sufficient energy to meet demand of the entire region. Projects could result in significant cost savings that could be passed on to end users.

Tanzania’s former vice president (and now president of Zanzibar) Dr Ali Mohamed Shein told EMTF members in 2008 that disparities in energy resources and consumption provided a strong rationale for the integration of the sector and for the promotion of regional energy trade.

He observed that southern Africa countries had an untapped power potential of around 100 000MW in hydropower, thermal, gas and coal; while their power demand was approximately 55 000MW. The regional power generation capacity then stood at 48 649MW.

SAPP

The generation of more power by SADC countries will enhance the prospect of increased energy trade in the region, and through SAPP – which was established in 1995 as a voluntary market to co-ordinate both long- and short-term markets.

In 2001, SAPP commenced the Short-Term Energy Market (STEM) where energy is traded a day ahead through bilateral arrangements.

The Day Ahead Market (DAM) was launched on 15 December 2009. The system allows for sellers and buyers to input their requirements for trade in the power pool a day ahead, and bid for excess capacity on a real-time basis.

South Africa, Namibia, Botswana and Zambia are already trading on the DAM, but at a maximum of 200MW. Volumes traded under STEM have been very limited, and not much trade has taken place since 2007 in the short-term energy market.

Despite its limited success, however, SAPP has served to underline the importance of regional co-ordination with respect to energy, according to energy experts.

But some experts have pointed out that countries in the region would have to address several constraints in order to develop a regional energy trading system. There are transmission networks with sufficient capacity; and although nearly all electricity generated in SADC is interconnected, the capacity of all lines is not sufficient to allow for much more trade than that which is currently being obtained.

Another constraint mentioned is the lack of a legal and regulatory framework for regional energy trade. It has been suggested that the SAPP and other regional bodies such as the Regional Electricity Regulators Association of Southern Africa are in a good position to develop such a framework.

The lack of political instability in some countries such as the DRC, and political will have been listed as other potential drawbacks to investment.

There are other energy experts who say many of the projects that have been proposed are not realistic, in that they are “either not economically viable, or are technically and politically so challenging that the chances of them being realised in the foreseeable future are slim,” according to an energy lawyer, Les Kugel.

Udo Rypstra