Southern Africa: The push for clean energy
Monday, 21 February 2011 |   |  0 comment

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Africa came out of the global financial crisis relatively unscathed and in the long-term stands to benefit from a combination of rising Chinese wages and increasing interest from foreign investors. As the potential for growth in developed economies looks increasingly limited, Africa’s appeal is starting to shine. Development is well under way and in sub-Saharan Africa, tensions appear to be be dissipating, with the return of Zimbabwe to a measure of financial stability. However, the clamour for higher living standards is posing a issue for the region’s power utilities, given the simultaneous need to bring electricity to more of the population while at the same time building enough capacity to ensure reliability and prepare for future demand.

Angola

One of the major environmental issues for African oil producers is that of stranded/flared gas. This is being slowly addressed, thanks to the growing maturity of the LNG market. Angola’s first combined cycle gas-fired power plant is being planned by a joint venture between state energy group Sonangol and Portugal’s EDP. The project is being built as part of Sonangol’s LNG project in Soyo. Construction is expected to take 3-4 years, at a total cost of US$500m. Angola is in desperate need of more power, given that at present it can provide only 26% of its population with electricity. Some hope could come from the country’s impressive hydropower resource. Secretary of State for Energy João Borges said that Angola has the potential to generate 18GW of hydropower, but is currently utilising only 4.4% of this potential. In September, the Minister of State Carlos Feijo said that the Angolan government will invest an impressive US$18bn through to 2016 in improving the country’s power generation and transmission system.

Angola’s sugar industry was destroyed by the civil war, but is looking to be resurrected by biofuel group Companhia de Angola (Biocom). The company is intending to start production in 4Q11 and is expected to produce 0.28Mta of sugar, 30,000m3 of ethanol and 215MW of electricity from a 30,000ha plantation in Malanje. The project is the largest of a dozen currently under development.

The US Trade and Development Agency has released US$1.6m to fund a feasibility study for a project to modernise the electricity supply in Luanda and for the construction of a transmission line to run from the north to the south of the country.

Botswana

The current power shortage in South Africa forced Eskom to cut power exports to Botswana in November. It had previously been delivering around 250MW for the past two years, after reducing supplies by 40%, from an initial 410MW in  2008. The amount of electricity delivered is expected to continue to decline towards the end of 2012 when the current agreement will expire. The situation means potential shortages until Botswana can commission its 600MW Morupule coal-fired power plant in 2012. As a result, the Debswana Diamond Company is building a 90MW plant to provide two of its mines with electricity.

Botswana is currently on track to see its first private independent power project in 2013, in the form of a joint venture between CIC Energy and GCL Botswana. A tariff offer, together with a draft power-purchasing agreement, was submitted for the Mookana Domestic Power Project (MDPP) in September. The US$800m project is for a 300MW coal-fired power plant, with the electricity initially destined for the domestic market. Provided all goes well, construction is expected to begin this year. The 70% debt financing of the project is expected to be supported by Chinese financial institutions.

Malawi

Malawi’s efforts to improve its lamentably insufficient power sector are pushing it away from renewables. The Malawian government is looking to invite bids from investors for the construction of a 300MW coal-fired power plant. Malawi currently has an installed capacity of 282.5MW, against a demand of 344MW. Only 7% of the population has access to electricity. The country has estimated coal reserves of around 22bnt, principally located in the north and south. With 63 days of outages in 2009, it has the least reliable electricity grid of all 24 sub-Saharan countries, costing around US$215.6m a year in lost industrial output.

Namibia

Namibia took a step towards greater grid integration with the rest of the region late last year, with the commissioning of the Caprivi Link Interconnector transmission line at a cost of NAD3bn (US$452m). The project involved the construction of two converter station and the installation of a 350kV high-voltage direct-current line with a maximum capacity of 600MW. The new line will improve electricity transmission between Zambia, Namibia and South Africa, connecting the northern and western parts of the Southern Africa power pool.

Namibia currently imports around 50% of its electricity and the new line will reduce the country’s need for coal-fired power generation during the dry season, when its Ruacan hydropower plant does not have enough water to operate at full capacity. Currently only 34% of the population can afford electricity, but the country’s power plant is stable and free from blackouts.

South Africa

One hotspot for development is the Western Cape, which planning experts believe could become a significant exporter of renewable energy. The province’s Renewable Energy for the Western Cape strategy has been approved as a white paper and features plans to increase the region’s reliance on renewable energy to 15% by 2014. The West Cape’s current electricity demand is around 4000MW, making this target achievable with only 600MW of additional capacity. According to an assessment, the region’s electricity grid can accommodate applications for up to 3000MW of renewable projects and there have been 17 applications for a further 11GW of renewable energy generating capacity, 7GW in the form of proposed wind farms along the West Coast. However, there are concerns that the negotiation of power power purchasing agreements with Eskom could be a potentially fatal stumbling block for many projects.

The slow pace of bureaucracy when it comes to the implementation of renewable energy projects can be seen by the fact that the first renewable energy feed-in-tariffs were first approved in spring 2009, but as of October 2010, Eskom had yet to sign a power purchase agreement (PPA) under the programme. Obstacles of this nature are increasing the attractiveness of off-grid solar power, with Frost & Sullivan recently predicting that this sector will see a CAGR in sub-Saharan Africa of around 10% through to 2015.

Judging by a report from the University of Cape Town’s Africa Earth Observatory Network, a shift towards greater use of renewable energy is necessary, if the increasing deterioration in the country’s water supply is to be halted. It attributes widespread acid-drainage to coal and gold mining operations and explains this is the main cause of the decline in the quality of water resources within the country. According to the report, some ZAR360bn or 15% of South Africa’s annual GDP will be needed within the next 15 years to secure the country’s water supply.

The report says that: “The cost of water remediation necessitated by coal-mining activities, and future carbon capture and storage costs resulting from proposals to increase SA’s reliance on coal-fired power stations, have to be added to derive the actual cost of the country’s ‘cheap’ carbon-intensive energy economy”.

In addition to environment issues, South Africa has some compelling financial reasons to move towards clean energy. The National Energy Regulator of South Africa (Nersa) has estimated that the cost of producing electricity from coal will more than triple over the next 20 years, from the ZAR¢51.9/kWh in 2009 to ZAR1.66/kWh in 2030, while the cost of wind power is expected to fall from ZAR1.25/kWH to ZAR¢89/kWh over the same period. Ian Mcdonald of the South African Wind Energy Association (SAWEA) estimates that under the right market conditions, the country could install around 30GW of wind power by 2025. SAWEA also believes that investment on this scale could generate up to 40,000 new jobs, with at least 12,000 in rural areas and may save in excess of 80bn litres of water a year.

The recent power shortages, combined with ongoing complaints about the low quality of coal supplied by domestic producers has prompted Eskom to take a far ranging and ambitious approach to championing energy efficiency. It believes that the introduction of existing technology could reduce demand by as much as 12933MW, but is initially calling for a more realistic 3420MW cut in consumption through the introduction of low energy appliances, together with the adoption of more efficient lighting and industrial processes. Unfortunately, there appears to be considerable inertia within both Eskom and the Department of Energy, as reflected by the fact that of the latter’s 450 employees, only five are assigned to tackling energy efficiency. In addition, the makeup of a technical committee formed with the aim of implementing the Integrated Resources Plan was dominated by large coal mining companies, Eskom and the Chamber of Mines, suggesting a greater focus on new capacity additions. However, while mining companies do have an vested interest in higher coal consumption, they also are at the sharp end when it comes to power outages and have been working hard to improve energy efficiency. Of the 278MW in verified efficiency savings made in 2008-09, over 90% came from the mining sector, according to Eskom statistics.

On a more promising note, this year will see the introduction of ISO 50001 – an international standard for energy management, which is expected to encourage companies to adopt more ambitious goals when it comes to energy efficiency.

Additional momentum has come from the release of the second Integrated Resource Plan (IRP2). While the first plan which covered the current period through to 2013 only made the provision for 1025MW of renewable energy, the new plan calls for a future energy mix of 48% coal, 14% nuclear, 16% renewable energy, 9% open cycle gas turbines for peaking, 6% pumped storage, 5% natural gas and 2% imported hydropower. This would require almost halving coal’s current contribution to the power sector, which currently stands at around 90% of total capacity, a necessary task given the government’s goal of reducing South Africa’s CO2 emissions by 30% by 2030.

IRP2 envisages that renewable energy, primarily in the form of wind farms will account for 33% of new energy investment with nuclear and coal making up 25% and 9%, respectively. The latter figure is after the investment required for the two colossal 4780MW and 4800MW coal-fired power plants at Medupi and Kusile are complete. Under the new plan, South Africa’s generating capacity would increase by 52.25GW over the next 20 years, compared to the current 40GW, at a price tag of around ZAR860bn (US$125bn). In the medium-term, the proportion of total power generation from renewable energy is expected to rise to 4% or 1025MW by 2013, which will be in the form of 400MW of wind, 325MW of solar power and 300MW from other renewable technologies. As an interim goal, Eskom is looking to add 16,304MW of installed capacity by by 2017.

In October, investors were invited to a two-day conference in Upington, to discuss the feasibility of a massive 5000MW solar power park. The project is expected to require around ZAR150bn in investment, to be raised from both the private and public sectors. A potential sticking point is the poor grid connections currently available, necessitating the construction of a new 400kV line at a cost of ZAR1.6bn. An additional obstacle is the requirement that investors able to demonstrate a capacity for local component manufacturing will be initially considered. Also on the cards, is a US$435m solar panel manufacturing plant to be constructed by China’s Yingli Solar in partnership with a local company, with construction scheduled for October 2011.
On a smaller scale, landfill gas is gaining in popularity as a means of producing energy from waste. The Department of Energy is looking to use the state-owned Central Energy Fund to investigate the feasibility of landfill gas projects at 20 sites in the Cape Town, Emfuleni, Tshwane and Port Elizabeth municipal areas, of which 15 had already passed preliminary feasibility investigations as of October. Previously, low tariffs and clauses in the Municipal Finance Management Act have frustrated the utilisation of this resource, but with the current push to strengthen the country’s power sector, these obstacles are being overturned.

The country is also pushing ahead in terms of nuclear power. Under the integrated resource plan, South Africa is looking to build six new nuclear power plants by 2023, each with a capacity of around 1600MW. While it can glean valuable lessons from other developing economies as they too push for a greater proportion of nuclear power in their energy mix, the crush of the crowd presents a danger for South Africa, in that if arrives too late at the party, then there could be serious delays due to construction choke points, particularly large forgings. On the other hand, being at the back of the queue could give the international supply chain time to recover from several decades of near-dormancy. South Korea signed an US$40bn agreement for the use of nuclear energy with South Africa in October 2010, an important development given KEPCO’s recent success in winning a massive contract to develop nuclear power in the UAE and the fact that its supply chain is in excellent condition, due to a strong domestic nuclear build programme.

South Africa already relies on nuclear power for a small, but significant portion of its electricity mix. Increasing this to improve energy security will put it in competition with many other countries for access to the global nuclear equipment supply chain.

Demand for electricity is expected to rise by around 2% in 2011, according to Eskom projections, suggesting that the country could suffer from blackouts as early as March, due to the narrowing gap between demand and supply. One of the longer-running issues facing the power sector is that the low price of electricity on the South African market has muted its appeal to independent power providers. This problem is being remedied at great cost to industry and consumer alike. NERSA approved a tariff hike in April 2010 of 24.8%, with further increases of 25.8% and 25.9% scheduled for 2011 and 2012, compared to the 45% tariff increases requested by Eskom. The pain does seem to be resulting in gains, with the signing of a purchase agreement between Independent producer IPSA and Eskom in June 2010, followed by several co-generation agreements with Sasol, Sappi and some mining companies. The tariff hikes have also incentivised some industrial users to try their hand at being independent power producers, with Xstratra considering a 600MW plant for its ferrochrome business and Anglo American planning a 100MW solar power facility. Over in Lesotho, a pre-feasibility study is under way for the construction of a 1000MW pumped-hydro energy storage project, after initial investigations were concluded by Eskom. The study is being funded by the African Development Bank.

Zambia

The Zambian Energy Regulation Board (ERB) approved a 25.06% increase in average power tariffs in 2010, with consumers seeing an increase of 41%, while industrial users experienced a 12% hike. The country is looking to develop its hydropower sector, with its Energy and Water Development Deputy Minister Mwendoi Akakandelwa estimating that US$7bn in investment would be needed to unlock a potential hydropower generating capacity of 2.91GW. In contrast to many other sub-Saharan African countries, Zambia’s installed generating capacity is around 1800MW, compared to a peak power demand of 1600MW. However, power demand is expected to rise dramatically in the years ahead.

Zambian energy supplier Zesco is pushing ahead with a energy efficiency programme in conjunction with Egypt’s El Sewedy Electrometer. The latter will supply Zesco with 400,000 electricity meters and 2m energy efficient light bulbs starting in April, with 40% of the cost financed by the Zambian government (US$30-35m). Zesco is also partnering with the China Africa Development Fund and Sinhydro to develop the US$1.5bn Kafue Gorge Lower (KGL) hydropower plant project. It was proposed back in 2007, but has suffered repeated delays due to the high level of investment required. The project is expected to begin in earnest in April, with completion scheduled for 2017. According to Zambia’s energy minister Kenneth Konga, the plant’s capacity is likely to be between 700-800MW, instead of the initially proposed 600MW. China is also helping to finance a 360MW expansion of the 540MW Kariba North Bank power plant, which is expected to be completed by November 2012.

Zimbabwe

Zimbabwe is starting to realise its impressive solar potential, as its government looks for a way to resolve the country’s power shortage. The ZimEnergy Group was established with government support and is looking to bring solar power to rural areas. In contrast to the larger-scale programmes taking place in the developed world, the emphasis is on improving access to solar-powered gadgets and appliances, particularly mobile phone chargers, reading lamps and portable rechargable lighting systems. To help achieve this goal,  the company has a financial arm, ZimEnergy Bank, which provides micro-finance to individuals, while also supplying capital to entrepreneurs and renewable energy start-ups.

Unfortunately, the country’s efforts to attract foreign investment are somewhat inconsistent. A high level Africa – European Union Energy Partnership (AEEP) meeting in Vienna was attended fully by a single junior diplomat, while Zimbabwe’s ambassador to Austria, Grace Mutandiro, stayed for only an hour. While some other African countries struck deals over the course of the evening, Zimbabwe did not. The country currently has an electricity demand of around 2100MW, compared to an operational generating capacity of just 1100MW on average. Zimbabwe imports around 150MW of power from Mozambique and a further 125MW from Zambia.

Zimbabwe and its neighbours have impressive hydropower resources. However, Zimbabwe’s energy minister, Elton Mangoma, has expressed confidence that the country will be self-sufficient in terms of electricity within the next three years, due to repairs and expansion at the Hwange Power Station, the Kariba hydroelectric scheme and two greenfield projects. Power generation capacity is expected to hit 1650MW in 2011, due to the work at Kariba and Hwange, together with improvements at thermal power stations in Harare, Bulawayo and Munyati. The government has budgeted US$25m for this work, with a further US$31.5m coming from the Zimbabwe Electricity supply authority. The total cost of the work required at Hwange is estimated at around US$100m, with US$30m in funding coming from the African Development Bank. The Chamber of Mines president Victor Gapare believes that around US$10bn of investment in the country’s power sector will be needed before its mining industry can operate at full capacity.

A large chunk of this power could come from a US$3bn French-led consortium, which was set to receive a licence from the Energy and Development Ministry in September for a 2000MW project. In addition, Zimbabwe has already awarded a licence to the Zimbabwe Stock Exchange listed RioZim for a US$4bn 2400MW coal-fired power plant project to be located in the south-western Gokwe Sengwa coalfields. It remains to be seen if Zimbabwe can really attract investment on this scale, given the continued uncertainty surrounding its political future, but the shift to the use of the US dollar and other well-backed foreign currencies has stabilised the economy, improving the country’s appeal to investors. There is also the considerable potential for growth, given the current state of affairs, an attribute that is gaining increasing importance, given the low pace of growth in the developed world.

Meanwhile, an ambitious 2.5-2.8Mlpd bioethanol project is taking shape in Chisumbanje, Chipinge, Manicaland, and is expected to begin fuel production this quarter. The project is being modelled on the large-scale sugarcane ethanol projects pioneered in Brazil and is a build, operate and transfer partnership between the government, Greenfuel Investments, Rating Investments and Macdom Investments. The site will feature three ethanol plants and 50,000ha of sugar cane plantations. Once fully up-and-running, it will generate 120MW of electricity, of which 20MW will be used by the project’s facilities. Total investment so far is well in excess of US$270m.

Judging by the number of projects currently underway, Southern Africa is on the up. However, it remains to be seen if there is the political will to create the investment environment needed if the region is to fully learn the lessons of those nations that have travelled the road before it and unlock its impressive renewable resources for the well-being