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Search on for 5 000 MW of electricity relief by 2016

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Search on for 5 000 MW of electricity relief by 2016

11th June 2010

By: Terence Creamer
Creamer Media Editor

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Detailed work is currently under way to determine the ‘state of readiness' of a range of near-term electricity demand-reduction opportunities, as well as several non-Eskom supply options that could yield the equivalent of some 5 000 MW and help stabilise the South African system between now and 2016.

The project, which has been integrated into the larger planning and policy processes being directed by the Inter-Ministerial Committee on Energy, led by Public Enterprises Minister Barbara Hogan, is also aligned with a big business power-relief proposal, first canvassed with government by Business Unity South Africa earlier in the year.

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Eskom and the Energy Intensive User Group are part of the project, which is designed to create better visibility of the various supply- and demand-side opportunities, as well as the constraints to actual implementation.

On the demand side of the power equation, the following opportunities are being studied: demand-side management schemes, including further financial incentives for solar geysers and energy efficient lighting; energy conservation programmes; energy efficiency solutions, with particular emphasis on industrial processes; demand market participation, which involves using financial incentives to manage and shift peak demand; and the reduction of nontechnical losses.

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The demand side is receiving particular emphasis, as there is believed to be an oppor-tunity to save as much power as will be produced by the 4 800-MW Medupi power station for considerably less than the R125-billion price tag for the coal-fired project.

Further, many of the projects can be completed in a relatively short space of time, while they will be aligned with South Africa's overall carbon-reduction commitments. By contrast, despite the fact that construction began on Medupi in 2007, the first unit is officially expected to come on line during the first half of 2012 and the last, by the end of 2015.

On the supply side, meanwhile, five specific pre-2016 opportunities are being probed, including renewable-energy generation, cogeneration, own generation, municipal generation and other independent power producer programmes.

For each of the demand-side and supply-side issues, the project is currently developing an information pack in which the project, or process, and its current state of readiness are defined and the first draft should be completed by the end of June.

The public process should create even further visibility of the known, as well as the unknown, opportunities and firm up on the 5 000 MW quoted initially.

In other words, the project aims to identify where the savings, or new capacity, could comes from, by when and how the project could be implemented.

The website will also enable the public to flag prevailing constraints to the implementation of the various programmes.

A fact sheet would then be compiled indicating the state of readiness of the various programmes, together with a list of remedies that will have to be implemented by either government, Eskom or the National Energy

Regulator of South Africa to deal with any hurdles to rapid implementation.

This process is running in parallel with the development of the second integrated resource plan (IRP2010), which is currently being consulted. A draft IRP2010 is expected to be released in June, which will be followed by a period of public comment.

These comments will then inform the final, but rolling, IRP2010, which will provide a generation road map for the next 20 years. The IRP2010 should be published in September, but will be reviewed periodically thereafter.

The 5 000-MW project is premised on the assumption that, even if Eskom's build programme remains on schedule and the utility is able to maintain 85%-plus plant availability, there will be a need to create additional space to reduce the prospect of load-shedding and to create room for economic growth.

The aim is to mitigate this very serious risk with these demand-side programmes, which could be brought on stream during the next few years of extremely tight reserve margins.

Aluminium Amendment
However, in the interim, there has been some positive news flow regarding the controversial special pricing deals that Eskom struck with energy-intensive businesses during the surplus years.

Resources group BHP Billiton and Eskom have amended the electricity-supply contract for the Mozal aluminium smelter, in Mozambique, and a further deal, involving the mining giant's South African smelters, has been promised by March next year. This is a significant development, given that Mozal's maximum demand is 950 MW, while the maximum demand from the Richards Bay smelters is 1 300 MW.

Importantly, BHP Billiton will assume all currency and commodity risk, and the new deal will be rand-denominated - a marked departure from the previous contract which was coupled to both the aluminium price and the rand:dollar exchange rate, with the power price falling when the London Metal Exchange-quoted price fell, or when the rand strengthened against the US dollar.

It emerged recently that the smelters paid only 12,3c/kWh in 2008/9, and there has, thus, been little sympathy for the smelters, with some even arguing that they should have been shut during the 2008 blackouts.

But confirmation that the new contract still provides a platform for profitable smelter operations in Mozambique is arguably important and positive. This is because the country, which is still one of the world's poorest, has become relatively reliant on the tax revenues and foreign-exchange earnings arising from the smelter.

The Mozal smelter remains the largest single investment in Mozambique's history and employs 2 200 people directly (staff and contractors) and is reportedly the country's largest foreign-exchange contributor, generating some 53% of its earnings.

That said, there will no doubt still be intense scrutiny and scepticism of the smelter contracts, particularly given the continued confidentiality. It is uncertain, for instance, whether the agreement will be subject to the recently approved tariff path, which will see Eskom's prices rising by, on average, 25% a year between 2010 and 2013.

Details have also not been disclosed as to the level of the new tariff, nor on the duration of the deal and whether it includes a volumetric discount.

However, one immediate positive, it seems, lies in the fact that the disruptive impact of embedded derivatives from the Mozal contract has reportedly been removed, as well as "all onerous conditions".

This should also mean that Eskom will no longer be supplying Mozal at a price that is below its cost of production, as was the case since 2008.

 

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