Medupi: Hogan answers questions on World Bank loan
Barbara Hogan, Minister of Public Enterprises, answers the M&G‘s questions about the controversy surrounding the World Bank loan for the Medupi power station.
M&G: NGOs are unhappy about a perceived lack of consultation about the IRP. [Integrated Resource Plan] Isn’t that fair? We got a three page document in the December holidays, and haven’t seen much since then.
How can we trust government’s bona fides on coal without the IRP? Have you now engaged the NGO sector, and how do you plan to take public consultation forward ahead of the proposed July publication of the IRP?
Barbara Hogan: As the policy department responsible for the Integrated Resource Plan, the Department of Energy would be best placed to respond to this question.
M&G: Another concern is the transparency of loan conditions. What are the key financial, governance, and environmental/carbon-related conditions of the loan?
BH: The negotiations for the loan are still under way and are sensitive at this stage, we therefore cannot divulge details, we can, however, highlight that the three key components of the loan are:
- 1. $3,05-billion for the Medupi power station, Africa’s first clean coal “supercritical” 4 800MW power station.
- 2. $-260-million for investments in renewable energy (100MW wind and 100MW concentrated solar power projects).
- 3. $485-million for investment in low-carbon energy efficiency components comprising road-to-rail coal transportation and power plant efficiency improvements.
Furthermore, South Africa’s energy strategy has demonstrated its leadership position in the developing world on climate change. Over the last few years, the government has also championed the use of low-carbon strategies in sub-Saharan Africa. The government believes that climate change, if ignored, has the potential to undo many of the positive advances made in meeting South Africa’s own development goals and MDGs. South Africa has played a significant role in greenhouse gas (GHG) emission reduction efforts and is deeply committed to an energy strategy that reduces its GHG emission footprint. The scenario that the government has adopted will result in GHG emissions peaking in 2020-2025, plateau for a decade, and then declining in absolute terms towards mid-century. To this extent, the government has begun taking steps to address the energy challenges while promoting a low carbon growth path.
South Africa has taken many bold steps to address barriers to renewable energy development that reaffirms it as one of the key players on climate change within the developing world. These actions, some of which have not been taken by many middle income countries, include adoption of attractive and private sector friendly feed-in tariffs and establishing a suitable legal and regulatory framework.
M&G: Can you outline what the World Bank requires in terms of ensuring that Medupi is the cleanest possible coal plant?
BH: Medupi is designed in line with international design practice for coal-fired plants. Eskom is considering the implementation of carbon capture for new plants as well as the retrofitting of plants should the technology be viable. We anticipate the technology to be commercial in approximately 2030. One of the critical requirements is to assess storage capacity and availability in South Africa. Eskom is involved in a joint study to produce an atlas of storage sites for South Africa and the results of this work are anticipated in the near future.
Medupi is designed to operate at higher steam pressures and temperatures (termed supercritical) which enables it to achieve a higher efficiency than Eskom’s existing coal-fired [plants]. This directly improves environmental performance as it requires less coal and water and produces less ash and fewer air emissions per unit of electricity produced, particularly carbon dioxide, for which there is at present no commercially viable post combustion removal technology. Furthermore, the design also incorporates bag filters and low nitrogen oxide (NOx) burners which further reduces air emissions. Finally, Medupi has a dry-cooling system to reduce water consumption by up to 90%.
M&G: Surely in order for the loan to be granted, the African National Congress must withdraw from Hitachi power Africa? The World Bank cannot be seen to be funding a political party, even through the vehicle of an infrastructure project.
BH: The ANC would be best placed to answer this question.
M&G: What are the likely consequences if the World Bank loan is not granted? Is alternative finance available? If so, what would the likely conditions of such finance be, and do you think they would be more acceptable to the campaigners, or less?
BH:The financing is critical for sustaining South Africa’s future economic development as it will enhance power supplies. Without the loan, the power constraints are likely to increase, especially if the global economic turnaround happens in the near-term. The global financial crisis and recent rating downgrades have reduced Eskom’s ability to tap the domestic and international commercial markets. Long-term financing at reasonable costs will help government protect a series of reforms to move to lower carbon economy and to implement an investment program that would allow the country to overcome electricity supply shortfalls
M&G: The state of play in terms of support for the loan from the US, UK, Germany, and France? Have you managed to persuade them to change their stance? Do they understand the urgency of our power situation, and the likely impact on the regional economy, jobs, and the poor?
BH: Discussions and consultations are still under way at the highest level in government, i.e. executive as well as ambassadorial level with all member states and executive directors of the World Bank. We have been communicating the merits of the projects and implications for Eskom, South Africa and the region should the loan not be granted.
M&G: What is your reaction to local NGOs going to the Western powers to block the loan, rather than dealing with the SA government? Is there a kind of very radical argument here that “if we have to smash the SA economy to wean ourselves off coal, that’s too bad?” How do you possibly negotiate with someone who takes that position?
BH: We have been engaging with all stakeholders across the board, including NGOs to discuss the merits of the loan and risks to South Africa’s energy supply should it not be granted. The loan does include a component for renewable energy investment, as mentioned above.
M&G: Why do you think these countries have agreed to them? Is it out of concern over carbon levels or perhaps a desire to sell alternative technologies, notably nuclear, to South Africa?
BH: To understand the factors that influence the decision making of member states, you would need to refer this question to them.
M&G: If the loan does go ahead, do you think we will ever get finance for another such power station? In other words, is Medupi our last coal power plant?
BH: Future projections of energy growth globally shows that coal will remain an important primary energy resource. However, indications are that it will become more difficult to access funding especially from European and US investors as they continue to feel pressure in terms of demonstrating leadership in climate change issues. Eskom is undertaking research into clean coal technology in order to meet the long term challenges of energy security and a low emissions future. A particularly promising technology is underground coal gasification which is being piloted near our Majuba power station.
M&G: If that is the case, there will surely be consequences for unwinding the fleet procurement contracts insofar as they cover Kusile in addition to Medupi. How much will the penalties cost, and can they be avoided?
BH: We would need to wait for the World Bank decision on the loan application, then we will be in a position to review what the alternatives are.
M&G: Will carbon considerations play a role in a decision on Kusile, or is this principally a financial issue?
BH: Kusile is another coal power plant that will be built after Medupi. Refer the question on nuclear policy to the Department of Energy.
M&G: Medupi is our last coal power station, what does this mean for our nuclear policy?
BH: Refer this question to Department of Energy.
M&G: Are we correct in assuming there will be penalties to pay if and when the PBMR project is wound up? Might Westinghouse be hoping that this would give them a leg-up in negotiations around Nuclear 2?
BH: We cannot pre-empt the Cabinet decision on PBMR.
M&G: The latest projections call for a modest contribution from renewables, given the very high installation cost of nuclear, and the capital difficulties we face, isn’t there a case to be made for a much more aggressive set of targets, especially wind? And shouldn’t those powers opposed to the Medupi loan, and well positioned to profit from a renewables drive, be offering very large loan facilities to achieve this?
BH: The government of South Africa has clearly demonstrated its commitment to meeting long term climate-change mitigation objectives, and has undertaken a detailed and science-based review of the steps to be taken in moving to a low-carbon economy. At the December 2009 UN climate-change conference, the government of South Africa was part of leading a negotiated settlement, signing a co-drafted Copenhagen Accord in which the country committed to 34% reduction in carbon emissions by 2020, and 43% by 2025, relative to the base-case projections. The intention is to ensure that carbon emissions peak during 2020-2025, plateau for a decade, and then begin declining thereafter. The World Bank-Eskom Investment Support Project, which includes substantial investments in renewable energy sources and energy efficiency, will be a major step forward towards this long-term plan. There are no feasible near-term regional renewable alternatives to meet the demand in South Africa. Moreover, any country that is relying on substantial imports from Eskom in the medium-term is looking for alternate reliable sources in the Southern Africa Power Pool (SAPP) which as a sub-region is facing a severe shortage of generation capacity.
Full exploitation of domestic renewable potential does not meet the near-term power needs of South Africa. South Africa’s potential for large renewable projects is limited. Options are limited to CSP and wind; hydropower projects are largely non-existent. Of the renewable energy options, CSP is the most expensive but offers the potential for base-load power (unlike wind power and solar PV) and has a huge scale-up potential in South Africa. Tentative estimates for scale up in South Africa alone amount to some 38 000MW; at present the technology does not allow large scale developments. Wind energy is a commercially mature renewable energy technology, but despite a high growth rate of wind in the global market, its development in South Africa has been minimum to date. Studies are under way for further 500MW in the Western and Eastern Cape provinces and current estimates of wind power potential range from 1 000MW to 10 000MW along the East and West coasts of South Africa. Both CSP and wind technologies are expected to make a significant contribution to the government’s target of 10 000 GWh (about 1 667MW equivalent) from renewable energy sources by 2013.
M&G: Finally, how worried should we be if this loan doesn’t go ahead? What are the immediate consequences (jobs as the site for example) the medium term consequences (blackouts?) and the long term?
BH: South Africa generates more than 60% of all electricity produced in Sub-Saharan Africa. Electricity shortfalls in South Africa would hinder the economic development of the region. Botswana, Lesotho, Namibia, Swaziland, and Zimbabwe rely on Eskom for their electricity. Without additional energy, the country and the region would face growth constraints in the short-term: factories and businesses would not function efficiently; hospitals and schools would not operate fully or safely; basic services that developed countries take for granted would not be rendered. One of the greatest longer-term development challenges for the region is ensuring an adequate energy supply that is critical for accelerating economic growth, creating employment opportunities, and enhancing the welfare of its citizens and that of the region.